Sustainable land use change in China

Improving the Efficiency of Land Use Change Policy in China
(ACIAR ADP/2007/055)

Abstract

Land and water resource degradation in China has developed to the extent that future agricultural production in the region is at risk and significant off-site impacts (such as increased incidence of flooding and dust related air pollution) are occurring. The Chinese Government responded to the issue through the implementation of a number of land use change policies and programs since the 1990s. These include the Program for Conversion of Cropland to Forests and Grassland (CCFGP, otherwise known as the Grain for Green Program), the Natural Forest Protection Program (NFPP) and other ecological restoration programs such as the sand control program in North China. These land use change programs are largely supported by public finance with an aim to provide environmental goods and services that society demands.

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The first phase of this research work (ADP/2002/021) investigated the sustainability and cost-effectiveness of the CCFGP through a socio-economic assessment of the Program. The values of both on-site and off-site effects of the Program were estimated for inclusion in a cost-benefit analysis framework to assess the overall impact of the CCFGP on the Chinese community. While the overall conclusions were positive for the Program, questions remained with regard to the efficacy of the Program. Specifically, the targeting of the Program’s expenditure in achieving the best environmental outcomes was questioned. Recommendations on alternative policies to achieve sustainable land use change were made based on these findings. These involved more innovative market-based instruments being introduced to improve the cost-effectiveness of the land use change policies in China.

Land use change and ecological restoration programs in China involve substantial government funding. For instance, a total budget of CNY 700 billion has been invested for NFPP and the Forest Ecosystem Compensation Program alone. Hence it is of great policy significance for the Chinese Government to improve the efficiency of the use of these government funds. The use of government funds in forest management programs in China is inefficient for three main reasons. First, there is a lack of clear, measurable objectives and means to evaluate progress toward meeting objectives, and this can lead to unintended uses of funds. These programs typically have been paying to restore vegetation cover on the assumption that forests and grass will be beneficial, rather than to reward the provision of measurable environmental services.

Second, the allocation of government funds is normally based on the total areas being planted whereas the costs and benefits of land use change vary across space. Hence, a single-rate payment may not be efficient in achieving land improvement goals at least costs. For instance, payments under the CCFGP are made on the broad basis of opportunity cost of land converted (i.e. one single rate for North China and one single rate for the South) instead of recognising differential production capacities and the potential environmental benefits arising. Previous research has found that better environmental targeting is possible and desirable for the CCFGP.

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Third, there is the problem of asymmetric information. Farmers normally know better than the program administrator about how conservation actions would affect their production plans and profits, while environmental experts hold information about the significance of environmental assets that exist on farm land. Ways to reveal such information need to be explored in order to improve the ways in which the levels of public payments are determined.

The overall objective of second phase of this research is to provide a comprehensive analysis and understanding of whether the introduction of market-based instruments would improve the efficiency of land use change programs in China. Specifically, the feasibility of a bidding scheme for conservation contracts in allocating government funds will be explored. Auctioning conservation contracts has emerged in recent years as a means of creating markets for public environmental goods. The process facilitates price discovery and allow resources to be allocated in a more efficient way. Under the auction mechanism, the land to be converted to conservation purposes could be identified through a competitive bidding scheme where land holders, in selected regions, are asked to bid for funds to undertake the conservation actions.

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Funding for the payments made under the field experiments of the bidding scheme that are one integral part of the research will be provided by the Chinese Government. This is the government funding for the implementation of the land use change programs in the two case studies counties (Peng Zhou and Hong Ya) in the South-west Sichuan Province. The cost-effectiveness of the bidding scheme will be assessed through a comparison of the land use changes achieved under a command and control scenario (with direct government funding provided consistent with the current CCFGP funding system) and in the bidding scheme scenario. As a result, better policy outcomes will be delivered whereby environmental benefits will be maximised at the lowest possible cost.

The second phase research will involve the following steps. First, a land improvement activity list will be developed based on government environmental priorities and county-specific conditions. This will later be used by farm households in the bidding process to further develop household land improvement plans. Second, the responsible local government agency will disseminate information on the bidding scheme and call for bids from farmers to provide environmental services through land use change activities. After farmers lodge expressions of interest, the local government agency will visit farm sites and endorse land use change plans being developed by the interested farm households. Third, the local government agency will develop contracts that specify the units of land involved and the land use change activities that the farmers would provide. Biophysical models will be developed to relate proposed land use change activities to environmental outcomes.

Instead of developing an environmental and biodiversity benefit index to represent the extent of benefits provided by land use changes, one innovation of this project involves the use of a choice modeling exercise to derive the implicit prices of the environmental attributes supplied by the land use changes. Hence the biophysical environmental and biodiversity changes can be converted to monetary measures of benefits. The efficiency of government intervention through the key land use change programs can thus be assessed: only those bids with their marginal benefits outweighing marginal costs will be selected. Finally, farmers will place bids in a tender system to supply environmental services and the local government agency will arrange farmers’ bids from highest to lowest until the budget is exhausted, or until marginal benefits are less than marginal costs.

It is anticipated that the proposed bidding scheme will be implemented as a means of allocating government funds for land use change programs if it is shown by the research to be feasible in the Chinese context.

This research will involve a continuation of the partnership that has been built through the first phase of the ACIAR project. Throughout the research, collaboration between researchers at the Australian National University, the Victorian Department of Sustainability and Environment, the China National Forestry Economics and Development Research Centre (FEDRC), Sichuan Forestry Department and Peking University will ensure a strong element of capacity building in the project.

Research reports

  • Ecological Afforestation in China: a market-based approach
    English
  • The Performance of the Bidding Trial for the Land Use Change Program in Sichuan Province, China
    English
  • Biophysical Modelling of Environmental Benefits from Household Level Land Use Change Activities in Sichuan Province
    English
  • Property Rights and Land Degradation in China
    English | Chinese
  • Estimating Non-market Environmental Benefits of the Ecological Restoration Program in Sichuan Province, China
    English
  • Using a Bidding Scheme to Improve Land Use Policy in China – An Outlook Study
    English
  • China’s Land Use Management
    English
  • A Review of the Programme for Conversion of Cropland to Forest and Grassland
    English | Chinese
  • Livelihood Impacts of the Conversion of Cropland to Forest and Grassland Program
    English
  • Defining the Attributes of Choice Modelling Survey Questionnaire Using Focus Groups
    English
  • Non-Market Valuation of the Environmental Benefits from The Conversion of Cropland to Forest and Grassland Program
    English
  • Non-Market Environmental Values of the Conversion of Cropland to Forest and Grassland Program (CCFGP) in North China
    English
  • An Economic Analysis of the Agricultural Production Impacts of the Conversion of Cropland to Forest and Grassland Programme
    English
  • Valuing Reduced Runoff under the Conversion of Cropland to Forest and Grassland Program (CCFGP) in the Yellow River Basin
    English
  • Sustainable Land Use Change in the North West Provinces of China
    English
  • Valuation of Flood Reductions in the Yellow River Basin under the Conversion of Cropland to Forest and Grassland Program
    English

Research presentations

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