A New Era of Water Governance in China — Synthesis Report Watershed A New Era of Water Governance in China — Synthesis Report Watershed ©2018 The World Bank International Bank for Reconstruction and Development The World Bank Group 1818 H Street NW, Washington, DC 20433 USA DISCLAIMER This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Nothing herein shall constitute or be considered to be a limitation upon or waiver of the privileges and immunities of The World Bank, all of which are specifically reserved. In the case of any discrep- ancies between this English version and any subsequent translations, the English version prevails. The report reflects information available up to September 30, 2018. RIGHTS AND PERMISSIONS The material in this work is subject to copyright. Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Any queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; e-mail: pubrights@worldbank.org. Please cite this work as follows: World Bank. 2018. “Watershed: A New Era of Water Governance in China — Synthesis Report.” World Bank, Washington, DC. Cover and interior design: Francis Gagnon, Voilà Information Design, Montreal. ABOUT THE WATER GLOBAL PRACTICE ABOUT THE DEVELOPMENT RESEARCH CENTER The World Bank Group’s Water Global Practice brings The Development Research Center of the State Council together financing, knowledge and implementation (DRC) is mainly responsible for conducting research on in one platform. By combining the Bank’s global strategic and long-term issues related to economic and knowledge with country investments, this model social development in China, as well as key challenges generates more firepower for transformational related to reforms and policy options, providing advice solutions to help countries grow sustainably. to the CPC Central Committee and the State Council. Please visit us at www.worldbank.org/water or follow Please visit us at en.drc.gov.cn. us on Twitter at @WorldBankWater. Contents Foreword v Acknowledgments vii Executive Summary 1 Introduction 13 China’s Water Resource Challenges 14 Progress to Date in China’s Water Governance Reform 17 Essential Principles of a Water Governance Strategy 21 Priorities for Water Governance Reform 23 Priority 1: Enhance the Legislative Foundation for Water Governance 27 Priority 2: Strengthen National- and Basin-Level Water Governance 35 Priority 3: Improve and Optimize Economic Policy Instruments 43 Priority 4: Strengthen Adaptive Capacity to Climate and Environmental Change 53 Priority 5: Improve Data Collection and Information Sharing 65 Conclusion 71 References 73 Boxes 1.1 Addressing China’s Water Scarcity 16 1.2 The Three Red Lines 18 1.3 Using Integrated Modeling Tools to Assess Policy Instruments 20 2.1 Role of Environmental Litigation in U.S. Environmental Enforcement 30 2.2 Summary of Water Sector PPPs in China 31 3.1 Functions of a River Basin Organization 37 3.2 The Wuxi River Chief System 40 4.1 Estimating Price Elasticity of Demand for Water in China 44 iv WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — SYNTHESIS REPORT 4.2 Evapotranspiration-Based Water Allocation in China’s Turpan Basin 48 5.1 Yolo Bypass, California 55 5.2 Requirements of the EU Floods Directive 56 5.3 U.S. National Flood Insurance Program 56 5.4 Australia’s Commonwealth Environmental Water Holder 58 5.5 Financial Mechanisms to Improve Water Quality in China 62 5.6 U.S. Environmental Protection Agency Clean Water State Revolving Fund 63 Figures 1.1 Changes in Sectoral Water Use in China, 1998–2016 14 1.2 Current Water Use and Future Red Line Water Quantity Targets by Province 19 1.3 China’s Water Use Intensity across Sectors, 2000–15 at 2000 constant prices 19 1.4 Proportion (%) by the Quality Level of Rivers, 2002, 2007, 2012, 2017 19 BI.3.1 Schematic of China Water Governance Study Computable General Equilibrium Model 20 1.5 Water Use Structure by Province (100 million m ), 2015 3 22 1.6 Institutional Structure and Main Water-Related Functions for Water Management in China 24 2.1 Selected Key Water Governance Laws and Policies, 1984 to Present 28 2.2 PPP Water Sector Projects and Investment in China, 1994–2017 31 3.1 Governance of the Murray-Darling Basin Authority, Australia 38 4.1 Water Use Permits in China 51 5.1 Flood Control and Drought Relief Headquarters 54 5.2 Environmental Flow Releases from Dams 57 5.3 Options for Generating Water Quality Credits by Reducing Nonpoint Source (NPS) Pollution 59 B5.5.1 General Design of a Water Fund 62 B5.6.1 General Design of State Revolving Fund 63 Map B4.2.1 Sample Monitoring Platform for ET-Based Water Consumption Measurement in the Turpan Basin 48 Photograph B5.1.1 Yolo Bypass When Flooded 55 Tables 1.1 Key Industrial Sectors in China’s Past and Planned New Economic Structure 21 4.1 Water Pricing Rates and Structure in Beijing municipality, 2017 44 4.2 Water Tax and Fee Rates and Structure 45 4.3 Irrigation Water Price Reforms in Xinjiang 46 4.4 Water Rights Transactions Brokered by the China Water Exchange as of March 2017 49 5.1 Selected Examples of Water Quality Market Initiatives, Outcomes, and Status 60 6.1 Categories and Data Collection Elements under Australian Water Regulations 66 6.2 International Models for Incorporating Public Participation into Law and Policy 68 v Foreword Victoria Kwakwa Vice President for East Asia and the Pacific The World Bank G lobally, many countries are facing unprece- with it environmental challenges. Recognizing this, dented pressure on water resources. Estimates China is committed to transitioning to a structurally show that with current population growth and rebalanced growth model and implementing a series of water management practices, the world will face a 40 policy adjustments to ensure a sustainable growth tra- percent shortfall between demand and supply of water jectory. These policy measures are articulated through by 2030. Furthermore, chronic water scarcity, hydro- the concept of ‘ecological civilization’ embedded in logical uncertainty, and extreme weather events such China’s 13th Five-Year Plan (2016-2020), with the 19th as floods and droughts are perceived as some of the National Congress further highlighting the goal of build- biggest threats to global prosperity and stability. ing a “beautiful China” to address environmental and social imbalances. To improve water management, the World Bank is sup- porting clients to invest in institutional strengthening, Within this context, a new approach to the governance information management systems, and infrastructure of water is needed that reflects the changing value development. Institutional tools such as legal and reg- that society places on water. A new approach is also ulatory frameworks, water pricing, and incentives are needed to align water management with the goals needed to better allocate, regulate, and conserve water of an ecological civilization and its aims to balance resources. Information is needed for proper monitor- economic growth against increasing water demand ing, planning and decision making under uncertainty. under conditions of water scarcity. The Three Red Lines Investments in modern infrastructure and innovative outlined in the Strictest Water Resources Management technologies are also needed for enhancing produc- System provide a strong foundation for this new era by tivity, conserving and protecting resources, recycling controlling water resources development and utili- and developing non-conventional water sources, and zation; establishing targets for improved water use increasing water storage. efficiency; and defining compliance targets for water China has experienced a period of rapid economic quality. growth and social development following 40 years The China Water Governance Study represents a major of reform that shifted the country to a market-based contribution to the proposed policy and institutional economy with Chinese characteristics. GDP growth has reforms in China’s water sector. This builds on a long averaged almost 10 percent a year over the past few and productive history of collaboration between the decades — the fastest sustained expansion by a major World Bank and the Development Research Center economy in history — and has lifted more than 800 of the State Council. This collaboration leverages the million people out of poverty. Chinese experience, combined with the Bank’s global Water is central to the realization of China’s sustainable knowledge, to provide a framework for enhancing economic prosperity and the realization of an ecological water governance in support of sustainable social and civilization. Despite being the world’s second-largest econ- economic development. The Chinese experience in omy and most populous country, China possesses only 6 managing the development of water resources also percent of the world’s freshwater resources with availabil- has important lessons for other economies, as well ity per capita is one-fourth the global average. To address as informing efforts to address global risks to eco- these challenges, the Government invested more than nomic progress, poverty eradication, and sustainable RMB 717.6 billion in 2017 alone, and continues to address development. issues around water scarcity, pollution, and flooding. The Bank appreciates the partnership that has been China’s rapid economic ascendance to the upper established with China around water issues, and we ­ middle-income status achieved today has brought look forward to continuing this collaboration. vi WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — SYNTHESIS REPORT Wang Yiming Vice Minister Development Research Center of the State Council of the People’s Republic of China C hina is a country with serious water scarcity and for other countries and will make an important contri- frequent water related disasters, such as floods bution to enhance global water governance through and droughts. Historically, each of the Chinese Chinese wisdom. dynasties has paid significant attention to water Continuous innovation and adaptation of the gov- management, culminating in a wealth of knowledge ernance mechanisms, through implementation of and experience which continues to make important institutional measures and incentives are helping to contributions to national development and the global better allocate, regulate, and conserve water resources. agenda. In a sense, Chinese history is also a history of These are also providing exciting opportunities to drive water governance. innovative technologies for improving productivity, as The Synthesis Report jointly carried out by the well as conserving and protecting environmental and Development Research Center of the State Council ecological functions. and the World Bank, which reflects important The Synthesis Report provides an important analy- contributions from various ministries from across sis and informs the institutional reforms intended to the Chinese government and the joint efforts of enhance the process of continuous improvement in the both Chinese and international experts, represents management of water resources in China. After reading another important contribution to the continued through the entire report, it is clear that it provides a development of institutions for economic and social comprehensive review of key challenges and a system- development in China. atic evaluation of the current context of water manage- China continues to attach importance to the devel- ment. In doing so, the study makes an important con- opment of an ecological civilization and green devel- tribution to enhancing the framework for China’s water opment as it embarks upon a new era of economic management and provides a practical set of tools and development. This is centered on sustainable resource policy guidance. We believe these recommendations management, environmental protection and ecological will be substantially helpful to further enhance the conservation with sustainable water management cen- level and capacity of China’s water governance. tral to the realization of China’s sustainable economic Together, these measures make up a new water gover- prosperity. A clear direction for the governance of water nance strategy that will support China’s efforts to move in China is found in the 16 words of wisdom issued by toward a higher quality, more environmentally con- President Xi Jinping, specifically in relation to the “pri- scious economic structure. However, water governance ority on water-saving, spatial equilibrium, systematic is a continuous process, as is the process of research governance, and the combined efforts of government and refinement. The epistemology and methodology and the market.” of water governance in China needs to be continuously China’s water governance faces a rapidly changing revisited. Let us make a joint effort and take the oppor- context with increasingly serious challenges, with more tunity of an ecological civilization and green develop- complicated problems and more ambitious goals. In ment to fully absorb and integrate the experience of this context, the joint study provides practical advice water governance in China and internationally. Through to improve water management in the new era of an progressive advancement and enhancement, China ecological civilization. China’s experience and strategy will continue to play an important and effective role in for the governance of water also has important lessons shaping the global water governance system. vii Acknowledgments This Synthesis Report represents the culmination of Advisory Committee comprising Wang Hao (Institute joint research conducted by the Development Research of Water Resources and Hydropower Research), Jane Center of the State Council of the People’s Republic Doolan (University of Canberra), Fu Bojie (Chinese of China (DRC) and the World Bank that builds on a Academy of Sciences), Claudia Sadoff (World Bank), long history of cooperation and collaboration. The Xia Qing (Chinese Research Academy of Environmental objective was to provide Chinese policy makers with Sciences), and Patricia Mulroy (University of Nevada, detailed institutional and policy options to support Las Vegas). The team also discussed with and obtained water security and sustained economic development. valuable advice from other experts within the World The Synthesis Report fills a critical gap highlighted in Bank, officials from the Government of the Peoples the World Bank 2013 China Country Water Resources Republic of China, along with universities and non-gov- Assistance Strategy by proposing legal, technical, and ernment organizations working on water resources institutional changes to the current framework for related research in China. water resource management. A new approach to the The Synthesis Report was launched by Ousmane Dione governance of water is recommended that is aligned (then Practice Manager and now Country Director with the goals of an ecological civilization and its aims for Vietnam) and completed under the guidance of to balance economic growth against increasing water Sudipto Sarkar (Practice Manager, East Asia and the demand under conditions of water scarcity. By closely Pacific Region, Water Global Practice); and Gao Shiji examining key water management issues in the con- (Director of the Institute for Environment and Natural text of China’s rapid development, the report also aims Resources of the DRC). The Synthesis Report was to provide lessons relevant to other countries facing prepared by a joint team from the World Bank led by similar water-related challenges. Winston Yu (Senior Water Resource Specialist), Liping The team benefited from comments and discussions Jiang (Senior Water Resource Specialist) and Marcus with colleagues within the World Bank, officials from Wishart (Lead Water Resource Specialist) and includ- the Government of China, and representatives from ing Scott Moore, Qi Tian, Regina Rossmann, Si Gou, non-governmental organizations and universities Dan Xie, Liteng Dong, and Anqi Li (World Bank); and working on water resource issues. The research was the Government of the Peoples Republic of China led carried out under the leadership of Victoria Kwakwa by Gu Shuzhong (Task Team Leader from the DRC of (Vice President for East Asia and the Pacific), Guangzhe the State Council), and including Li Weiming, Jiwen Chen (Senior Director of the Water Global Practice), Chang, and Zhou Hongchun (DRC of the State Council); and Bert Hofman (Country Director for China) from Li Jing, Zhong Yuxiu, and Wang Yining (DRC of the the World Bank and Vice Minister Wang Yiming from Ministry of Water Resources); Jia Shaofeng (Chinese the DRC along with his ministerial colleagues from the Academy of Sciences); and Wang Jianhua, Ding Government of the Peoples Republic of China. Guidance Liuqian, and Zhao Yong (Institute of Water Resources was provided during implementation by a Steering and Hydropower Research of the Ministry of Water Committee comprising Wang Yiming (DRC), Guangzhe Resources). The team also acknowledges the strategic Chen (World Bank), Bert Hofman (World Bank), and guidance and comments provided by Bert Hofman, officers of the Ministry of Ecological Environment Jennifer Sara, Bekele Debele, Harold Bedoya, Richard (formerly Ministry of Environmental Protection), the Damania, Greg Browder, Ximing Zhang, Abedalrazq Ministry of Natural Resources (formerly Ministry of Khalil, and Irene Bescos. Production of this publication Land and Resources), the Ministry of Finance, the was provided by Pascal Saura (Senior Knowledge and Ministry of Housing and Urban-Rural Development and Learning Officer), Erin Barrett (Publishing Associate), the Ministry of Agriculture and Rural Areas (formerly and Francis Gagnon (Information Designer). Their Ministry of Agriculture). In addition, the development contributions have helped to enhance the quality of of policy recommendations was overseen by an this report. viii WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — SYNTHESIS REPORT The Synthesis Report highlights the key priority Topic 11: Legal Reform for Water Governance was pre- reforms jointly identified by the World Bank and the pared by the Development Research Center of the State DRC through 15 supporting thematic studies. These Council and leadership of Chang Jiwen; are summarized in an accompanying volume and Topic 12: China’s Water Management Administrative were undertaken by a designated team including the System and Its Reform was prepared by the following: Development Research Center of the State Council Topic 1: Overview of Water Governance in China was under the leadership of Gao Shiji and Chen Jianpeng; prepared by the Institute for Environment and Natural Topic 13: Technical Innovation and Development of Resources of the Development Research Center of the an Information Platform in China was prepared by the State Council under the leadership of Li Weiming and Development Research Center of the State Council Gu Shuzhong; under the leadership of Zhou Hongchun; Topic 2: Evaluation of China’s Water Security Status Topic 14: Public Private Partnerships and Water and Issues was prepared by the Geographic Science Governance in China was prepared by the Development and Resources Research Institute under the Chinese Research Center of the Ministry of Water Resources Academy of Science and leadership of Jia Shaofeng; under the leadership of Wang Yining; Topic 3: Advancing Water Quality Markets in China Topic 15: Summary and Overall Design of China’s Water was prepared for the World Bank by the Willamette Governance System was prepared by the Development Partnership and the World Resources Institute under the Research Center of the State Council under the leader- leadership of Bobby Cochran; ship of Gu Shuzhong. Topic 4: Macro-Economic Impacts of Water Scarcity and These thematic study team reports and recommendations Redlines in China: Results from an Integrated Regional were reviewed by both the Advisory Committee and the CGE Water Model was prepared for the World Bank Steering Committee. These discussions emphasized key by the International Food Policy Research Institute in issues for water governance in China, including the need Beijing under the leadership of Kevin Chen; for a stronger legislative foundation for water gover- Topic 5: Re-Examining the Three Red Lines Policy was nance; enhanced basin-scale governance institutions; har- prepared by the Institute of Water and Hydropower monization of existing policy tools, such as water permits Research under the Ministry of Water Resources and and water rights; better information and data-sharing; leadership of Wang Jianhua; and the need to promote ecosystem resilience. Based on these consultations and discussions, a final set of 15 key Topic 6: Water Rights Verifications and Transactions was recommendations have been put forward. These recom- prepared by the Development Research Center under mendations form the core of this Synthesis Report. Each Ministry of Water Resources and leadership of Li Jing; priority area is the subject of a separate chapter focusing Topic 7: Best Practices in Cost-Benefit Analyses for on the rationale for each of the policy recommendations, Water Investments was prepared for the World Bank by drawing on research completed by each study team. The Mark Radin at the University of North Carolina Chapel Synthesis Report also draws on international examples Hill; and best practices to inform the recommendations. In addition to this Synthesis Report, a series of policy notes Topic 8: Water Prices, Taxes, and Fees was prepared by were prepared by the Development Research Center the Development Research Center of the Ministry of of the State Council for the Chinese government. These Water Resources and the leadership of Zhong Yuxiu; policy notes were submitted by Development Research Topic 9: Flood Risk Management and Protection was Center to senior policy makers at the National People’s prepared by the Institute of Water Resources and Congress held in March 2018. Several of the key study Hydropower Research under the Ministry of Water results from these policy notes (including improvement Resources and leadership of Ding Liuqian; of the strictest water resources management system, promotion of water right reforms, and establishment of Topic 10: Ecology Compensation and Governance was a flood insurance system) were also submitted to senior prepared by the Institute of Water Resources and policy makers of the State Council by Dr. Gu Shuzhong, as Hydropower Research under the Ministry of Water a member of the National Committee of Chinese People’s Resources and leadership of Zhao Yong; Political Consultative Conference (CPPCC). Executive Summary F rom the perspective of sustainable develop- In some areas the development of water resources ment, China stands at a crossroads. China’s tran- exceed the renewable capacity and several large sition to slower but structurally rebalanced growth cities face severe water shortages. Water pollution continues. Gross Domestic Product (GDP) expanded by meanwhile imposes serious economic, ecological, and 6.9 percent in 2017 and the service sector has replaced health-related costs. About 67 percent of monitored manufacturing as the economy’s primary driver of groundwater sites are polluted and 32 percent of major growth. China also continues to make remarkable rivers fail to meet basic quality standards required for progress in poverty reduction. The poverty headcount sources of drinking water supply. While China has made of US$1.90 per day (purchasing power parity) was significant progress over the last 30 years in improving estimated to have been as low as 0.7 percent in 2015. access to water supply and sanitation, there are a num- China’s overarching challenge now is to implement ber of challenges in closing the service gaps for the last the necessary reforms to ensure a successful economic segments of the population, with roughly 70 million transition toward higher value-added industries. While people without access to an improved source of drink- significant progress has already been achieved in some ing water on their premises. According to the data from areas, deeper reforms are needed to increase the role the Ministry of Water Resources, only 76 percent of of markets, the private sector, competition, and domes- the rural area have access to tap water in 2015 while tic consumption for driving productivity-led and greener JMP data suggest 64 percent of rural areas have access growth in the future. to use of an improved sanitation facility. To effectively address these complex water challenges, improved Good water management is essential to achieving approaches to water management are needed. This these high-level development objectives. Water report presents a forward looking strategy for a scarcity, pollution, and flooding threaten China’s con- new era of water governance in China. tinued sustainable development. Despite being the world’s second-largest economy and most populous country, China possesses only 6 percent of the world’s China’s Water Resources Challenge freshwater resources. Water use efficiency is relatively China has made significant and high-impact invest- low and measures of industrial added value and irri- ments in water management and infrastructure. gation efficiency are both lower than global averages. Over the past over 60 years, China has developed an 2 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — SYNTHESIS REPORT impressive foundational level of infrastructure to better accordingly continue to grow rapidly in the absence of manage its water resources. A total of 413,679 kilo- sustained interventions. The control of water pollution meters of river dikes and 98,002 reservoirs, accounting is also becoming more complex and without major for more than 800 billion cubic meters in storage, have policy interventions, water pollution will impose signifi- been constructed; flood control structures have been cant economic as well as health-related burdens. While built in all major river basins; 5,887 rural water supply these were estimated at 2.3 percent of GDP in 2007, projects provide services to 812 million people; hydro- the Government has introduced a series of stringent power capacity now stands at 341,000 megawatts. measures in recent years to control water pollution and This infrastructure has helped China support 22 percent improve water quality. of the world’s population with only 9 percent of the Ecosystem services are under severe pressure from world’s cultivated land and 6 percent of the world’s urbanization and growing water use. Too often, water resources. This has been made possible through urbanization has come at the expense of natural hab- significant public investment, with the government itats, and has severely damaged ecosystems. Natural having allocated RMB 717.6 billion (roughly US$ ecological systems such as wetlands, coastlines, lakes, 104 billion equivalent) in 2017 alone for investments in and riverbanks keep decreasing in size, reducing the the water sector. Despite these significant achieve- ability of many waterways to provide ecosystem ments, China is still facing acute challenges with services like flood protection and water retention. For respect to both water quantity and quality. example, major wetland areas in the Hai River Basin Water use remains unsustainable and inefficient are estimated to have decreased by approximately even as demand grows rapidly. China’s per capita 83 percent, while the number of lakes in the middle endowment of water resources is only one-fourth of and lower reaches with hydraulic connections to the the global average. While industrial and agricultural Yangtze River have reduced from over 100 to only two, water abstractions have remained relatively constant in namely the Dongting and Poyang lakes. Continued recent years, domestic water use continues to increase, reduction of wetland areas and reduced hydrological driven primarily by population growth and rapid connectivity continues to undermine ecological integ- urbanization. These rapidly growing demands come at rity. Coastal wetland areas have also been significantly a significant cost, with increasing competition between reduced. The biodiversity in offshore coastal areas has the various sectors. Moreover, China’s low water use decreased precipitously and offshore fisheries have efficiency rates mean that many water uses are highly been considerably impacted. The stock of unmodified wasteful. China’s water consumption per RMB 10,000 natural coastline now accounts for less than 35 percent (roughly US$1,450) industrial added value is two to of the total. The area affected by soil and water erosion three times greater than the average upper-middle-in- has moreover reached 2.95 million square kilometers, come country (UMIC). The effective utilization factor of accounting for 31.1 percent of China’s total land area. irrigation water is 0.52, much lower than the 0.7 to 0.8 Drought and local water scarcity plague large parts average among UMICs. of the country. China’s water resources are unevenly Improving water quality remains a serious issue distributed across place and time, with the south and that requires long-term investment. Industrial, southwest featuring the most abundant reserves of agricultural, and organic pollutant discharges pose water. Rainfall is also highly variable in many regions. significant risks to human health. In 2015, the nation- Water shortages are especially acute in China’s ener- wide chemical oxygen demand – depleting pollution gy-producing regions, where the high water require- discharge volume reached 22 million tons, and NH3-N ments of coal and gas extraction and production risk (ammonia) discharge volume was 2.3 million tons, exceeding local water supplies. Producing a single greatly exceeding natural absorption capacity. In 2017, ton of coal for example requires 5 to 6 cubic meters the water quality of 32.1 percent of monitored sec- of water, while it is estimated that nearly 10 cubic tions in major waterways were lower than Class IV, 8.3 meters are required for a ton of oil. Specific regulations percent of tested water received the lowest rating for of water consumption within the energy and chemi- water quality based on China’s five-tiered rating system cal production sectors under the Three Red Lines are and 31 percent of monitored lakes and reservoirs were improving efficiency and reducing withdrawals within subject to eutrophication. Among 5,100 monitored projected limits. Though it is well understood that underground water sources, 66.6 percent were rated water scarcity is an issue for the northern and north- as poor or very poor. Six of nine major bays or coastal western parts of the country, the eastern and southern inlets likewise have poor or very poor water quality. central parts of the country also face potential water Going forward, both water consumption and sewage constraints with growth in demand anticipated to rap- discharge volume will keep growing. Agricultural idly surpass supply due to urbanization and industrial pollutants and non-conventional water pollutants will growth. 3 Gaps remain in water supply, sanitation, and flood levels, and in some cases local officials are hesitant protection. China’s small and medium sized cities and to cooperate with neighboring jurisdictions to address rural areas remain unevenly served by water supply, issues such as pollution and flood management. sanitation, and flood protection infrastructure. China China has embarked on a series of effective has made significant progress over the last 40 years reforms to address these technical and institu- in improving access to water supply, with most of the tional water-related challenges. Especially in recent population estimated to have access to an improved years, China has implemented a series of reforms and source of drinking water on their premises. However, pilots designed to address the many water-related while most rural households have some form of on-site challenges, including water scarcity, water pollution, sanitation, the wastewater management, water supply ecological degradation, and the increased risks and and sanitation services often lag behind those in urban impacts of floods and droughts. In 2012, the State areas. Quality is also a concern, with about 9.5 percent Council issued formal guidance on Applying the Strictest of the monitoring points for the centralized drinking Water Resources Management System, setting three water sources in prefecture-level cities and above major control objectives, known as the Three Red recording values below the national quality standard Lines: (i) water resources development and utilization in 2017. In addition, some small and medium sized control; (ii) water use efficiency control; and (iii) water cities rely on a single source of water, making them functional zone control. To strengthen water pollution vulnerable to pollution and undermining the security of control, the State Council issued in 2015 the Action supply. Securing supplies for the large mega-cities and Plan for Prevention and Control of Water Pollution (Ten keeping up with increasing demands also remains a Action Plans). China has also piloted innovative eco- challenge. Surveys carried out by the Ministry of Water nomic approaches, including pilots on water rights and Resources also show that there are still many small pollution rights trading. Finally, a new system of “River and medium sized cities located along a large number and Lake Chiefs” has been established, making local of small waterways without adequate flood protection senior officials responsible for each stretch of every structures. major lake and waterway. Ongoing Water Governance Reforms China recognizes the important role that water plays in the quality of the environment for soci- Water resource management in China faces cen- ety. Especially since the 18th National Congress of the tral-local and inter-jurisdictional coordination Communist Party of China in 2012, the construction problems. In addition to a constellation of actors at of an “ecological civilization” has become one of the the central government level, most water resource government’s highest policy priorities. This includes a management functions are in practice organized and high-level focus on resource management, environ- implemented by provincial and local officials. Water mental governance, and ecological protection. The 19th Resource Bureaus typically exist at provincial, prefec- National Congress of the Communist Party of China in tural or municipal, county, and sometimes township October 2017 further highlighted the goal of building levels. These are typically collectively responsible for a “beautiful China” to meet increasing public demand planning, allocating and regulating local water use and for improved environmental quality. Notably, the State conservation measures, water saving and flood control Council announced a series of institutional reforms in measures as well as developing and providing water March 2018 to substantially redefine the responsibil- infrastructure services. These measures should be ities for water resource management. Highlighting implemented in accordance with the master plans for a determination to address institutional barriers to water resources development and utilization prepared effective environmental and resource governance, for each of the river basins. Other entities, usually these reforms include the establishment of the Ministry called “Environmental Protection Bureaus,” are respon- of Ecology and Environment (MEE) and the Ministry of sible for monitoring and enforcing compliance with pol- Natural Resources (MNR), along with consolidation and lution regulations. These two agencies have historically optimization of responsibilities within the Ministry of had some overlapping responsibilities for water pollu- Water Resources (MWR) and other related ministries. tion control. These were addressed in the institutional In announcing these changes, the Government cited a reforms introduced in March 2018. In addition to these renewed commitment to environmental protection and hierarchically-organized bodies, river basin commis- sustainable use of natural resources. sions exercise many management functions, including water use planning, protection of water resources and Institutional reform is a continuous process and flood risk mapping at a basin scale. Despite these many more remains to be done. Despite these reforms and institutions, implementation of national water resource the re-organization announced in March 2018, institu- management policies and regulations is uneven at local tional weaknesses remain in China’s water governance 4 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — SYNTHESIS REPORT system. Coordination, communication, and consen- officials and enterprises that compliance will be taken sus-building among key stakeholders, including central seriously. China should take several steps to enhance and local governments and water user groups, should the legislative foundation for water governance. be strengthened through more robust institutionalized processes. In addition, the roles and responsibilities of Update the 2002 Water Law. In many countries, leg- key institutions, such as the river basin commissions, islation serves as the foundation for water governance. require revision and re-thinking in light of the possible The challenges of sharing water between different uses transfer of many responsibilities for water pollution and between upstream and downstream users have control to the Ministry of Ecology and Environment in many parts of the world resulted in a complex body and those functions assigned to the Ministry of Natural of water law that determines, among other things, Resources. Indeed, these recent reforms invite a broad basic principles for how water is allocated and by what re-thinking of the institutional framework for water means or institutions. The Water Law stands as the core governance in China. of China’s water governance framework. Since the lat- est major revision of China’s Water Law in 2002, many important laws and policies have been promulgated A New Era of Water that have reshaped the landscape and shifted priorities Governance in China for water governance in China. Accordingly, the Water Law should be revised to reflect these new principles To address its water resource challenges, China and challenges that have emerged recently for water needs to address five key water governance reform resource management in China. priorities. First, China needs to revise water-related laws and regulations to further strengthen the legal The Water Law should be updated to: (i) reflect the basis for water governance. This includes updating the objectives of national ecological civilization reforms in existing Water Law to reflect current challenges and terms of water governance and reflect the key water strengthen the enforcement of existing water pollution resource management policies; (ii) establish a clear laws. Second, the status and responsibilities for existing institutional mechanism for addressing inter-jurisdic- water governance institutions, both at the national and tional water pollution, including through the River and river basin levels, should be enhanced and their role in Lake Chief System; (iii) strengthen provisions related to ecosystem protection expanded. Focal points for policy water quality enforcement and environmental impact coordination between different agencies, jurisdictions, assessment, including improving the linkages with and sectors need to be clarified. Third, existing eco- other laws such as the Environmental Protection Law, nomic policy instruments, especially mechanisms such Water Pollution Prevention and Control Law, Water as water rights trading, should be improved upon and and Soil Conservation Law, and the Flood Control Law; scaled-up where appropriate. More empirical evidence (iv) enhance the institutional mechanisms and provide is also needed to assess the effectiveness of these the legal foundations for river basin management, instruments. Fourth, human and ecological systems including a more effective role for basin management need to be made more resilient to meet future threats authorities; (v) provide clear legal support for water and challenges. This includes expanding the use of related data and information sharing; and, (vi) clarify green infrastructure approaches for flood management the allocation of powers and responsibilities for imple- and experimenting with water pollutant discharge menting key water resource management policies permit trading and alternative financial mechanisms following the establishment of the Ministry of Ecology to reduce non-point source pollution. Fifth, data and and Environment, the Ministry of Natural Resources, information sharing need to be improved to maximize and existing entities, such as the Ministry of Water China’s capacity for scientific and participatory water Resources, including those in relation to the Action Plan decision making. The establishment of a national water for Prevention and Control of Water Pollution, the Most information sharing platform will help to foster coor- Stringent System for Water Resources Management, dination and collaboration across agencies and will and the Ecological Civilization Construction pilot. While support innovation in the water sector. there is a clear need to update the Water Law, there are many options for how these updates can be Recommendations undertaken, and the supporting regulations should be amended accordingly. Priority 1: Enhance the legislative foundation for water governance. Many of China’s most important Strengthen enforcement of existing water quality water sector reforms are based on, but not specifi- standards. In China, as in many countries, the most cally mentioned in, existing legislation. It is essential important approaches of addressing water pollution that China codify recent major existing principles and is a set of legislative and regulatory provisions that reforms into laws to send strong policy signals to local establish water quality standards and penalties for 5 violating them. These regulations are an especially regarding the opportunities for PPPs in the water important means of controlling pollution from point sector. Consolidating key policies and regulations issued sources such as factories and enterprises. China has by various national authorities, such as the guidance established standards for water quality indicators, issued by the State Council in 2014, the National including temperature, nitrogen, and chemical oxy- Development and Resource Commission’s 2014 gen demand for surface and wastewater, along with Guidance on the Social Capital Cooperation Model and specific discharge and effluent standards for various that from the Ministry of Finance, into a uniform set industries, including iron and steel manufacturing, and of regulations or enabling legislation would enhance mining. Policies and regulations such as the Action the operating environment for private sector engage- Plan for Prevention and Control of Water Pollution ment in the water sector. Enhanced provisions, such as and the Most Stringent System for Water Resources inclusion of model dispute resolution systems as pro- Management establish stringent standards for water posed by the World Bank International Center for the quality. However, enforcement remains a challenge, Settlement of Investment Disputes (ICSID), can also fur- and several options should be considered to strengthen ther encourage the participation of PPPs. These reforms enforcement of existing water quality standards. could take the form in a separate National Government Current methods of enforcement include the increased and Social Capital Cooperation Law (currently under use of fines, public identification of cities and enter- formulation). prises that violate pollution regulations, and providing a set of incentives, such as tying the promotion of local Priority 2: Strengthen national and basin water officials to meeting water quality standards. Each of governance. A fundamental challenge for water these methods should be considered as part of a holis- resource management is that many issues, includ- tic strategy to strengthen enforcement. ing water resource, water environment and aquatic ecosystem issues, are inherently inter-jurisdictional. Codify and strengthen the role of public-private These issues are shaped more by the boundaries of partnerships (PPPs). China has become one of the watersheds than political and administrative jurisdic- world’s most important and active markets for pub- tions. Better integration across policy areas is needed lic-private partnerships (PPPs) in the water sector. Since to achieve policy objectives such as the Three Red 1990s, China has accounted for a substantial fraction of Lines. Achieving water quality and pollution discharge the total number of water sector PPPs globally. From standards, for example, depends in part on erosion 1990 to 2017, some 511 water sector PPP projects control, managing fertilizer use in the agriculture sector, were initiated in China. Many of these projects involved and rangeland management far upstream. Continuous wastewater treatment and urban water supply. The 18th improvement of national and river basin entities can Party Congress’s Third Plenum reforms, announced in help to ease coordination problems and promote coop- 2013, envision a Decisive Move to the Market in which eration horizontally (i.e., across sectors) and vertically PPPs are expected to play an even more important (i.e., across administrative levels). role in water infrastructure provision and as a source of needed financing. The government has already iden- Create a national coordinating mechanism for water tified water sector priorities for PPP investment (e.g., governance. China’s water governance has histori- dams, urban water supply, and water pollution control). cally spanned many central government ministries Several important regulations have been promulgated as well as relevant agencies at provincial and local to establish a basic framework for PPPs. These include levels of government. Key agencies have included a set of State Council guiding opinions issued in 2014, those for Water Resources, Environmental Protection, as well as separate directives issued by the Ministry of Housing and Urban-Rural Development, Agriculture, Finance and the People’s Bank of China. The Ministry Land Resources, as well as the National Development of Finance also established a National PPP Center to and Reform Commission. Each has had responsibili- provide policy research, advice, training, and inter- ties that are not always harmonized. Historically, for agency coordination. The regulatory framework makes example, the fragmented responsibility between the clear that PPPs are expected not only to contribute to a former Ministry of Environmental Protection and other stronger and more diversified financing base but also to ministries has hampered policy responses to water improve coordination between the public, private, and pollution. The institutional reforms introduced in March civil society sectors in furtherance of policy goals. To 2018, including the transfer of relevant responsibil- fully realize this potential, existing regulations concern- ities for water pollution to the Ministry of Ecology ing PPPs need to be both codified and strengthened and Environment, are expected to partly address this further. situation. Codifying the existing regulatory framework Nonetheless, China could benefit from creating a high- would send a strong signal to private sector actors level, inter-agency mechanism with representatives 6 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — SYNTHESIS REPORT from the primary ministries concerned with different River basin commissions should be given enhanced aspects of water governance. The primary function of authority and clarity in the key areas of planning, coor- this mechanism should be to coordinate policy efforts, dination, implementation, enforcement, and financing. help reach consensus on key water policy issues, This enhanced authority is not intended to diminish or identify national strategic priorities to guide local duplicate powers currently exercised by other existing officials, and provide guidance to river basin commis- entities, but rather to create the sorts of cross-scale sions. The coordinating mechanism could take several linkages necessary to effectively govern resources forms, ranging from a council or committee to an ad shared between users in multiple political jurisdictions. hoc working group or joint conference platform. All Five key reforms could help to re-shape China’s existing regulatory and administrative functions would remain river basin commissions to make them more effective. with the individual ministries. This mechanism could First, the roles and responsibilities of the commissions be replicated at sub-national levels and also help guide relative to existing territorial jurisdictions, such as coun- the reform of river basin commissions to improve policy ties, municipalities, and provinces, should be further coordination. clarified and codified through legal means. Second, the representation of different ministries and entities Strengthen basin level coordination. One of the on the commissions should be re-visited to ensure longest-standing principles of water resource man- commissions are effectively capable of addressing the agement has been, so far as is practical, to organize many water-related issues (present and future) in the water governance institutions at least partly along the basin. Third, greater clarity over the roles and respon- boundaries of river basins rather than political bound- sibilities of the various ministries is needed, in partic- aries. This approach has been advocated as a solution ular, as it relates to integrated management of water to the problem of concurrently addressing such issues quantity, water quality, and environmental health. This as water allocation, pollution, flooding, and navigation. is especially necessary in the context of the establish- Functions that a river basin institution can perform ment of the Ministry of Ecology and Environment and range widely and can include advisory, executive, the Ministry of Natural Resources. Fourth, the com- regulatory or judicial powers. The allocation of these missions may also establish implementation units to functions is dependent on the context and purpose execute policy decisions, support planning, and provide for their creation. There are a wide range of possi- technical support, along with sub-basin level com- ble institutional models for strengthened river basin mittees or other decision-making structures to ensure governance, and these need not possess all possible that water resource management policies are better functions. Subsequent experience and research have implemented at local levels. Fifth, the commissions shown that while there is often value in creating insti- should be more inclusive and adaptive to enable them tutions that encompass whole river basins, they often to take an overall role in water governance at the basin face practical obstacles in terms of authority, autonomy, scale, serve as public, multi-stakeholder platforms for resources, and legitimacy. Many accounts stress the addressing key water related issues and balance the need for such institutions to serve a convening function different roles and responsibilities with local water by incorporating diverse stakeholder groups, as well as management in the various jurisdictions. These reforms the need to forge links among river basin management could be developed using a pilot approach, selecting organizations, central and sub-national governments, one sub-river basin for initial implementation, and can and smaller-scale organizations at the sub-basin level. be accomplished either through provisions of a revised Water Law or through a separate National River Basin China has established river basin commissions, also Management Law. called water conservancy commissions, for seven major river basins. Legislation has moreover estab- Establish clear coordination between the provin- lished the river basin as the unit for planning. The cial River and Lake Chief System and existing river primary purpose of these commissions is to ensure basin commissions. In December 2016, the Chinese the rational development and utilization of water government took a significant step in establishing resources within the basin. These have been estab- a new system for coordinated management of the lished as agencies of the Ministry of Water Resources country’s major rivers through “River Chiefs” (hezhang). and traditionally focused on water infrastructure This was later extended to include major lakes and and do not officially feature representatives from other water bodies through “Lake Chiefs.” This system other ministries or local governments. As currently clearly establishes river chiefs at four-levels: provincial, constituted, the commissions lack sufficient statu- municipal, county and township, as well as village-level tory authority to perform key coordination functions, river chiefs in some areas. These individuals are typi- and moreover do not include representatives from cally senior officials who are then responsible for each ­ provincial and local governments. stretch or section of every major waterway and lake. 7 The primary purpose of the river and lake chief system higher-value uses, such as from irrigation to industry, is to strengthen enforcement and accountability con- and be an important source of revenue for cost recov- cerning key water policy measures. These officials are ery (for both infrastructure capital costs and operation responsible for meeting environmental protection and and maintenance). Globally, however, water prices water quality targets in their respective jurisdictions, remain generally too low to achieve these objectives. with the main responsibilities including water resource China has enjoyed considerable success in leveraging protection, river bank management, water pollution economic policy instruments to pursue various water prevention and control, improvement of the aquatic policy objectives. The People’s Political Consultative environment, and ecological restoration. River and lake Conference Decision on Comprehensively Deepening chiefs at the provincial level are also responsible for Economic Reforms, announced in November 2013, dealing with inter-jurisdictional issues. envisions a much greater role for the use of mar- Formally linking provincial River and Lake Chiefs with ket-based policy instruments, and a correspond- China’s existing river basin organizations will help to ing re-orientation in the role of the state in water institutionalize the River and Lake Chief System and resource management. China has applied a range of promote effective implementation. These linkages economic policy instruments to promote sustainable also provide a platform for helping reach consensus water use, including water pricing reforms (e.g., tiered on matters of common concern, along with a forum in approaches, differential fees depending on source) which to share data and information to facilitate better to promote conservation and water rights trading to decision making. Formal coordination with the system facilitate the re-allocation of water to its highest-value of River and Lake Chiefs can also enhance the authority uses. These reforms are broadly on the right track, but and effectiveness of river basin organizations them- require further analysis of their effectiveness before selves. Providing a platform to integrate the perspec- being expanded. This includes detailed empirical analy- tive of senior administrative policy makers can further sis of the value of water in the era of ecological civiliza- enhance the ability of the river basin organizations to tion and on whether current pricing structures and coordinate sectoral and administrative policies across policies are having their intended effects (e.g., reducing different ministries and jurisdictions. water use, curbing groundwater over-extraction, and moving closer to cost recovery and financial sustainabil- Priority 3: Improve and optimize economic policy ity). To achieve the targets in the Three Red Lines and instruments. China’s ambitious policy reform agenda other water resource management policies, continued has created multiple (and at times overlapping) sets of experimentation with these instruments should be economic policy tools whose use and application need undertaken. to be coordinated for maximum effect. Different prices, taxes, and fees are levied on water users to encourage Strengthen the effectiveness of the Three Red conservation, capture externalities, and move closer Lines. The most important element of China’s current toward cost recovery. Some policies currently being water governance system is the Most Stringent System piloted (e.g., tiered pricing, water rights trading) can be for Water Resource Management, otherwise known as expanded and represent global models. Further empiri- the Three Red Lines. The core of this system consists cal research is however needed to assess the effective- of targets that limit total national water use, specify ness of these instruments to optimize their impact. minimum standards for water use efficiency, and estab- lish clear limits on pollutant loads in water functional Expand the use of economic policy instruments to zones. The experience thus far with this system has promote more sustainable water use. Of the possible been largely positive. Under China’s hierarchical water tools to promote sustainable water use, perhaps none management system, these national targets are broken is as important as water pricing and other economic down by province and local jurisdictions according to a policy instruments. The crucial role that water pricing detailed, formulaic process. The target-setting process plays in water resource management was recognized relies on a comprehensive monitoring and evaluation by the High Level Panel on Water (HLPW), whose 2018 system established in 2014 that measures progress on final report notes that “valuing water appropriately several key indicators: total water quantity use, indus- is a cornerstone for better water management” and trial water productivity, agricultural water use efficiency, that “appropriate pricing of water, or water services, and water quality. In 2016, two additional indicators is a critically important way of recognizing part of the were added: reduction in water use per unit of GDP value of water” (HLPW 2018). The power of pricing and reduction in total pollutant loads in key water arises from its ability to send a clear signal to water functional zones. users about the scarcity value of the resource, and the importance of conserving it. Proper water pric- The target setting process could be improved in four ing can also help to re-allocate water from lower- to ways. First, targets could also be defined in terms of 8 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — SYNTHESIS REPORT actual water consumption amounts (and not only with- enterprise discharges pollution more than its permit, drawal volumes) and used as the basis for water quan- that violation could trigger a limitation of the enter- tity permitting and control. This consumption-based prise’s right (permit) to withdraw its supply of water control can be aided by remote sensing technologies (in addition to the fine or limitation associated with the (as has been piloted in Turpan prefecture and other pollution violation). Currently, many firms routinely vio- places in China). Second, further target setting should late their pollution discharge permits, and either ignore be formulated jointly by relevant ministries, including fines or pay fines as a small cost of doing business. the ministries of Ecology and Environment, and Natural This dual penalty would send stronger signals to the Resources, to ensure that both human and environ- firm and incentivize improved stewardship of China’s mental water requirements and issues are adequately water resources in terms of both quantity and quality of addressed. More broadly, wider participation in the water. Formulating regulations that explicitly cross-ref- target setting process can help ensure shared responsi- erence these systems can moreover promote further bility and accountability and consideration of ecological pollution and water use control. as well as human water requirements. Third, the use Priority 4: Strengthen adaptive capacity to climate of different indicators, such as consumption-based stan- and environmental change. Macro-scale pressures, dards, can help ensure that proper signals are being including increasing urbanization and climate change, sent to this sub-sector. Moreover, actual field-based will require China’s policy makers to strengthen the irrigation efficiency measurements should be taken. resilience of both human and ecological water systems Finally, greater flexibility may be introduced with the to flooding, drought, and other forms of environmental caps on withdrawal in the context of water rights trad- change. While drought will likely continue to impose ing. That is, local level targets can serve as established significant economic costs on parts of China, future caps for which the holder can then be empowered flooding may be an even greater challenge considering to buy and sell with other local entities. By allowing China’s rapid urbanization and the increasing numbers such trades, participants can better minimize the cost of people at risk from coastal and inland flooding. At of compliance of reaching national targets. Such an the same time, additional investments must be made approach would also help to better leverage China’s to preserve the functioning of aquatic ecosystems and existing pilot efforts to institute water rights trading the services they provide, including water purification. systems at the national scale on a gradual basis. China’s current water governance framework faces two Cross-reference water withdrawal permits and notable challenges relating to environmental protec- pollution discharge permits. As is the case in many tion: maintaining ecosystem services and addressing countries, China regulates water withdrawal (or abstrac- non-point source pollution, especially from agricultural tion) primarily by granting water withdrawal permits sources. Fully addressing both challenges will be essen- to individual water users. Water withdrawal permits tial to meeting China’s policy objectives with respect to are granted for five years, during which holders may improving the water ecological environment, requiring request modifications to the original conditions, includ- coordinated joint efforts by relevant authorities at both ing changes to the permitted use volume or purpose. central and local scales. Similarly, China began establishing pollutant discharge Strengthen resilience to floods. Flood control has permit systems in parts of the country in the late long been a priority for China’s water resource manag- 1980s, which prohibit discharge of designated water ers, and it has enjoyed considerable success in reduc- pollutants into waterways without securing a permit to ing flood risk and exposure. Over the past 70 years, do so. In 2017, the Ministry of Environmental Protection about 47 million hectares of land area and 500 million issued instructions strengthening and expanding the people have been protected from flooding, and the pollutant discharge permit system nationwide, requir- average annual number of deaths from flooding has ing all stationary water pollution sources across 82 been reduced from about 9,000 in the 1950s to 1,500 designated industries to apply for permits to discharge by the early 2000s. Overall investment in flood control into waterways. Unlike users with water withdrawal infrastructure increased by over four times just from permits, pollutant discharge permit holders may sell the 1990s to the early 2000s. Much of this progress, excess emission volumes to other holders, thereby cre- however, is built on a comprehensive flood control sys- ating a pollutant emissions trading system. China uses tem that includes infrastructure, early warning systems, separate nationwide permitting systems for both water and a closely coordinated flood response structure that withdrawal permits and pollutant discharge permits. includes disaster response headquarters at central, China could strengthen the administrative and regula- river basin, provincial, municipal, and county levels. tory ability to control water pollution as well as total China’s 1997 Flood Control Law, amended in 2007, water consumption by cross-referencing these water designates certain regions as flood-prone, and requires use and discharge permit systems. For example, if an authorities to develop appropriate flood management 9 plans. Consequently, an area of focus is the integration water demands. Such a reform could be accomplished of weather prediction and forecasting into decision through a revision to the Water Law, which pres- support systems to allow local officials to respond ently refers only to environmental flows rather than more quickly to predicted flood emergencies, helping the broader issue of environmental water demands. further improve the capacity of the Flood and Drought A second approach would be to follow the model Control Headquarters. Full dam and reservoir operation of Australia’s Commonwealth Environmental Water and evacuation plans have also been developed for 98 Holder, and establish a designated entity to manage a areas designated as national flood storage and deten- portfolio of water permits to meet agreed ecological tion zones. water requirements. This option would likely be more appropriate if China expands the use of water rights China has built considerable physical infrastructure trading. A Chinese Environmental Water Holder could to control flooding. In many parts of the country the be established through legislation or amendments to introduction of both structural and non-structural the various regulations governing China’s water rights flood control measures have helped to mitigate the system. Either option could be integrated into the Three risk of catastrophic flooding. To further improve flood Red Lines target setting system as modalities for ensur- resilience, greater adoption of integrated flood risk ing environmental water requirements are met. management approaches will be necessary. China should (i) expand the use of green approaches to flood Sharpen policy focus on non-point source pollu- management, such as flood retention basins, aquifer tion. China has made significant strides in improving flood storage, and natural wetlands; (ii) strengthen the enforcement of point source pollution regulations, as legislative basis for an integrated approach to flood risk well as expanding wastewater treatment. Non-point management; and (iii) create and promote nationwide source (NPS) pollution, however, remains a major chal- flood insurance schemes. These efforts will help to fur- lenge. Because NPS pollution is so diffuse, it is much ther bolster flood resilience and adaptation to increas- more challenging to monitor, regulate, and reduce. ing flood risk due to climate change, urbanization, and Moreover, managing NPS pollution often entails sig- other macro-scale changes. nificant changes to agronomic and land management Explore Red Line targets for ecological water flows. practices, which are often outside the remit of water Although the Three Red Lines include important targets resource management agencies. Much of the rapid for water quality, these targets do not fully address growth in pesticide and fertilizer use has been due to broader ecosystem functions and hydrological require- a combination of subsidies and policies encouraging ments. Ecological systems provide important ecosystem farmers to boost yields, which has had the perverse services and functions that can generate significant effect of dramatically increasing organic pollution. benefits to human societies and economic develop- Recognizing these challenges, the Chinese govern- ment. Such ecosystem services include purification ment has implemented a number of policy reforms and regulation of water flows, oxygen generation, to address the problems of non-point source pollu- soil formation and retention, food supply, habitats for tion. In 2015, the Ministry of Agriculture announced plants, animal and micro-organisms, and recreational that it would promote activities to reduce fertilizer opportunities. A 2008 study, for instance, puts the value application, increase fertilizer use efficiency, reduce of water retention and water purification provided by pesticide use and introduce more sustainable pest wetlands and water bodies in the city of Shenzhen at control measures. Targets were set to effectively about RMB 100 million, while a similar figure estimated cap national ­fertilizer and pesticide use through zero in 2015 for Beijing’s Miyun District is about RMB 60 mil- annual increases in application by 2020. The Water lion. Unfortunately, both studies conclude that urbaniza- Pollution Prevention and Control Action Plan, a land- tion and the attendant destruction and modification of mark State Council directive formulated with input wetlands and water bodies have substantially reduced from 12 ministries, singles out pesticide production the value of these ecosystem services. New ecological and nitrogen fertilizers as sectors targeted for more targets can nonetheless be set with due consideration stringent enforcement and technological improve- to the value of these critical ecosystem functions. ments designed to reduce pollution emissions. These A target such as the river and lake health index include the promotion of actions to control agricultural would incorporate the wider range of ecological non-point source pollution and the preparation and water requirements. To ensure that ecological water implementation of integrated agricultural non-point requirements are met, China can choose between a source control plans. While these steps are important new red line target or a separate mechanism. One in reducing non-point source pollution, the scale of option would be to establish a legal requirement the challenge is such that China will require more that water allocations fully account for environmental ambitious, far-reaching policy options. 10 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — SYNTHESIS REPORT Non-point source pollution therefore represents a objectives; (ii) strengthening water data institutions; promising area to engage in policy experimentation. (iii) establishing sustainable water data monitor- These may include (i) water quality trading programs, ing ­ systems; (iv) adopting water data standards; which promise to reduce the cost of compliance with (v) embracing an open data approach to data access; more stringent water quality standards under certain (vi) implementing effective water data information conditions; (ii) improved management of environ- ­ systems; and (vii) employing water data quality man- mental water quality to assist in complying with water agement processes. Implementing these principles quality standards; (iii) research on policies for non-point as part of a coherent water data policy often requires source pollution control approaches, particularly in reform, which is best accomplished through building a rural areas; (iv) pilots for total pollutant load discharge legislative framework. control at the basin scale to mitigate water pollution Currently, various ministries and government agencies risks; and (v) innovative financing mechanisms such as collect water-related data for their own analysis and eco-compensation, payment for environment services use. There are often a number of challenges in sharing approaches, or water funds to help finance natural important data across sectors and agencies. These can capital alternatives to conventional water treatment prevent optimized and integrated approaches to China’s technologies. The former approach has enjoyed success water resource challenges. A strong, clear legislative internationally and warrants further consideration as mandate is needed for collecting and sharing water-re- part of an effort to push the frontier on non-point lated data, as well as for specifying standards and key source pollution management. parameters on which data should be collected and by Priority 5: Improve data collection and informa- whom. These regulations or legislation should mandate tion sharing. China possesses strong technical capabil- data-sharing between agencies and departments con- ities in water resource data collection and monitoring. cerned with water resource management and, where However, these rich data-sets need to be more widely appropriate, disseminate it to relevant stakeholders and shared, particularly across government agencies, and the public at large. This can be considered with updates better incorporated into decision-making processes. to the Water Law and related regulations. Greater incentives and more effective data sharing Create a National Water Information Sharing mechanisms are required among government agencies Platform. Open access to water data can enhance the and between agencies within basins to share data and efficiency of water trading markets, improve water avail- information. This is particularly important following ability forecasts, help agencies and stakeholders to col- the consolidation of responsibilities in the Ministry of laborate more effectively, and give policy makers a more Water Resources and the establishment of the Ministry integrated view of the challenges and potential solutions of Ecology and Environment and the Ministry of Natural in water resource management. Data currently reside Resources, and provides opportunities to develop and in several different data management systems and not support coordination through integrated information in a shared, central location. A unified, National Water management systems that are based on complete, Information Sharing Platform should be created, and accurate and consistent data across the national, basin government agencies collecting data on water should be and local scales. Open data platform approaches can obliged to share their data through this platform. Making help to foster coordination and collaboration across the portal open-access and real-time also promises to agencies and will support entrepreneurship, innovation, improve response to flood and drought disasters. This and scientific discovery in the water sector. portal should be fully integrated into the Ministry of Water Resources as well as that of the Ministries of Improve the legislative framework for producing Natural Resources and Ecology and the Environment. and sharing water-related data. It is widely recog- nized that producing and sharing high-quality data are Strengthen the role of public awareness and par- essential for good water governance and management. ticipation. China’s approach to water resource man- The importance of making such data accessible to a agement has been heavily dependent on regulation variety of stakeholders, including water user groups as and administrative measures. While this approach has well as policy makers, is heightened by the increasing enjoyed some significant successes on issues like flood variability in water availability as a result of climate control, it does not necessarily engage the full range of change and other global environmental changes. In its relevant stakeholders, from non-governmental groups to March 2018 report, the HLPW recognizes that access private businesses, necessary to address complex water to water data is a prerequisite to better water resource resource management issues. Engaging the public can management around the globe. The HLPW also issued help ease the task of monitoring water quality, which Good Practice Guidelines for Water Data Management has historically been a significant challenge for China’s Policy, which identifies seven key elements of water local environmental protection authorities. Several data policy: (i) identifying priority water management reforms would help to improve public participation in 11 China’s water governance system. First the public’s “right In summary, China’s leadership recognizes that to know” water-related data and information should managing the country’s water resources effectively be clearly established. Adequate data and information is critical to achieving sustainable economic growth. sharing can help reduce transaction costs to policy Existing legislation, institutions, and policy have implementation and improve outcomes. Second, the helped to ease water scarcity, have begun to address public, including individual citizens and non-governmen- serious water quality problems, and have greatly tal organizations, should be given the right to participate reduced the risk of flooding. But overuse and pollu- in water resource decision-making, such as through tion of limited water supplies continue to threaten public hearings or comment periods. For example, the China’s strategic development priorities. To achieve government should continue the process of strengthen- these priorities in this new water governance strat- ing water user associations. This right should be estab- egy, China needs to strengthen and better integrate lished through revision of relevant legislation, including water management at both national and regional the Water Law. Third, more specific mechanisms should scales, provide more water for environmental uses, be established to solicit the options, recommendations, expand the use of market mechanisms to drive more and complaints of individuals to water resource man- sustainable water use, and adopt transformational agement authorities. This may take the form of online or approaches to combat water pollution. Together, application based platforms to, for example, quickly and these measures provide a strategy for a new era of anonymously enable users to report high levels of water water governance that will enable China to move pollution. Finally, the Water Efficiency Leaders program to a higher quality, more environmentally conscious should be fully utilized as a means of promoting water economic structure. Meanwhile, the proposed water conservation throughout the public and private sector. management approaches can provide useful expe- These reforms should together support the government’s rience and duplicable models for other countries in objective to foster a “water-saving society,” in part tackling the challenges of water sustainability in the through increased public awareness. 21st century. Introduction H istory demonstrates the importance of good economic development, and social advancement. water governance to China’s prosperity, pro- Water governance is central to other governance ductivity, and political stability. Since ancient matters in the country (e.g., environmental, times, the Chinese people have treated water as a top economic, political). To promote steady and rapid priority. Sound management of water resources has long-term social and economic development, always underpinned China’s prosperity and served as boost social harmony and stability … we must be a foundation for state governance. Large-scale water determined to … achieve sustainable use of water works were instrumental in unifying the Chinese nation resources. and propelling its development. In a tradition said to During the 19th Party Congress held in October 2017, have begun under Yu the Great, successive dynasties President Xi Jinping re-affirmed the importance of placed great importance on flood control and irrigation, environmental issues, and pledged to further enhance creating special water offices and codifying irrigation China’s ecological protection and environmental and water conservancy. The famous official and philoso- supervisions systems. This was followed by the pher Guan Zhong is said to have remarked: “Those who establishment in March 2018 of a Ministry of Natural desire to be good at ruling their country first have to Resources and a Ministry of Ecology and Environment. eliminate the five evils. Water is the greatest of these Thus, improving China’s water governance can con- evils. ... Water could bring state prosperity and people tribute greatly to national and regional water security, wealth, and also destroy a country and bring social economic and sustainable development, and can disorder if the water is not well controlled.” strengthen China’s overall national governance system. The seriousness with which water governance is The institutional landscape for water governance viewed has persisted into the modern era. In 2011, in China is complex. China’s water sector is both the Chinese government’s No. 1 Policy Document, large and complex. Prior to a ministerial reorgani- intended to outline the most important policy priorities, zation initiated in March 2018, at least nine minis- proclaims: terial bodies were concerned with various aspects Water is the origin of life, the essence of production of water resource management. These included and the basis of ecology. Water conservancy and the Ministry of Agriculture, the Ministry of Housing flood control are instrumental to human survival, and Urban-Rural Development, the Ministry of Land 14 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — SYNTHESIS REPORT and Resources, the Ministry of Health, the Ministry achievements, China is facing acute challenges with of Transport, the Ministry of Finance, and the State respect to both water quantity and quality. Forest Administration. The two most important ministries, however, are those of Water Resources and Environmental Protection. The former is respon- China’s Water Resource Challenges sible for large-scale water infrastructure projects for Water use is inefficient despite the limited water supply, flood control, and prevention. The latter, resources and growth in demand. China’s per capita meanwhile, is responsible for most aspects of water endowment of water resources is only one-fourth quality as well as environmental water issues.1 This of the global average. Rapid urbanization is driving was followed by the establishment in March 2018 increasing demand for water from all sectors, on top of a restructured Ministry of Water Resources, a new of inadequate reserves for environmental uses (see Ministry of Natural Resources and a Ministry of Ecology figure 1.1). Domestic water use is estimated to be and Environment. These changes are excepted to increasing at approximately 2.5 percent per year. At the consolidate many authorities and clarify the respon- same time, agricultural water use will need to increase sibilities pertaining to water governance that were in order to serve the proposed development and previously spread among different ministries. expansion of irrigated areas by 2020. Efforts to shift the structure of the economy to a more resource-efficient China has made significant and high-impact invest- development model are intended to address some of ments in water management and infrastructure. these potential constraints, but there will continue to Over the past over 60 years, China has developed an be challenges between supply and demand. Moreover, impressive foundational level of infrastructure to better China’s low water use efficiency rates mean that many manage its water resources. 41,3679 kilometers of water uses are highly wasteful. China’s water consump- river dikes and 98,002 reservoirs accounting for more tion per RMB 10,000 industrial added value is two to than 800 billion cubic meters in storage have been three times greater than the average for high- and constructed; flood control structures have been built in upper-middle- income countries (HUMIC). According all major river basins; 5,887 rural water supply projects to supporting documentation for the Action Plan for provide services to 812 million population; hydro- Prevention and Control of Water Pollution2, the effective power capacity now stands at 341 million kilowatts. utilization factor of irrigation water is 0.52, much lower The significant public investment help China reach the than the 0.7–0.8 average among HUMICs. achievement of supporting 22 percent of the world’s population with only 9 percent of the world’s cultivated Groundwater overdraft threatens water security, land and 6 percent of the world’s water resources. In particularly in northern China. Long-term and large- 2017, the government allocated RMB 717.6 billion of scale groundwater pumping can result in significant investment in water sector. Despite these significant declines in groundwater levels and is the main cause Figure 1.1 Changes in Sectoral Water Use in China, 1998–2016 water use, Agricultural Industrial Domestic Ecological 400 billion m3 350 300 250 200 150 100 50 0 1998 2003 2008 2013 1998 2003 2008 2013 1998 2003 2008 2013 1998 2003 2008 2013 Source: Data from Ministry of Water Resources. 15 of land subsidence. Globally there are a number of of GDP in 2007 (Xie et al., 2008), the Government has major cities facing the threat of significant land subsid- introduced a series of stringent measures in recent ence due to overpumping of groundwater resources, years to try and control water pollution and improve including Bangkok, Jakarta, Mexico City and the water quality. Houston-Galveston Region in the USA. Groundwater is one of the most important water sources in China. Ecosystem services are under severe pressure from However, groundwater overexploitation has occurred in urbanization and growing water use. Traditionally, many areas, especially in North China. Areas of Hebei urbanization has come at the expense of natural hab- Province have historically relied heavily on groundwater itats and has severely damaged ecosystems. Natural resources in the absence of other sources. Over the past ecological systems such as wetlands, coastlines, and 30 years over-abstraction has resulted in an overdraft the banks of lakes and rivers keep decreasing, reducing of 150 billion cubic meters. This has become the largest the conservancy capacity of water sources. Major wet- cone of depression in China, covering an area of 67,000 lands in the Haihe Basin have decreased by approxi- square kilometers and accounting for 92 percent of the mately 83 percent according to background documents total plain area within the province. The groundwater in support of the Action Plan for the Prevention and overexploitation has induced serious environmental and Control of Water Pollution. With significantly reduced ecological issues and significant economic impacts. In coastal wetland areas, biodiversity in off-shore coastal response, Hebei Province launched a pilot program in areas has decreased precipitously, and offshore fish- 2014 to regulate groundwater over-­ abstraction. Through eries have been harmed considerably. The stock of an integrated approach including water saving, price natural coastline now accounts for less than 35 percent levers and development of new water sources, the of the total. The area affected by soil and water erosion groundwater levels of unconfined and confined aquifers has moreover reached 2.95 million square kilometers, have increased by 0.58 and 0.70 meters between 2014 accounting for 31.1 percent of China’s total land area and 2016 respectively. The overexploitation of ground- (China’s Ecological and Environmental Status Report water has induced serious environmental and ecological 2017; World Bank/DRC 2017j). The upper bound of issues including land subsidence, sea water intrusion, water resources development rate should not exceed and the drying up of surface water bodies and signifi- 40 percent for ecosystem protection, but in some cant economic impacts. places exceeds the renewable capacity. For example, the development rates in the Hai River, Yellow River Improving water quality remains a serious issue and Liao River basins are as high as 106 percent, that requires long-term investment. Industrial, agri- 82 percent and 76 percent, respectively; significantly cultural, and organic pollutant discharges pose signifi- more than the 40 percent required for ecosystem cant risks to human health. The annual environmental protection and sustaining environmental services and census in 2015 indicated that the nationwide chemical ecological flows. oxygen demand – depleting pollution discharge volume had reached 22 million tons, and the NH3-N (ammonia) Drought and local water scarcity plague large parts discharge volume was 2.3 million tons, greatly exceed- of the country. China’s water resources are unevenly ing natural absorption capacity. In 2017, 8.3 percent distributed across place and time, with the south and of tested water received the lowest rating for water southwest featuring the most abundant reserves of quality based on China’s five-tiered rating system, the water. Rainfall is also highly variable in many regions. quality of water in 32.1 percent of monitored sections Shortages of water are especially acute in China’s ener- in major waterways were lower than Class IV, and gy-producing regions, where the high water require- 31 percent of monitored lakes and reservoirs were sub- ments of energy and chemical industry may exceed ject to eutrophication. Among 5,100 monitored ground- local water supplies (Qin et al. 2015). Producing a single water sources, 66.6 percent were rated as poor or very ton of coal for example requires 5 to 6 cubic meters of poor. Six of nine major bays or coastal inlets likewise water, while it is estimated that nearly 10 cubic meters have poor or very poor water quality according to the are required for a ton of oil. Specific regulations of water 2017 Ecological and Environmental Status Report. In consumption within the energy and chemical produc- the absence of bold, sustained interventions the control tion sectors under the Three Red Lines are improving of water pollution will only become more complex, as efficiency and reducing withdrawals within projected both water consumption and sewage discharge volume limits. Though it is well understood that water scarcity continue to increase, and there is growth in the contri- is an issue for the northern and northwestern parts of bution of agricultural and non-conventional pollutants. the country, the eastern and southern central parts of Without major policy interventions, water pollution will the country also face potential water constraints with impose significant economic as well as health-related growth in demand anticipated to rapidly surpass supply burdens. While these were estimated at 2.3 percent due to urbanization and industrial growth. 16 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — SYNTHESIS REPORT As China’s energy demand continues to increase rapidly to roughly 70 million people and there are a number in water scarce areas, the energy sector will increas- of significant challenges in closing the service gap for ingly need to plan with full consideration of water these segments of the population. According to data requirements, including an understanding of potential from the Ministry of Water Resources, only 76 percent future constraints because of other competing uses and of rural households had access to tap water in 2015 and possible climate change (World Bank, 2018b). Other wastewater management, water supply and sanitation previous World Bank reports have examined China’s services in rural areas often lag behind those in urban growing water scarcity and provided a number of areas. Quality is also a concern, with about 9.5 percent of recommendations to address these issues (see box 1.1) the monitoring points for the centralized drinking water (World Bank/DRC 2014). sources in prefecture-level cities and above recording values below the national quality standard in 2017. In Gaps remain in water supply, sanitation, and flood addition, some small and medium sized cities rely on a protection. China’s small and medium sized cities and single source of water, making them vulnerable to pol- rural areas remain unevenly served by water supply, lution and undermining the security of supply. Securing sanitation, and flood protection infrastructure. China supplies for the large mega-cities and keeping up with has made significant progress over the last 40 years in increasing demands also remains a challenge. Surveys improving access to water supply, with the JMP data3 carried out by the Ministry of Water Resources also show indicating 95 percent of the population estimated has that there are still many small and medium sized cities access to an improved source of drinking water on their located along a large number of small waterways with- premises. However, the remaining 5 percent is equivalent out adequate flood protection structures. Box 1.1 Addressing China’s Water Scarcity The World Bank Report Addressing China’s Water Scarcity scarcity value, addressing the social impact of tariff (2007) focuses on the impact of water scarcity, aggra- increases, and converting the water resource fee to a vated by water pollution, and its implications on the tax. environment, humans, and the economy. To address this • Protecting river basin ecosystems through market-ori- challenge, the report makes several recommendations. ented eco-compensation instruments. This includes These include the following: continuing to expand the application of ecological compensation mechanisms and promoting the pilot- • Improving water governance. This includes amend- ing of payment for ecosystem services. ing and improving existing water-related laws and regulations; improving law enforcement; estab- • Controlling water pollution. This includes improving lishing a national organization for integrated water pollution control planning, unifying and strengthen- management; converting river basin management ing the pollution monitoring system, strengthening commissions into inter-sectoral commissions; making the wastewater discharge permit system, increasing public information disclosure a compulsory obligation reliance on market-based instruments, enabling litiga- of the government, companies, and relevant enti- tion for public goods, controlling rural pollution, and ties; and building a strong legal foundation for public increasing financing for market gap areas. participation. • Improving emergency response and preventing pol- • Strengthening water rights administration and creat- lution disasters. This includes shifting from mitigation ing water markets. This includes recognizing ecolog- to prevention and planning, enhancing preparedness, ical limits of water resources, clearly specifying and establishing an environmental disaster fund through implementing water withdrawal permits, strengthen- the implementation of the “polluter pays” principle, ing water rights administration and providing certainty establishing a chemical management information and security for holders of water rights, promoting system, and strengthening monitoring and public evapotranspiration-based water resource manage- information. ment, and adopting a stepwise approach to water trading. Though this 2007 report focuses on the narrow issue of water scarcity, many of the recommendations also • Improving efficiency and equity in water supply support broader improvements to the water resource pricing. This includes adopting a stepwise approach management system. Thus, many of the recommenda- to tariff reform, raising water tariffs to fully reflect its tions are reflected in this report. 17 Climate change will exacerbate stresses on China’s providers, including water supply and wastewater water resources. Even while shifting rainfall and treatment operators, are also municipally owned. The tropical cyclone patterns increase the risk of flood- relationship between SOEs and government regulators ing, warming in the Himalayan region is predicted to in any context creates the potential for a conflict of sharply decrease runoff from glaciers and the snow- interest, as the state that is responsible for the regu- pack, which supply much of the water in China’s major lation of activities is also the shareholder of the entity river systems, after 2050 (Lutz et al. 2014). Water it is overseeing. This can create challenges in strictly availability in northern China is expected to decrease enforcing both water quality and quantity restrictions. by up to 24 percent by 2050, placing additional strain In recent years, SOEs have been joined by a large on already overexploited groundwater and surface number of private water users as well as individual water resources (Mo et al. 2017). In southern China, water users, most of whom pay tariffs for water supply temperature increases and increasing rainfall variability and wastewater services (GWI 2015). Increasingly, the are expected to increase water demand for irrigation growth and pluralization of the Chinese water sector as water availability becomes less certain (Xia et al. have created supervision, management, and gover- 2017). These effects of climate change will only add to nance challenges: it has become increasingly difficult the existing water resource challenge. to monitor water use and balance water demands between sectors and industries. Water resource management in China faces central– local and inter-jurisdictional coordination problems. In addition to a constellation of actors at the central Progress to Date in China’s government level, most water resource management functions are in practice organized and implemented Water Governance Reform by provincial and local officials. Water Resource Bureaus In recent decades, China has established a com- typically exist at provincial, prefectural or municipal, prehensive legislative and regulatory framework county, and sometimes township levels, which, collec- for water resource management covering water tively, are typically responsible for planning, allocat- pollution, water-related disaster control, water ing and regulating local water use and conservation conservation, water pricing, water management and measures, water saving and flood control as well as water infrastructure. The most important element of developing and providing water infrastructure services. this framework is the 1988 Water Law, which was These should be implemented in accordance with the substantially updated in 2002 to strengthen provisions master plans for water resources development and for river basin management, allocation, ecological utilization for each of the river basins. Similar entities, protection, and enforcement. Other key legislative usually called “Environmental Protection Bureaus,” are instruments include the Water Pollution Control Law, responsible for monitoring and enforcing compliance which was amended in 2017 to tighten enforcement, with pollution regulations. These two agencies have dramatically increase fines for non-compliance, set some overlapping responsibilities in water environment a national standard for one key pollution metric protection. In addition to these hierarchically-orga- (chemical oxygen demand), and, most importantly, nized bodies, river basin commissions exercise many incorporated water quality standards into China’s cadre management functions, including water use planning, evaluation system (kaohe). China’s 1997 Flood Control environmental protection of water resources and flood Law, meanwhile, incorporates a progressive approach risk mapping at a basin scale. Despite these many to flood management in which flood planning is institutions, implementation of national water resource undertaken at a basin and watershed level, and land management policies and regulations is uneven at local use is controlled according to flood risk. Apart from levels, and in some cases local officials are hesitant legislation, a wide range of regulations, such as the to cooperate with neighboring jurisdictions to address State Council’s 1993 decision establishing a water issues such as pollution and flood management (Moore withdrawal permit system, and inclusion of specific 2014). provisions in each Five-Year Plan since 2005, have further strengthened China’s water resource manage- State-owned and private enterprises play an ment framework. increasingly important role. In addition to formal governmental actors, both private and state-owned Most notably, China has adopted perhaps the enterprises (SOEs) play an important role in China’s world’s most ambitious set of water policy objec- water governance landscape. SOEs represent some of tives. In 2011, the Government passed the No. 1 the largest industrial water users, being active in many Central Government Document on “Accelerating Reform of the most water-intensive industries as well as those and Development for the Water Sector” with a focus sectors and industries that make significant contribu- on the key water resources issues and targets to be tions to water pollution. Many municipal water service achieved within the next 10 years. The central vision 18 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — SYNTHESIS REPORT of this new agenda is to develop a “system for rational per RMB 10,000 of GDP has improved from 552 cubic allocation and efficient utilization of water resources” meters in 2000 to 153 cubic meters in 2015. Water and “a system for governance of water resources.” quality, too, has substantially improved over the past The document also clearly defines the guiding ideolo- decade (see figure 1.4). Moreover, it is predicted that gies, objectives, and basic principles of water resource the total accumulated amount of water pollutants will development and sets down a series of new policies peak between 2016 and 2020 with ecological water and measures for water resource management. These requirements beginning to be included in regional objectives and principles are in turn reflected in the water allocation. To understand further the future Three Red Lines designed to establish specific targets impacts of the Three Red Lines targets, which will for water use, water use efficiency, and water qual- increase in stringency over time, this study has devel- ity, including at the provincial level (see box 1.2 and oped an integrated modeling tool to estimate how figure 1.2). In 2012, guidelines were issued to sup- different policies related to total water use, water use port implementing a Most Stringent Water Resources efficiency, and water quality might affect national and Management System to achieve the Three Red Lines regional GDP (see box 1.3). Under certain assump- targets based on four accompanying “systems” for total tions (e.g., labor and capital mobility), the Three Red water use withdrawal control, water efficiency control, Lines policy is estimated to have little detrimental and pollutant discharge control, coupled with a respon- impact to the overall economy and economic growth, sibility and performance system. A more detailed though this masks important regional differences work plan was prepared to implement this in 2014. In (World Bank/DRC 2017k). For instance, though it is combination, the Three Red Lines and its accompanying well understood that water scarcity is an issue for regulatory infrastructure form the foundation of China’s the northern and northwestern parts of the country, current water policy, and represent perhaps the world’s the east and south central parts also face constraints most ambitious attempt to define strategic water policy because demands are anticipated to rapidly surpass objectives. supply. This growth in demand is primarily driven by strong industrial growth. This analysis highlights the These policies have significant implications for importance of implementing all of the targets for the national and regional growth that are critical to Three Red Lines in tandem (especially the implemen- understand. Establishment of the Three Red Lines, tation of industrial water efficiency targets) to help with its emphasis on water demand management as cope with future water shortages. opposed to a more traditional supply-augmentation approach, has helped to reduce both total water use Recent reforms highlight the importance of better and improve water use intensity across all economic institutional cooperation. In recognition of the sectors (see figure 1.3). The overall water intensity need for institutional reform to implement policies such as the Three Red Lines, the government has also greatly strengthened the legislative and regu- latory framework for water resource management, assigning existing institutions generally greater Box 1.2 The Three Red Lines powers and responsibilities, and deployed new tools, The Three Red Lines as given in the No. 1 Central like water rights trading, with increasing scale and Government Document on Accelerating Reform and sophistication. Notably, the State Council announced Development for the Water Sector are as follows: a series of institutional reforms in March 2018 to substantially redefine the responsibilities for water • Water quantity: By 2030, total water use must not exceed 700 billion cubic meters. resource management. Highlighting the Chinese government’s determination to address institutional • Water use efficiency: By 2030, industries will barriers to effective water resource governance these reduce their water use per US$1600 (RMB 10,000) institutional reforms include the establishment of of industrial added value to 40 cubic meters. the Ministry of Ecology and Environment (MEE) and In addition, by 2030, irrigation efficiency must exceed 60 percent. the Ministry of Natural Resources (MNR), along with consolidation of responsibilities within the Ministry • Water quality: By 2030, 95 percent of water of Water Resources. Moreover, in announcing these function zones must comply with water quality changes, the government cited a renewed commit- standards. In addition, by 2030 all sources of drink- ment to environmental protection and sustainable use ing water will meet set standards for both rural and urban areas and all water function zones will of natural resources. comply with water quality standards Despite reforms, China’s water policy objectives require greater institutional coordination and capacity. While these reforms indeed hold great ­ 19 Figure 1.2 Current Water Use and Future Red Line Figure 1.3 China’s Water Use Intensity across Water Quantity Targets by Province Sectors, 2000–15 at 2000 constant prices 100 million m3 m3 Agriculture 0 100 200 300 400 500 600 3 per RMB 10,000 GDP m3 m per RMB 10,000 GDP Jiangsu 2500 30,5 Xinjiang 2000 Guangdong Heilongjiang 2015 total water use 2030 Red Line target 1500 Hubei Hunan 1000 25,5 Sichuan Guangxi 500 Henan 0 Shandong 2000 2003 2006 2009 2012 2015 Anhui 20,5 Industry Jiangxi 500 Zhejiang Hebei 0 2000 2003 2006 2009 2012 2015 Inner Mongolia Fujian All Sectors 15,5 Yunnan 500 Jilin Liaoning 0 2000 2003 2006 2009 2012 2015 Guizhou Shanghai Source: World Bank/DRC 2017k. 10,5 Gansu Note: GDP = gross domestic product. Shaanxi Chongqing Figure 1.4 Proportion (%) by the Quality Level of Rivers, 2002, 2007, 2012, 2017 Shanxi 10.2 8.4 Ningxia 23.6 Non-usable 27.6 5,5 20.9 19.8 Hainan Low-grade usage for industry and agriculture 26.5 Beijing 26.1 Qualified for potable use Qinghai 68.9 71.8 Tianjin 49.9 46.3 Tibet 0,5 2002 2007 2012 2017 Source: World Bank/DRC 2017k. Source: Source: Data from Ministry of Ecology and Environment. 20 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — SYNTHESIS REPORT Box 1.3 Using Integrated Modeling Tools to Assess Policy Instruments To better understand the linkages between water pol- economy. By extension, the effects of water resource icy instruments and their impact on economic growth management policies can also be tested (e.g., Three and household income, water resource models can be Red Lines pricing policies). It should be noted that as linked to multiregional computable general equilibrium with any such modeling framework, uncertainty with (CGE) models (see figure BI.3.1). For this report, a sep- parameters exist and many assumptions will need to arate study was undertaken linking a basin–provincial be made (e.g., substitutability of factors of production water model with an existing China multi-regional CGE. across sectors). Nonetheless, as a tool to identify broad These integrated models can capture regional hetero- and relative directions in policy and planning, such geneity both in terms of water resources and economic approaches can be useful and illustrative. This approach development and are suited for simulating the impacts has been adopted in numerous studies worldwide of water allocation across broad water use sectors (e.g., (e.g., in Pakistan, Bangladesh, South Africa, the Arab agriculture, industry, and municipal) to the regional Republic of Egypt, and Ethiopia). Figure BI.3.1 Schematic of China Water Governance Study Computable General Equilibrium Model (from World Bank/DRC 2017k). China China water GDP by sector mutiregional resource model by region CGE model Agricultural water Land productivity use/crop yield Industrial water use Industrial water use Domestic water use Water price Note: CGE = computable general equilibrium; GDP = gross domestic product. promise to improve water resource management, water resource issues. Second, China’s institutional as the remainder of this Synthesis Report details, structures, which are often organized on a hierar- for the foreseeable future institutional challenges chical basis, provide few incentives for officials in continue to hinder China’s ability to achieve its neighboring jurisdictions to cooperate, even though ambitious water resource policy objectives. Broadly many water resource management challenges are speaking, these fall into three categories. First, making inherently inter-jurisdictional. Third, decision-­ communication and coordination between agencies protocols and procedures are not sufficiently compre- responsible for different aspects of water resource hensive or agile to deal with increasingly complex management is often minimal. Tackling issues like and evolving, multi-stakeholder issues like inter-­ nonpoint source (NPS) pollution nonetheless call sectoral water use allocation or public-private financ- for close coordination between authorities respon- ing of water projects. While this Synthesis Report sible for agriculture, urban, environmental and outlines many priority areas for further reform of 21 China’s water governance system, in many ways Essential Principles of a Water these institutional issues remain at the heart of the challenge. Governance Strategy China’s sustainable growth goals require new A novel water governance approach is needed to approaches to water governance. Ambitious water build on these achievements and promote China’s policies such as the Three Red Lines set the right foun- economic transformation. This includes the New dation to achieve sustainable growth that balances eco- Development Model, Building an Ecological Civilization, nomic development and environmental protection. But propelling the Decisive Move to the Market envisioned these policies need to be supported by a water gov- in the 12th Five Year Plan, and supporting clean tech- ernance approach that addresses all aspects of China’s nologies called for in the 13th Five Year Plan. Each of complex water challenges and engages all stakeholders these major initiatives relies on improving water gov- to solve them. A water governance approach is built on ernance. Chinese economic development has entered a three pillars: (i) a sound legal framework that estab- new stage characterized by rapid growth and structural lishes clear accountability between actors and levels of change. Moving to a more service-oriented, higher governance, (ii) strong institutional arrangements, and value added, and less pollution-intensive economic (iii) full participation of all water user groups (Xie et al. model, as each of these strategic initiatives envisions, 2008). will require more water to be made available to new urban and industrial uses. Moreover, many of the Different kinds of approaches to water gover- “magic seven” Strategic Economic Industries identified nance will be needed for a country as geograph- in the 12th Five Year Plan require dependable access to ically and economically diverse as China. China’s high-quality water (see table 1.1). A traditional supply water challenges are complex and multi-faceted, augmentation approach to address these new demands spanning pollution and scarcity, flooding and will be too costly (2030 Water Resources Group 2009). drought, and important regional differences. Such China must recognize that water scarcity may impose a challenges cannot be addressed using any one policy fundamental constraint on its development path unless measure, or by any one agency or organization. significant changes are made. China must ensure that Figure 1.5 shows how current water use patterns water resource issues inform its strategic policies, across the major sectors differ for each of the prov- including the planned development of mega-urban inces. These important differences, which them- regions in northeast and southern China. China must selves are dramatically evolving over time, require ensure that these initiatives do not exceed the ecolog- region-specific responses. This may not necessarily ical limits enforced by limited water availability in the be at odds with the national vision set by the Three affected regions. A new water governance strategy is Red Lines and other legislation, but highlights the needed to ensure that water-related challenges do not challenges with only centralized approaches. A new constrain China’s future development. approach to water governance should fill remaining Table 1.1 Key Industrial Sectors in China’s Past and Planned New Economic Structure Old pillar industries  Magic seven strategic emerging industriesa National defense Energy saving and environment protection Telecom Next generation Information Technology Electricity Biotechnology Oil High-end manufacturing Coal New energy Airlines New materials Marine shipping Clean energy vehicles a. These are the new components of China’s industrial strategy (12th Five Year Plan). 22 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — SYNTHESIS REPORT gaps in the overall architecture for water resource information-sharing platforms. Finally, new reforms will management in China, and balance better coordina- take time to evolve gradually, and will require flexibility tion with developing locally appropriate solutions. and iteration. A new water governance strategy for China should China has an opportunity to think big and develop be built on several key principles: integration, bal- bold, innovative solutions to water challenges. ance, participation, innovation, accountability, and Developing and implementing a new water gover- gradualism. Water governance is fundamentally about nance strategy requires significant effort and invest- taking water out of its sectoral silo and managing it in ment, but it also provides the opportunity for China to a way that reflects its crucial importance to all parts of become a global leader in responding to water-related the economy and society. An ideal water governance development challenges. Facing environmental chal- system spans multiple issue areas, institutional frame- lenges and rapid growth, China has needed to innovate works, and mechanisms, and employs a variety of tools and pilot various approaches to address these com- and methods. This approach should be built on several mon global problems. This includes adopting visionary key principles. First, water policy must be integrated, development concepts (e.g., “Ecological Civilization” both horizontally and vertically; it cannot be made which puts nature at the center of development), in isolation from food, energy, or land management developing innovative technologies like highly efficient policy. Second, it should balance multiple, sometimes water purification and desalination technologies, insti- competing objectives, setting standards that protect tutional reform experiments such as the River and Lake human health and preserve adequate water for the Chief (hezhang) system, piloting innovative ideas such environment. Third, it should be focused on support- as the sponge city, and an evapotranspiration-based4 ing participation at all levels, especially that of local water rights trading systems. China can lead the way in communities. Fourth, roles and responsibilities of demonstrating how to solve the world’s growing water various entities should be clear to ensure accountabil- challenges. ity. Fifth, a water governance approach must embrace China’s water governance system should be inclu- innovation and experimentation, especially the use sive and adaptable. Recognizing the important of advanced technologies, big data, and integrated contributions of institutions to economic and social Figure 1.5 Water Use Structure by Province (100 million m3), 2015 Agriculture Industry Domestic Ecology 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Xinjiang Tibet Ningxia Heilongjiang Gansu Qinghai Inner Mongolia Hainan Hebei Yunnan Shandong AGRICULTURE INDUSTRY DOMESTIC ECOLOGY Guangxi Jilin Jiangxi Shaanxi Liaoning Sichuan Hunan Shanxi Henan Hubei Guizhou Anhui Guangdong Jiangsu Tianjin Fujian Zhejiang Chongqing Beijing Shanghai 23 development, the realization of a new era of water focused on ensuring safety and security of the aquatic governance in China should be cognizant of and con- environment by reducing pollutants, promoting reha- tribute to the following: bilitation and investing in restoration; (3) ecological water governance focused on achieving and maintain- (1) the state governance system and the establishment ing a sustainable and safe freshwater ecosystem by of its regulation system. From ancient times the man- strengthening the protection, restoration and allocation agement of water has been central to considering the of water for ecological functions; (4) water engineering ability and achievements of state officials. Among oth- focused on promoting the construction and operation ers, this is reflected in the philosophies of the famous of infrastructure to ensure their safety, productivity and official Guan Zhong. While the state has continued to environmental sustainability; and (5) management of reiterate and elevate the importance of water gover- water affairs focused on establishing and implementing nance, there remains significant challenges in adjusting mechanisms to mediate water disputes so as to ensure with the changing context and development needs; harmonious, healthy and stable relations related to (2) ecological civilization and development of a system water affairs. for implementation. Water governance is an important and integral part of realizing an ecological civilization. The design of a water governance system requires the Priorities for Water establishment and improvement of corresponding sys- Governance Reform tems related to water resources, such as water rights, China should address five key water governance planning, utilization and protection of water resources, reform priorities. First, China needs to enhance control of the total water-volume, overall water conser- the legislative foundation for water governance by vation, user pays and ecological compensation, market revising water-related laws and regulations. Second, based systems for environmental and ecological pro- national and basin governance institutions should tection, market based systems, performance evaluation be strengthened and their role in ecosystem protec- and accountability; tion expanded. Focal points for policy coordination (3) enhancement of capacity to ensure national and between different agencies, jurisdictions, and sectors regional water security. Focus on improving the security need to be clarified. Third, existing piloted economic of water resources, including the water security for policy instruments should be improved upon and the environment, ecological services, development, scaled-up where appropriate. Fourth, human and water supplies, and contributing to international water ecological systems need to be made more resilient to security; meet future threats and challenges. Fifth, data- and information-sharing need to be improved among (4) improvements of the long-term livelihood well-be- agencies, jurisdictions, and water users. These priori- ing of the Chinese people. Increasing the resilience of ties are described briefly in turn. human and environmental systems through reducing the impacts of disasters from floods and droughts, The legislative foundation for water governance improving the level of service and quality of drinking must be enhanced. The legal basis for China’s water water for urban and rural residents, and improving the governance system is incomplete. Some legislation aquatic environment and ecological services for urban remains in contradiction, while other provisions are and rural residents; and incomplete or inflexible. Due to the competing priori- ties of different bureaucratic units, legal and regulatory (5) regional and global water governance. The Chinese authorities are often inconsistent. The Water Pollution experience in managing the development of water Prevention and Control Law and the Water Law, for resources provides important lessons, models, concepts example, feature different water quality standards and and capabilities to inform regional and global efforts provisions, and fail to sufficiently clarify responsibilities to address water related risks to economic progress, of different departments. The importance of doing so poverty eradication, and sustainable development. is even greater given the ministerial reorganization China’s water governance system will be devel- announced in March 2018. At the same time, provisions oped and implemented with Chinese characteris- to support enhanced enforcement of regulations on tics. Based on current situation and demands, China’s water pollution remain weak and should be strength- water governance system should integrate at least ened. Several modalities could be employed to achieve five parts that align with the broader cultural context, this objective, including the use of regulations and including: (1) water resources governance focused State Council opinions and directives, in addition to new on the security of water resources through the devel- and revised legislation. Given its importance to China’s opment, utilization, conservation and protection of overall system of water governance, legislative reform water resources; (2) environmental water governance should include revisions to China’s current Water Law to 24 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — SYNTHESIS REPORT Figure 1.6 Institutional Structure and Main Water-Related Functions for Water Management in China Supervision and approval of water taxation Ministry of Finance and fees Rational water resources development and Ministry of Water utilization; coordination of agricultural, industrial, Resources domestic and environment water use, water saving; supervision of water infrastructure construction Fundamental ecological and environmental Ministry of Ecology regulations; coordination the solutions of and Environment severe environmental issues; supervision of water pollution prevention and control Natural resources investigation and Ministry of Natural evaluation; resource right conformation and Resources registration; compensation use of resources Urban water supply and water saving, urban and Ministry of Housing and town wastewater treatment and network Urban-Rural Development construction National People’s State Council Congress Ministry of Agriculture Guidance on water-saving agriculture development; and Rural Affairs aquatic wild fauna and flora protection Formulate comprehensive flood and drought Ministry of Emergency disaster prevention and reduction plan; Management Flood and drought control and management Domestic and international Inland waterway, port Ministry of Transport and water transport construction, management, and supervision Managing diplomatic contacts and relationships Ministry of Foreign Affairs with countries and regions concerned, particularly related to international rivers National Development and Formulation and implementation of national Reform Commission economic and social development strategies Note: Representation of the different institutions is in no particular order. The description of the main water-related functions is not considered exhaustive and the respective institutions have a broader range of related functions that are not detailed here. For a comprehensive consideration readers are referred to the respective institutions. reflect new principles and challenges that have emerged water quality standards, for example, depends in part recently for water resource management in China. on erosion control and rangeland management far upstream—responsibilities that fall outside the tradi- Improved coordination and integration across tional water resource management system. Given the sectors and administrative levels is needed to ­ need to strictly control water use and water pollution address China’s emerging challenges. To achieve from all economic sectors, more inter-sectoral strategies policy objectives such as the Three Red Lines, better and more inter-agency cooperation (see figure 1.6) is integration across policy areas is needed. Achieving needed to achieve these policy goals. Many economic 25 policies regarding, for instance, urban planning, indus- these ecosystem services. A robust river and lake health trial development, and agricultural policy, can have index could be used to assess and monitor whether envi- indirect effects on water resources. Strengthening river ronmental water requirements are being met and added basin commissions can help in this integration hori- to the Three Red Lines. China also has an opportunity to zontally (e.g., across sectors) and vertically (i.e., across develop further a national flood insurance system. administrative levels). River and lake chiefs can also Finally, local leaders and decision makers need play an enhanced role in these institutions. more and better data and information to support Economic policy instruments can be improved upon policy implementation. In many cases, local author- and optimized. While the Three Red Lines policy ities need to improve the capacity to collect and establishes sound overall targets for water quantity and analyze high quality, timely data on water availability, quality, economic policy tools to achieve these goals consumption, and other key metrics to effectively can be made more effective. Embracing the Decisive manage water resources and properly implement Move to the Market entails reducing the government’s policies such as the Three Red Lines. New technolo- role in regulating water use, and instead promoting gies, including remote sensing, show great promise market-based mechanisms to improve water allocation in enhancing the capacity of local leaders to ensure and water quality. Water rights trading and water price compliance with water consumption and quality reforms are showing great promise in pilot programs, standards. At the same time, building data- and but these need to be expanded in order to achieve information-sharing platforms can help officials across Three Red Lines targets. Continued progress toward all agencies better coordinate efforts and monitor water pricing reform is needed to encourage both progress toward implementation and understand conservation and cost recovery. For example, agricultural challenges encountered at local levels. Public partic- water prices remain too low to encourage real conser- ipation must also be strengthened, especially to aid vation. In 2010, irrigation water prices only ranged from local authorities in better enforcing water pollution RMB 0.01 to 0.35 per cubic meter. Further empirical regulations. analysis is needed to determine whether current pricing structures and policies are having their intended effects. Notes China needs to continue to strengthen adaptive 1. http://www.gov.cn/guowuyuan/zuzhi.html capacity to climate and environmental change. This includes strengthening resilience to floods, exploring a 2. Ministry of Ecology and Environment, Background for the Red Line target to ensure water availability for ecological Launch of the Action Plan for Prevention and Control of Water Pollution: http://www.mee.gov.cn/home/ztbd​ services, and by addressing NPS pollution, especially from /rdzl/swrfzjh​/ctbj/201505/t20150529_302579.shtml agricultural sources. Water ecosystems, including streams, rivers, wetlands, and lakes, provide many economically 3. https://washdata.org valuable services, including flood and water retention, 4. Evapotranspiration refers to the process by which water is purification, and recreation. Yet, urbanization and the transferred from the land to the atmosphere by evapora- attendant destruction and modification of wetlands and tion from the soil and other surfaces and by transpiration water bodies have substantially reduced the functioning of from plants. P RIOR I T Y 1 Enhance the Legislative Foundation for Water Governance I t is essential that China codify recent major exist- seek to outline them in specific water laws intended ing principles and reforms into laws to send strong to codify, in a single legislative instrument, the frame- policy signals to local officials and enterprises that work for water resource management. This approach compliance will be taken seriously. China should take is recommended by many water law experts (Wouters several steps to enhance the legislative foundation for 2000), but it is also widely recognized that framework water governance. First, the 2002 Water Law requires water legislation should seek primarily to enumerate an update to reflect the current legislative environment basic principles for water governance, while clarify- and the new administrative landscape, including the ing specific provisions through subsidiary regulations. new ministries announced in the 2018 reform. Second, According to one prominent water law expert, for approaches to enforcement of existing pollution legis- example, “A basic water law, act, or code should not lation needs to be expanded. Third, legislative adjust- be too detailed, but should contain the basic principles ments can be made to encourage greater public-private which create the instrumentalities which ensure the partnerships (PPPs), which will be critical for mobilizing attainment of its objectives.” (Caponera 1992, 133). financing to support water management. In approaching the broader issue of water governance reform, it is therefore necessary to first consider such Update the 2002 Water Law basic legal foundations. In many countries, legislation serves as the founda- Legislative reform has been one of the most important tion for water governance. The challenges of sharing elements of China’s first generation of water gov- water between different uses and between upstream ernance reforms. As with that of several countries, and downstream users have in many parts of the China’s Constitution specifies that water resources are, world given rise to a complex body of water law that with minor exceptions, the property of the state, and determines, among other things, basic principles for therefore subject to near total regulation. Several laws how water is allocated, as well as through what means pertaining to water resources have been promulgated or institutions. While some countries, such as the under this general authority, including the Soil and United States, and many common law legal systems Water Conservation Law of 1991, the Water Pollution have established these principles through individual Prevention and Control Law, first passed in 1984 and legislative provisions and judicial decisions, others most recently amended in 2017, and the Flood Control 28 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — SYNTHESIS REPORT Figure 2.1 Selected Key Water Governance Laws and Policies, 1984 to Present 2012: Most Stringent 2018: 1984: Water Pollution System for Water Resource Ministerial Prevention and Control Law 1997: Flood Control Law Management (Three Red Lines) Reorganization 1991: Soil and Water 2002: Water Law 2015: Environmental Conservation Law Protection Law Law, first passed in 1997 and most recently amended Perhaps the most significant gap in the present Water in 2016. The most significant and comprehensive legis- Law is that it does not sufficiently regulate interjurisdic- lative instrument for water governance, however, is the tional water pollution. China’s current water governance Water Law. This was first promulgated in 1988 and was system often encourages the setting of water quality significantly revised in 2002, with a further amendment regulations on a jurisdictional rather than regional in 2016 to emphasize the need for water infrastructure scale (Li, Liu, and Huang 2010). Since many courts construction to align with integrated basin planning, are ill-prepared, and in some cases unauthorized, to and for any construction in designated important rivers hear cases of inter-jurisdictional infractions, enforce- and lakes, and sub-national transboundary rivers and ment of inter-jurisdictional pollution issues is very lakes requiring letters of authorization signed by basin difficult (Moore 2017). Similarly, while effective water management institutions. The Water Law forms the management requires multiple government agencies legislative foundation for China’s current water gover- and jurisdictions to work together, at present, there nance system. Accordingly, as is the practice for similar are few institutional forums to facilitate or encourage basic legislation in other countries, the Water Law such inter-jurisdictional and inter-sectoral coordina- should be periodically updated to take account of new tion (World Bank/DRC 2017e). These gaps need to be developments and challenges (Caponera 1992). addressed in the Water Law to better address pollution and other issues that cross provincial and local govern- Since the last major revision of China’s Water Law in ment boundaries. 2002, many important laws and policies have been promulgated that have reshaped the landscape for Moreover, several significant legislative and regula- water governance in China (see figure 2.1). Accordingly, tory developments have taken place in the last 15 the Water Law should be revised to reflect new prin- years that are not directly addressed by the Water ciples and challenges that have emerged for water Law. At least three major pieces of legislation with resource management in China. The Water Law should implications for water resource management, namely be updated to: (i) establish a clear institutional mecha- the Environmental Impact Assessment (EIA) Law, the nism for addressing inter-jurisdictional water pollution, Water Pollution Prevention and Control (WPC) Law, including through the River and Lake Chief System; (ii) and the Environmental Protection Law (EPL), have strengthen provisions related to water quality enforce- come into force or been revised since the Water Law’s ment and environmental impact assessment; (iii) most recent 2002 revision. The EIA Law establishes clarify the allocation of powers and responsibilities for a detailed process that must be undertaken prior to implementing key water resource management poli- construction of water conservancy projects, including cies among the ministries of Ecology and Environment, large dams, part of which consists of public consulta- Natural Resources, Water Resources and other entities, tion and review. The WPC Law builds on many of the including the Action Plan for Prevention and Control of environmental provisions of the water Law, directing Water Pollution, the Most Stringent System for Water local officials to maintain and improve environmental Resources Management, and the Ecological Civilization conditions, prevent and control water pollution, protect Construction pilot. While there is a clear need to under- aquatic ecosystems, and ensure safe water supplies. take a significant update of the Water Law, there are The EPL, meanwhile, includes provisions authorizing many options for how these updates can be under- and encouraging the use of eco-compensation mecha- taken, and supporting regulations should be amended nisms for water pollution, and directs local authorities accordingly. to establish “ecological red lines” for areas including 29 source water regions. Some of these provisions appear enforcement of existing water quality standards. In a to supersede elements of the 2002 Water Law. recent survey of textile plant operators, for example, only 25 percent of respondents indicate that their Finally, the Water Law does not reflect several critical operations have been impacted by the Water Pollution environmental and water policy initiatives, and does and Prevention Control Action Plan, despite the Plan’s not define how the responsibilities for achieving them specific targeting of the textile industry (McGregor might be allocated among various ministries and agen- 2017). Current methods of enforcement include the cies. First, it does not include the core concept of “eco- increased use of fines, public identification of cities and logical civilization” that currently underpins much of enterprises that violate pollution regulations, and tying China’s environmental policy. The concept, promulgated the promotion of local officials to meeting water quality by the government in 2015, integrates environmental standards. Each of these methods should be considered quality metrics into the set of criteria used to evaluate as part of a holistic strategy to strengthen enforcement, the performance of government officials, and encour- because research suggests that combining enforcement ages public and non-governmental participation in pol- mechanisms is more likely to be effective than relying lution monitoring and environmental protection (Geall solely on such measures such as increasing inspections 2015). Second, the Water Law does not codify the Most (Lin 2013). Among this range of options, one promising Stringent Water Resource Management System, also method is to expand the use of citizen suits to seek known as the Three Red Lines in reference to its three redress for environmental harms, and this should be main elements, which include a cap on total national water use (World Bank/DRC 2017g). Yet despite their carefully considered as part of a holistic strategy. importance, the Three Red Lines lack explicit legislative Environmental law cases have been rare in the Chinese authorization and a clear designation of administrative legal system, primarily because it has been unclear responsibility for achieving them. There is, for example, whether individuals or entities have the legal stand- no explicit linkage between the 2002 Water Law’s river ing to bring lawsuits for environmental harms. China’s basin planning and allocation provisions and the Three Water Pollution Control and Prevention Law of 1996 Red Lines water quantity allocations (World Bank/DRC provides for lawsuits related to harms caused by water 2017g). Codifying the Three Red Lines through revision pollution, but only if arbitration initiated by the local of the Water Law would help reflect the importance environmental protection department were to fail. Over of these allocations to China’s overall system of water the past decade, however, China has enacted several governance. important reforms to enable citizen suits to enforce environmental regulations. In the late 2000s, several Strengthen Enforcement of specialized environmental courts were established to Existing Water Quality Standards help redress the fact that many judges were unfamiliar with the concept of environmental litigation or enforce- In China, as in many countries, the most important ment (Stern 2014). In 2012, China’s Civil Procedure Law means of addressing water pollution is a set of legis- was amended to provide that “relevant bodies and lative and regulatory provisions that establish water organizations … may bring a suit to the people’s court quality standards and penalties for those responsible against such acts as environmental pollution.” The for violating them. These regulations are an especially most recently amended version of the Environmental important means of controlling pollution from point Protection Law, which took effect in 2015, further sources such as factories and enterprises. China has clarifies that any properly registered organization that established water quality standards, including approx- has “specialized in environmental protection public imately 25 water quality criteria for surface waters, interest activities for five consecutive years and have including temperature, nitrogen, and chemical oxy- no law violations” is entitled to bring environmental gen demand; 69 criteria in wastewater; and specific lawsuits (Zhang 2014). In 2017, the China National discharge and effluent standards for various industries, People’s Congress also approved the amendment of the including iron and steel manufacturing, rare earths Civil Procedure and Administrative Procedure Laws to mining, and so on. Policies such as the Action Plan for formally allow procuratorates, which prosecute cases in Prevention and Control of Water Pollution and the Most the public interest, to file civil lawsuits in cases relating Stringent System for Water Resources Management to environmental protection, including water pollution have moreover established a framework to enforce (Zhang 2017a). This reform is especially promising these standards through water quality monitoring and because the procuratorates are powerful entities with reporting, fines, and, in some cases, criminal penalties. substantial legal and investigatory resources that Despite the existence of this framework, enforcement outstrip those available to nearly all non-governmen- of existing water quality standards remains a challenge, tal organizations (NGOs) (Wilson 2015). However, the and several options should be considered to strengthen experience of other countries suggests that allowing 30 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — SYNTHESIS REPORT individual citizens to litigate for water-related environ- Box 2.1 Role of Environmental Litigation mental harms can be a powerful tool for improving in U.S. Environmental Enforcement enforcement of pollution control legislation. The United States has adopted a highly litigious In some countries, most notably the United States, approach to environmental enforcement, but one that litigation is an important method for enforcing envi- effectively enlists non-governmental entities in enforc- ronmental regulations, particularly those concerning ing regulations. Broadly speaking, the U.S. system pollution. In the United States, environmental regu- provides two avenues for non-governmental engage- lations can be enforced by three primary avenues: ment in environmental enforcement. First, several key administrative agencies acting to fulfill a legal man- pieces of legislation, notably the Clean Air and Clean date, lawsuits filed against government agencies by Water Acts, specifically authorize individuals to sue NGOs, usually seeking to compel administrative agen- entities in violation of environmental quality standards. cies to act against polluters, and by individual citizens Second, individuals can sue governmental entities for and organizations acting as “private attorneys-gen- not enforcing such standards, or for doing so in a way eral” by suing to prevent environmental harms (see that does not satisfy other legal requirements. This box 2.1). This last avenue, which effectively depu- two-part approach allows non-governmental entities to tizes individual citizens and organizations in enforcing both help police polluters as well as to hold regulators environmental regulations, creates an additional to account. incentive for polluters to minimize the impact of their activities on neighboring entities, which might oth- The Clean Water Act, for example, specifies that “any erwise sue them, and promises to thereby increase citizen may commence a civil action on his own behalf enforcement capacity at little cost to the government against any person, including the United States … who (Daggett 2002). The two keystone pieces of environ- is alleged to be in violation of an effluent standard or mental legislation in the United States, the Clean Air limitation” as well as “against the Administrator [of and Clean Water Acts, offer two different examples the Environmental Protection Agency] where there of how these “citizen suits” have been enabled. The is alleged a failure of the Administrator to perform Clean Air Act includes a specific citizen suit provision any act or duty.” The Act also gives district courts the explicitly intended to enhance federal air pollution authority to themselves “enforce such an effluent enforcement capacity, and allows any person to bring standard or limitation,” and to “apply any appropriate suit under the act for breach of air quality standards, civil penalties.” or failure to enforce them (Alpert 1988). The Clean Water Act, meanwhile, includes a similar provision, but more narrowly defines which entities possess standing to sue for alleged water pollution violations (Campbell 2000). Codify and Strengthen the Role While China has embraced the basic principle of of Public-Private Partnerships non-governmental standing to sue, the U.S. experience China has become one of the world’s most important in environmental law offers several lessons to improve and active markets for public-private partnerships China’s potential to control water pollution. In addition (PPPs) in the water sector. PPPs have long held an to allowing specified organizations standing to sue attraction for governments (especially in the low- and for water-related environmental harms, China should middle-income countries [LMICs]) that seek to expand consider granting individual citizens the same standing, infrastructure coverage while minimizing pressure on at least under specific circumstances. By expanding the public budgets. There are many approaches to PPPs, number of potential lawsuits, this reform would create but most rely on private sources of capital to finance an even stronger economic incentive for industries most of the initial capital cost of building infrastructure, to prevent and control water pollution. The amended which is then recouped through long-term conces- Water Pollution Prevention and Control Law permits sions, user fees and charges, or other mechanisms. citizens to sue for the disputes of costs, damages and Roughly 511 water sector PPP projects were initiated compensations due to the water pollution issues. This in China between 1994 and 2017. Many of these standing to sue could be extended to allow citizens projects focused on wastewater treatment, as well as to sue for a broader range of harms, including those urban water supply. The development of PPP invest- associated with long-term chemical exposure. This ments in the water sector in China has gone through amendment should be accompanied by other regula- four distinct stages. The initiation stage was from the tory changes to further increase fines and strengthen middle of 1990s to 2001 when PPP started to invest incentives for local officials to ensure compliance with urban water supply systems in several cities. From water quality standards. 2002 to 2008, PPP investments in the water sector 31 Figure 2.2 PPP Water Sector Projects and Investment in China, 1994–2017 Number of Projects Total Investment (US$ 000) 60 2000 1800 50 1600 1400 40 1200 30 1000 800 20 600 400 10 200 0 0 1994 1997 2000 2003 2006 2009 2012 2015 1994 1997 2000 2003 2006 2009 2012 2015 Source: World Bank data. Box 2.2 Summary of Water Sector PPPs in China Various forms of PPPs have played a critical role in more efficient than state-run utilities. PPP-run utilities China’s water sector development over the past 20 are more fiscally sustainable, featuring 5 percent to years. Since China opened its water sector to private 16 percent higher total factor productivity, a 1 percent sector participation in 1995, international and domes- lower subsidy rate, and 6 percent lower labor costs. tic private sector companies, as well as state-owned At the same time, PPP-run utilities feature generally enterprises (SOEs), have powered a dramatic expansion better outcome indicators, including larger service in water and wastewater provision, from serving less areas, lower leakage rates, better bill collection rates, than 1 percent of the population in 1990 to approxi- and lower energy consumption. But while such per- mately 40 percent in 2015. These partnerships, which formance indicators are compelling, tariff rates remain include operation and maintenance (O&M) contracts, generally below cost recovery rates, reducing the Build-Operate-Transfer arrangements, and Joint Venture attractiveness of PPPs for private sector investors. mechanisms, were initially dominated by multi-na- Another promising example is a PPP project in Chizhou tional companies. However, the market has become City (Anhui Province), which aims to model the sponge indigenized: local private companies and SOEs now city pilot program to improve resilience to extreme constitute nine of the 10 largest players. PPPs in the weather and simultaneously improve the Qingxi River water sector have increasingly become attractive due Basin catchment. This very successful PPP is often to general trends with increasing tariffs, infrastructure referred to as the “Chizhou model.” The PPP started in subsidies, and alternative payment methods, including 2014, when the Chizhou municipal government signed from land development. a cooperation agreement with Shenzhen Water (Group) In several cases, PPPs have helped to introduce new Co., Ltd., an SEO, for the provision of urban sewage technologies and practices. Shanghai’s Nanxiang treatment and municipal drainage. The city’s financial Wastewater Treatment Plant, for example, financed resources were insufficient to cover the total costs of in part through a PPP agreement with China Water the project. Therefore, the government decided to split Environment Group, a private investment company, the project into three separate components financed uses an advanced anaerobic-anoxic-oxic treatment from different sources: sewage and municipal drainage, technology to meet discharge standards. The munici- the restoration of Qingxi River, and sponge city con- pal government invited the private sector to improve struction measures including public parks and natural the management of the plant and test these new recreation areas. These three components together approaches. A 2016 Asian Development Bank study leveraged RMB 2.28 billion, split among contributions surveyed about 300 state-run and PPP utilities in from the central government, municipal government, China; the results show that PPPs are significantly and the private partners. Source: World Bank/DRC 2017f. 32 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — SYNTHESIS REPORT increased dramatically, driven by the adoption of policy Report (2016), China scores 80 out of 100 possible regulations to marketize municipal services through points on PPP procurement, and 75 on unsolicited public utilities. However, the PPP investment reached proposals, but only 54 on PPP preparation and 58 to the regulation stage with the decreasing trend from on PPP contract management, suggesting that addi- 2009 to 2013 partly due to the public criticism on the tional regulatory reform could help lower barriers to marketization of water supply services. In 2014, the greater private investment at both the preparation and central government announced several regulations implementation stage. On a practical level, four primary which stimulated the development of PPP investment barriers have historically hindered the expansion of in water sector (figure 2.2). After encountering several PPPs. First, PPP regulations are not entirely consistent, regulatory and other hurdles, particularly with respect creating significant uncertainty. Second, the slow pace to foreign investment, the Chinese Government has of tariff reform in some sectors reduces the financial substantially reformed the overall policy framework viability of some projects. Third, there is a lack of trans- for PPPs (Wu, House, and Peri 2016). Nonetheless, this parency in many PPP bidding processes. Fourth, the framework requires additional reform considering the dominance of SOEs in PPPs to date risks crowding out prominent role that PPPs are expected to play in future local private sector firms as well as foreign participation water sector investment. (ADB 2010). The 18th Party Congress’s Third Plenum reforms, Codifying the existing regulatory framework, which announced in 2013, envision a “Decisive Move to the includes the 2010 State Council guidance and the Market,” in which PPPs are expected to play an even National Development and Reform Commission’s more important role in water infrastructure provision (NDRC)’s 2014 Guidance on the Social Capital and as a source of needed financing. The government Cooperation Model, into a uniform set of regulations has already identified water sector priorities for PPP would help to fill these gaps. Enhanced provisions, investment (e.g., dams, urban water supply, and water such as inclusion of model dispute resolution sys- pollution control). Several important regulations have tems as proposed by the World Bank International been promulgated to establish a basic framework for Center for the Settlement of Investment Disputes PPPs. These include a set of guiding opinions issued by (ICSID),1 can further encourage PPP expansion. the State Council in 2014, as well as separate directives Existing regulations should also establish common issued by the Ministry of Finance and People’s Bank standards for key elements of PPPs, including condi- of China (World Bank 2017b). The Ministry of Finance tions for asset ownership and transfer, and super- also established a National PPP Center to provide policy visory and approval mechanisms. These reforms research, advice, training, and inter-agency coordina- could take the form of either additional revisions to tion. The regulatory framework makes clear that PPPs the 2002 Water Law or as inclusion in a separate are expected not only to contribute to a stronger and National Government and Social Capital Cooperation more diversified revenue base but also to improve Law currently under formulation. coordination between the public, private, and civil soci- ety sectors in furtherance of policy goals (see box 2.2) (GoC 2014). In order to fully realize this potential, Note existing regulations concerning PPPs need to be both 1. ICSID has an administrative council and a secretariat. Each codified and strengthened further. member country has a seat in the administrative council The current regulatory and policy framework for PPPs at the center. The council is not involved in the handling of individual cases, and its main task is to deal with issues has several gaps. From a regulatory perspective, such as the institutional framework of ICSID. ICSID has a no specific methodologies have been developed to secretariat consisting of about 70 professionals who are support key elements of the PPP preparation process, responsible for arbitration and mediation cases. This divi- including economic analysis, financial viability and mar- sion of functions not only enhances the fairness and inde- ket assessment, and standardized contracts. Overall, pendence of the global dispute settlement mechanism but according to the World Bank’s PPP Benchmarking also ensures the efficiency of arbitration and mediation. P RIOR I T Y 2 Strengthen National- and Basin-Level Water Governance A fundamental challenge for water resource While China has embraced the concept of river basin management is that many issues, includ- management, a variety of institutional barriers inhibit ing pollution and allocation, are inherently their effective function. To achieve policy objectives inter-jurisdictional in nature. These issues are shaped such as the Three Red Lines, better integration across more by the boundaries of watersheds than politi- policy areas is needed. Achieving the standards for cal and administrative jurisdictions. For this reason, pollution discharge and environmental water qual- it is not uncommon to find institutions at both the ity, for example, depends in part on erosion control, national and river basin scale rather than at the managing fertilizer use in the agriculture sector, and political or administrative scale. For river basin water rangeland management far upstream. Such responsi- governance, such institutions can take the form of bilities fall outside the scope of any single ministry or centralized regional bodies (e.g., the U.S. Tennessee jurisdiction. Thus, national and river basin entities need Valley Authority), inter-jurisdictional commissions to be strengthened in ways to help ease coordination in which the different states, provinces, and other problems and promote necessary cooperation across jurisdictions that share a river basin are represented agencies. Three specific actions are proposed. (e.g., the Mississippi River Commission), or more informal networks of water users from a basin that Create a National Coordinating agree to work together to accomplish specific aims (e.g., Brazilian watershed committees). Roles and Mechanism for Water Governance responsibilities of these entities may vary. More Like that of most countries, China’s policy-making important than the design of these water gover- apparatus is sufficiently large and complex that imple- nance institutions is what they achieve, namely inte- mentation can be hindered by a lack of coordination grated and cooperative management that accounts and communication between different elements of for different water uses and sources, including both its bureaucracy. For decades, China has employed a groundwater and surface water; balances compet- type of inter-governmental coordination mechanism, ing objectives, including economic development the “leading small group” (lingdao xiaozu), to spear- and environmental protection; and builds consensus head policy reforms. The use of leading small groups on contentious management issues, including the has waxed and waned over time, but China’s current ­ allocation of water (Molle 2009). President Xi Jinping has employed them extensively to 36 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — SYNTHESIS REPORT pursue top policy priorities, and has established new generators, and inland navigation transportation groups responsible for cyber security, military reform, companies. Finally, civil society organizations repre- and overall economic reform (MERICS 2016). The model sented on the CNRH include watershed committees, of the small leading group is especially relevant for the research institutions, and non-governmental organi- water sector, which includes a wide range of stakehold- zations (NGOs). Although it has not completely solved ers, and inherently requires close coordination between the problem of inter-sectoral coordination, the CNRH a number of ministries, agencies, and other entities. provides a multi-stakeholder platform that includes most of the relevant stakeholders related to water gov- China’s water governance spans many central govern- ernance in Brazil. In contrast to Brazil’s highly inclusive ment Ministries as well as relevant agencies at pro- model, the U.S. established a National Water Resource vincial and local levels of government (see figure 1.6). Council under the 1965 Water Resource Policy Act. This Key agencies include the Ministries of Water Resources, model focuses more on building consensus among Housing and Urban-Rural Development, Agriculture, senior-level policy makers at the federal government the National Development and Reform Commission, as level and comprises cabinet-level officials from the well as the Ministry of Ecology and Environment and departments of Interior, Agriculture, Army, Commerce, Ministry of Natural Resources. Each has specific respon- Housing and Urban Development, Transportation, sibilities that are not always harmonized. Historically, Energy, and the Environmental Protection Council, along for example, the fragmented responsibility between with a chairman appointed by the President (42 U.S. the Ministry of Water Resources and former Ministry Code 1962a). of Environmental Protection has hampered policy responses to water pollution. China’s principal water-re- Any coordination mechanism needs to be developed lated legislative instruments, the Water Law and the and implemented within the appropriate country con- Water Pollution Prevention and Control Law, do not text. China’s complex water governance system, with a clarify the division of responsibility between these two number of central ministries as well as relevant agen- ministries, resulting in occasional conflicts of interest, cies at provincial and local levels of government, would management costs, and decreased management effi- benefit from enhanced coordination among key central ciency (MERICS 2016). The reported transfer of many level ministries, such as Water Resources, Ecology and responsibilities for water pollution to the Ministry of Environment, Housing and Urban-Rural Construction, Ecology and Environment in March 2018 is expected to Agriculture and Rural Affairs, and Natural Resources. partly address this situation. Nonetheless, it is difficult While there are several possible modalities for estab- to consolidate all powers and functions related to water lishing such mechanisms, from advisory to more resource management within a single ministry, as the executive models, any such mechanism should have experience of other countries suggests. the necessary stature to convene different stakeholders and the authority to formulate policy recommenda- One response to the cross sectoral challenges associ- tions. Such a coordination body would be well posi- ated with water is to establish a high-level inter-gov- tioned to guide the formulation of joint implementation ernmental coordination mechanism. Such mechanisms plans and major policy initiatives. Implementation of typically include representatives of relevant govern- measures to realize the Three Red Lines are already ment agencies and departments, and are charged coordinated by a working group with members drawn with setting high-level policy related to water resource from ten related ministries. Such coordination mecha- management. Among countries with such mechanisms, nisms can also ensure the coordinated implementation Brazil has established the National Water Resources of main, cross cutting pieces of legislation, such as Council (Conselho Nacional de Recursos Hidricos, or Water Law and the Water Pollution Prevention and CNRH). This is an apex body that is mandated with Control Law. Regulatory and administrative functions coordination among a complex water governance would remain with the individual ministries. Finally, system consisting of river basin commissions, state- such a body should ideally be supported by technical level councils, federal agencies, and sub-national experts in various aspects of water resource develop- entities. The CNRH is chaired by the federal Minister of ment and management. the Environment and consists of 57 seats, of which 29 represent different federal ministries, 10 are filled by representatives of the State Water Councils, 12 repre- Strengthen Basin Level Coordination sent water user groups, and six are reserved for civil One of the longest-standing principles of water society.1 Federal ministries represented include those of resource management has been, so far as is practical, Transportation, Health, Agriculture, Livestock and Food to organize water governance institutions at least Supply, and Cities, as well as special representatives for partly along the boundaries of river basins rather small-holder farming and women. Water user groups than political boundaries. This approach has been represented include irrigators, utilities, hydropower advocated at least since the 1930s as a solution to 37 the problem of concurrently addressing issues like (World Bank 2006, 3). This is at the heart of integrated pollution, flooding, and navigation, the extent of water resource management. which is bounded primarily by hydrological rather China established river basin commissions, also called than jurisdictional units (Barrow 1998). It is not so water conservancy commissions, during the 1950s much the form of the organization that is important and 1960s for most of its major river basins, as well but that the functions required for ensuring river as for Lake Tai. Legislation has established the river basin management are carried out in an integrated basin as the unit for planning. The primary purpose manner. In this context, a river basin organization can of these commissions has changed in response to the perform a wide range of functions that are largely prevailing needs and context. Over time, the com- dependent on the context and purpose for their missions have gained more important water resource creation (see box 3.1). ­ management functions. According to the Water Law There are a wide range of possible institutional models amended in 2016, the responsibilities of the river basin for strengthened river basin governance, and these commissions include water resources management and need not possess all possible functions (Lankford and supervision as stipulated by laws and administrative Hepworth 2010). The functions and powers assigned regulations and the State Council. Despite their name, to a river basin organization may include: (1) advisory the river basin commissions do not have official repre- functions that extend to consultative, coordinating, or sentatives from local governments and other related policy-making functions; (2) executive functions, which organizations. Following the institutional reforms, China may include carrying out of studies, exploration, inves- is also implementing a pilot scheme to establish basin- tigation and surveys, preparation of feasibility reports, based agencies for environmental supervision and inspection and control, construction, operation, main- administrative law enforcement. tenance or financing; (3) regulatory functions, which The river basin commissions suffer from several may include the implementation of the decisions of the limitations. First, they lack authority to supervise or administration, as well as law making, in which deci- direct provincial or local government officials, and are sions may take effect directly or after acceptance by a sometimes ignored by them (World Bank/DRC 2017b). higher authority; or, (4) judicial functions, which may Without direct participation and cooperation of local include arbitration, mediation, fact-finding or dispute government bodies, the river basin institutions are settlement. The decision on the organizational form and character creates a framework that determines the manner in which political and economic factors relate to technical issues around water resources. Any water resources organization should consider the form, territorial Box 3.1 Functions of a River competence, constitution and duration, objectives Basin Organization and purposes, functions and powers procedures for • Acquisition, exchange and monitoring of hydrologi- decision-making, legal status, as well as financial and cal, technical and other data economic matters along with dispute settlement mech- • Advisory and technical (e.g., modeling, environmen- anisms. Subsequent experience and research have tal, and social assessment) shown that while there is often value in creating insti- tutions that encompass whole river basins, they often • Implementation of inter-jurisdictional agreements face practical obstacles in terms of authority, autonomy, and arrangements resources, and legitimacy. • Policy coordination, integrated planning, and devel- Many accounts stress the need for such institutions to opment of the river basin serve a “convening” function by incorporating diverse • Maintenance, management, and operations of stakeholder groups, as well as the need to forge links water-related infrastructure between river basin management organizations, • Water allocation and water rights administration central and sub-national governments, and small- er-scale organizations at the sub-basin level (Jaspers • Conflict management and mediation 2003; Lankford and Hepworth 2010). In general, • Mobilize financing resources, levy charges, and the consensus among water resource management collection of fees professionals holds that “it is considered best practice • Forecasting, warning, and emergency preparedness … to integrate water quantity and quality manage- ment for both groundwater and surface water, while • Convening entity for interjurisdictional water-related incorporating a full understanding of how the natural issues resources and the people of a basin are impacted” • Stakeholder consultation 38 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — SYNTHESIS REPORT unable to address inter-jurisdictional and inter-sectoral basin commissions and local governments, especially issues such as water resource allocation and pollution. at the provincial level. Moreover, the re-organized river Second, they have not been given the mandate nor basin commissions should have sufficient budgetary the authority to simultaneously manage water quantity resources to match their increased administrative alongside water quality and the environmental and responsibilities. ecological health of the basin. Finally, the commissions International models (e.g., in France, the United States, lack sufficient authority to arbitrate or resolve disputes Spain, Australia, South Africa, Brazil, and the European among jurisdictions within each river basin (World Union [EU]) can provide useful guidance on how China’s Bank/DRC 2017b). To address these issues, the river existing river basin commissions might be reformed basin commissions should be given enhanced author- or reorganized along these lines. A key element of ity and clarity in the key areas of planning, coordina- most river basin management institutions is that tion, implementation, enforcement, and financing. they feature mandated representation from multiple This enhanced authority is not intended to diminish sectors, and often leaders from different jurisdictions or duplicate powers currently exercised by other within a river basin (Jaspers 2003). For example, the existing entities, but would rather create the sorts of Brazil Water Law (1997) prescribes the river basin as “cross-scale linkages” necessary to effectively govern the territorial unit for management, and that river resources that are shared between users in multiple basin committees comprise representatives of the political jurisdictions.2 For China, it is especially critical union, states, and federal government; municipalities; to establish stronger cooperation between the river water users; and civil entities located in the basin. Figure 3.1 Governance of the Murray-Darling Basin Authority, Australia Basin plan functions and governance MDB Agreement functions and governance CORE FUNCTIONS 1 3 1 The decision maker on the Basin Plan and chairs MINISTERIAL COUNCIL Ministerial Council COMMONWEALTH Advice Cth (Chair), NSW, VIC, WATER MINISTER Responsible for developing, SA, QLD, ACT 2 implementing, evaluating and BCC Chiar an observer reviewing the Basin Plan by invitation Manages the River Murray system on behalf Advice of joint governments lt nsu Co e Direct/ Policy- and decision- making Recommend vic Advice 3 Ad Delegate roles on state water shares ect and funding of joint programs Dir as per the MDB Agreement 2 4 5 Makes decisions consistent 4 Recommend with the delegations from BASIN COMMUNITY the Ministerial Council and MURRAY DARLING Direct/Delegate BASIN OFFICIALS advises on the Basin Plan COMMITTEE BASIN AUTHORITY COMMITTEE Advice Chairs and up to 16 Chair, Chief Executive and Officials from the six Provides advice to the members, including one 5 four part-time members Basin governments authority and Ministerial Advice Authority member Council on basin community issues Advice Consult Source: Murray-Darling Basin Authority. Note: MDB = Murray-Darling Basin Authority; Cth = Commonwealth Government; NSW = New South Wales; VIC = Victoria; QLD = Queensland; ACT = Australian Capital Territory; BCC = Basin Consultative Committee. 39 Thus, it is legislatively clear that participation is and environmental health. This includes clear responsi- extended widely both horizontally (i.e., sector) and ver- bility for taking the lead in developing master plans for tically (i.e., administrative). Similarly, the Murray-Darling the basin (which will take both a quantity and quality Basin Authority is responsible for developing and over- perspective), implementing the plan, and monitoring seeing basin-wide sustainable water resource planning, implementation progress. This monitoring should also while a preexisting multi-jurisdictional ministerial council include environmental and ecological monitoring. Thus, continues to guide policy and decision making relating it is important under a newly re-organized commission to long-standing inter-state sharing arrangements and that the participation, roles, and responsibilities of rele- joint funding programs (see figure 3.1).3 These gover- vant ministries, local governments, and local stakehold- nance arrangements for different functions are given ers are clear. This is especially relevant with the estab- in the Federal Water Act (2007). While complex, these lishment of the Ministry of Ecology and Environment provisions provide full clarity of roles and responsibilities and the Ministry of Natural Resources. These com- of different levels of government and different institu- missions will under any institutional scenario serve as tions across the spectrum of water planning, manage- important forums to improve policy coordination and ment, and operations. Where several political jurisdic- cooperative action both horizontally and vertically to tions share a river basin, a representational governance achieve common basin objectives and targets. model can provide a platform for consensus building Finally, given the size of some of the basins in China, (World Bank/DRC 2017b). This model differs from the the commissions should themselves establish sub-basin current setup of China’s river basin commissions in that level councils, committees, or other decision-making China’s institutions do not explicitly represent different structures as needed to ensure that water resource provinces and local governments; instead, all members management policies are implemented at the lowest of the commission are at least nominally affiliated with levels. The Upper Mississippi River Basin Association China’s central government. This arrangement tends to (UMRBA) provides an example of a sub-basin entity result in the interests of individual provinces receiving (sitting in the larger Mississippi River Commission) more attention than the broader basin (World Bank/ designed to provide greater local level participation. DRC 2017b). This was formed in 1981 to facilitate dialogue and Some legislation is explicit in mandating water quan- cooperative action regarding water and related land tity and quality be handled jointly. For example, the resource issues specific to the upper portions of the EU Water Framework Directive (WFD), and the EU Mississippi River Basin. It serves as a regional forum Directive 2000/60/EC of the European Parliament and for the cooperative planning and management of of the Council (23 October 2000) identifies the river river-related issues of common concern to the states of basin district as the main unit for management of river the Upper Mississippi River Basin. The Association also basins.4 The rationale for choosing this level is stated in provides a forum to develop regional positions on river the preamble “The objective of achieving good water resource issues and serve as an advocate of the basin status should be pursued for each river basin, so that states’ collective interests before federal agencies. Over measures in respect of surface water and ground the years, the Association has addressed a wide range waters belonging to the same ecological, hydrological of issues including: nonpoint source (NPS) pollution, and hydrogeological system are coordinated.” Though water quality planning and management, inter-basin the WFD does not prescribe the creation of new author- diversions, cost-sharing strategies, water project financ- ities, entities, or commissions on the river basin level, ing, sediment and erosion, hazardous spills, toxic pol- it does require all member states to produce a river lution, habitat restoration, navigation capacity, channel basin management plan for each river basin district maintenance, flood response and recovery, floodplain lying within their territory. These plans lay out how management, wetland protection, hydropower devel- the objectives set for the river basin (ecological status, opment and licensing, and drought planning. quantitative status, chemical status, and protected area Several approaches could be taken with respect to objectives) are to be reached.5 Finally, the WFD states: strengthening and establishing river basin commis- “for the purposes of environmental protection there sions. Each of these options has advantages and is a need for a greater integration of qualitative and disadvantages. Given the large size of China’s river quantitative aspects of both surface waters and ground basins, different institutional models may be more waters.” Thus, both the water quantity and water qual- appropriate in some basins than others, and different ity perspectives are expected to be considered in the models could be tested through pilot reforms instituted planning process. in one or more river basins before being refined and These examples illustrate that it is essential that river replicated nationwide. At the same time, it is important basin commissions have clear responsibility for inte- that the commissions be fully integrated into water grated management of water quantity, water quality, policy making at the national level. The reformed 40 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — SYNTHESIS REPORT river basin commissions should also enjoy a formal Box 3.2 The Wuxi River Chief System relationship to the national coordinating mechanism. Ideally, this relationship should be structured such that Wuxi City, located on Lake Tai in populous, rapidly the coordinating mechanism provides strategic direc- developing Jiangsu Province, has long struggled to tion in the form of policy guidance that informs the control water pollution. In cooperation with the central operation of the commissions. One approach could be and provincial governments, Wuxi was one of the first to establish sub-committees for specific issues such local governments to establish a river chief system. as flood control, pollution, and allocation under the In 2007, the city introduced water quality metrics into coordinating mechanism that would comprise repre- the evaluation system of local officials, ensuring that sentatives of relevant ministries and agencies charged the issue would be taken seriously by local leaders. with developing policy guidelines on these specific The effort was widely judged to be a success, with the issues. Unlike the national coordinating mechanism, percentage of tested water quality reaching accept- these sub-­ committees could meet on a regular basis, able standards increasing from less than 25 percent seeking guidance from the national body as needed. before the reform to almost 75 percent by the end of This approach would encourage the commissions to 2008. Subsequently, the municipal chief of the Chinese function in a more inter-agency manner, and allow Communist Party has taken the position of river chief, them to better arbitrate and navigate inter-agency or indicating the municipal leadership’s commitment to inter-jurisdictional issues. Codification of these reforms addressing the issue. could take the form either of additional revisions to the 2002 Water Law, as proposed previously, or a separate National River Basin Management Law. Establish Clear Coordination county, and township responsible for core water man- agement functions. The creation of these positions between the Provincial River reflects the fact that these policy priorities were in the and Lake Chief System and past often hindered by inter-governmental coordina- River Basin Commissions tion problems. The river and lake chiefs are expected to ensure that officials of various departments under In addition to creating river basin commissions, China their control work together to achieve key water has also adopted a unique solution to the inherent policy objectives. Despite the wide range of tasks nature of water as a boundary-spanning resource. In assigned to river and lake chiefs, it is clear that water December 2016, the Chinese government created quality is a special area of emphasis. A revision of a system of River and Lake Chiefs (hezhang) for the 2008 Water Pollution Prevention and Control Law, the country’s major waterways, one that was later completed in January 2018, codifies the responsibility extended to include major lakes and other water of river and lake chiefs to supervise water quality, bodies. This system names a single person, typically enforce pollution regulations, and oversee ecological a senior official at local, county, and provincial levels, restoration efforts (China Water Risk 2017b). to be responsible for each stretch or section of every major lake and waterway within their respective The river and lake chief system therefore represents jurisdiction. The primary purpose of the River and a distinctive response to the unique challenges that Lake Chief System is intended to strengthen enforce- China faces in water resource management. At pres- ment and accountability concerning key water policy ent it is too early to determine how effective the river measures including water use control, water quality and lake chiefs will be in carrying out their duties protection, and restoration of degraded waterways and the monitoring system to measure their per- (see box 3.2).6 It is also intended to address the fact formance. The central Government has proposed a that in some cases, local officials lack the incentives range of mechanisms to do so, such as conducting an to tackle fundamentally inter-jurisdictional issues environmental performance audit before officials are such as pollution and ecosystem protection.7 These rotated to posts in other jurisdictions, and establishing officials are responsible for meeting environmental a lifetime accountability mechanism for environmen- protection and water quality targets in their respective tal damage that occurs because of decisions made jurisdictions, even if they are subsequently rotated during an officials’ tenure (World Bank/DRC 2017b). to another jurisdiction. River and lake chiefs at the The relationship that the River and Lake Chief System provincial level are responsible for ensuring that water has with China’s existing river basin commissions is policies, especially those related to water quality, are also yet to be determined. One option could be to properly implemented within their individual juris- include provincial River and Lake Chief members in the dictions (Xu 2017). The river and lake chief system river basin commissions that include their jurisdictions. effectively makes the leaders of each province, city, Alternatively, liaisons could be appointed between 41 each provincial River and Lake Chief and relevant river 3. See the Murray-Darling Basin Authority’s website, basin commissions that would ensure communication accessed July 19, 2017, https://www.mdba.gov.au​ ­ and coordination between the two bodies. The use of /about-us​/governance/authority. this model may also be expanded to include “head” 4. The WFD defines river basin as “the area of land from which river and lake chiefs for specific large river basins (e.g., all surface run-off flows through a sequence of streams, riv- the Yellow and Yangtze rivers) or river and lake chiefs ers and, possibly, lakes into the sea at a single river mouth, at various administrative levels (e.g., central, provin- estuary or delta” (definition 13); and subbasin means “the cial, city, county, and township). A further mechanism area of land from which all surface run-off flows through a could include creation of data- and information-sharing series of streams, rivers and, possibly, lakes to a particular point in a water course (normally a lake or a river conflu- platforms accessible to both river basin commissions ence)” (definition 14). River basin district means “the area and river and lake chiefs, replicating a successful such of land and sea, made up of one or more neighboring river mechanism established for Lake Tai (Huanbaobu 2009). basins together with their associated ground waters and Regardless of the specific approach employed, it is coastal waters, which is identified under Article 3(1) as the essential that a clear channel of communication and main unit for management of river basins” (definition 15). coordination be established between the new river and 5. See the EC website “Introduction to the EU Water lake chiefs and the existing river basin commissions. Framework Directive,” accessed on July 3, 2017, http:// ec.europa.eu/environment/water/water-framework​ /info/intro_en.htm. Notes 6. The Wuxi example is described in Huanbaobu [Ministry of 1. See the CNRH website, “Composicao CNRH” [Composition Environmental Protection], “Wuxi: faqi ‘Hezhangzhi’ qian- of the CNRH], accessed October 28, 2018, http://www​ ghua hedao zhengzhi.” See the Ministry of Environmental .gov.br/index.php?option=com_content&view=article​ .cnrh​ Protection’s website, accessed on May 26, 2009, http:// &id=99:composicao-cnrh&catid=1:o-conselho-nacional​ www.mep.gov.cn/home/ztbd/rdzl/hzhzh/gdsj/200905​ -de-recursos-hidricos-cnrh. /t20090526_152010.shtml. 2. This concept arises from collective action theory. See, website, 7. See the Ministry of Environmental Protection’s ­ for example, Adger, Brown, and Tompkins (2005) and accessed on May 26, 2009, http://www​ .mep.gov.cn/home​ Heikkila, Schlager, and Davis (2011). /ztbd/rdzl/hzhzh/gdsj/200905​ /t20090526_152010.shtml. P RIOR I T Y 3 Improve and Optimize Economic Policy Instruments China’s ambitious policy reform agenda has created services is a critically important way of recognizing part multiple (and at times overlapping) sets of policy tools, of the value of water” (HLPW 2018). The power of pric- especially economic mechanisms, whose use and ing arises from its ability to send a clear signal to water application need to be better coordinated for maximum users about the scarcity value of the resource, and the effect. Different prices, taxes, and fees are levied on importance of conserving it (Shore 2015). Proper water water users to encourage conservation, capture exter- pricing can also help to re-allocate water from lower- to nalities, and move closer toward cost recovery. Some higher-value uses, such as from irrigation to industry, policies currently being piloted (e.g., tiered pricing and and be an important source of revenue for cost recovery water rights trading) can be expanded and represent (for both infrastructure capital costs and operation and global models. Further empirical research is needed to maintenance). Globally, however, water prices remain assess the effectiveness of these instruments to opti- generally too low to achieve these objectives. In 2017, mize their impact. These successful economic mech- a group of water executives concluded, for example, anisms can be better leveraged to advance national that water tariff rates in the United States would have to goals like those captured in the Three Red Lines. double to finance infrastructure upgrades and encourage conservation (GWI 2017). Expand Use of Economic China has enjoyed considerable success in leverag- Policy Instruments to Promote ing economic policy instruments to pursue various water policy objectives. The Third Plenum decision Sustainable Water Use on deepening the “move to the market,” announced Of the possible tools to promote sustainable water use, in 2013, envisions a much greater role for the use of perhaps none is as important as water pricing and other market-based policy instruments (Moore 2013). China economic policy instruments. The crucial role that water has piloted water pricing reforms to promote conser- pricing plays in water resource management was recog- vation and piloted water rights trading to facilitate nized by the High Level Panel on Water (HLPW), whose the re-allocation of water to its highest-value uses 2018 final report notes that “valuing water appropri- (Moore 2015). These reforms are broadly on the right ately is a cornerstone for better water management” track, but require further analysis of their effectiveness and that “appropriate pricing of water, or water before being expanded. This includes detailed empirical 44 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — SYNTHESIS REPORT analysis on whether current pricing structures and cubic meter for surface water and RMB 0.2 to 3.0 per policies are having their intended effects (e.g., reduc- cubic meter for groundwater in major coal-producing ing water use, curbing groundwater over-extraction, regions, the estimated shadow price of water ranged and moving closer to cost recovery and financial from RMB 11 to 81 per cubic meter (Thieriot and Tan sustainability). 2016). The price water users pay for drinking water ser- Some localities in China have made good progress in vice should consider the scarcity and cost of various reforming water prices to promote sustainable water conventional and non-conventional water sources in use. Beijing, for example, (table 4.1) has instituted a an attempt to promote efficiency and conservation tiered pricing structure that charges users a progres- in line with the vision of a “water-saving society”. In sively higher price, with the aim of encouraging water addition to pricing, various taxes and fees are used to conservation. At the same time, different prices are both encourage water conservation and finance water established for different water uses, including special infrastructure. In general, water resource fees (shuiziyu- uses like golf courses. This structure can help to direct anfei) are levied to cover capital, operation and main- water use to its highest-value uses. Urban and rural tenance costs associated with bulk water supply and water users are charged at different rates, helping to delivery infrastructure. Water resource taxes (shuiziyu- ease the financial burden on poorer farmers and rural anshui), on the other hand, are intended to capture residents. In recent years, some cities have introduced environmental externalities associated with particular preferential pricing for reclaimed water to encourage its water uses, and are often levied on groundwater with- use. As of 2010, 37 cities and counties in 18 provinces drawals. Wastewater treatment fees (wushuichulifei) have introduced a preferential price for reclaimed water support capital, operation and maintenance costs asso- (World Bank/DRC 2017h). Special consideration must ciated with wastewater treatment plants. These taxes also be given to how these tiered rates are structured and fees are often collected by different governmental to maximize conservation impact. A recent study of the entities, creating a complex and confusing system that use of increasing block rate structures (comparing 28 does little to promote sustainable water use. They are cities with increasing block rate structures and 110 cit- also generally below plausible estimates of the true ies without) from 2002–09 demonstrates reductions of scarcity value of water. For example, while the water annual residential water demand around 3 percent to 4 resource fee in 2015 ranged from RMB 0.1 to 0.6 per percent in the short run and 5 percent in the longer run (Zhang, Fang, and Baerenklau 2017). These are modest impacts suggesting room for improvement in the pricing structure and the need to determine the price Box 4.1 Estimating Price Elasticity elasticity (see box 4.1) (Wang, Huang, and Rozelle of Demand for Water in China 2000; Wang and Lall 2002; and Webber et al. 2008). As in the case of many countries, there is relatively little research to support definitive estimates of price elasticities in China, especially in the agricultural sector, Table 4.1 Water Pricing Rates and Structure in which accounts for most water consumption. Moreover, Beijing municipality, 2017 the estimates that do exist vary widely. For industry, Pricing category Prices (RMB per m3) Wang and Lall (2002) suggest an overall price elastic- Residential Tier 1: 5.0 ity of -1.0, while Zhou and Tol (2005) suggest -0.2 to Tier 2: 7.0 -0.35, and Jia and Zhang (2004) provide an estimate Tier 3: 9.0 of -0.5. Estimates for domestic water use, meanwhile, range from -0.35 to -0.55. Estimates of price elasticities Administrative / state-owned Urban: 9.5 Rural: 9 for agricultural water use are generally considerably lower. Wang et al. (2000) suggest -0.35 to -.041, while Industrial Urban: 9.5 Cai and Rosegrant (2004) estimate -0.11. Rural: 9 Service Urban: 9.5 These crude elasticity estimates carry two implications Rural: 9 for China’s water pricing reforms. First, they suggest Special Use 160 that price increases will have to be, in general, very high to induce changes in behavior and reductions in water use, especially in the agricultural sector. Second, Source: Beijing Government-Services (http://www.beijing.gov.cn/ bmfw/jmsh/jmshshjf/shjfs/sj/t1492197.html) these estimates suggest that there is scope to increase water prices for domestic, industrial, and agricultural Note: Many jurisdictions establish a range for each use; for simplicity water users to move closer toward full cost recovery for the table lists the maximum rate for each user type and water source category. O&M of water service provision. 45 Pricing signals could be made clearer to further encour- used, and with a higher rate for groundwater to dis- age conservation. For example, by clearly indicating on courage over-use of the province’s already depleted each water user’s bill the breakdown across services aquifers. Surface water resource taxes have been set at (e.g., supply, sewerage, and resource abstraction), RMB 0.4 per cubic meter, while groundwater resource water providers can send a stronger signal to users taxes are much higher at RMB 1.5 per cubic meter about the importance of conservation (Xie et al. 2008). (World Bank/DRC 2017h). It remains to be seen if this In the United States, for example, some water utili- approach will curb excessive groundwater abstractions. ties provide each customer with a clear breakdown of A single tax is easier to administer and for water users usage within each pricing tier, along with a comparison to understand and pay. Simplifying water resource of how much a customer pays relative to a “highly taxes can be an important tool for water scarce regions efficient” water user (World Bank/DRC 2017k). Highly to encourage conservation and support ecological water-stressed jurisdictions in China, especially in the functions. Tax reforms can also help to address water northwest, could consider adding additional special quality issues. While Hebei’s approach focuses on water use categories, such as for power plant cooling, to quantity, in October 2017 the government announced encourage the adoption of water-saving technologies that beginning in 2018, a tax of RMB 1.4 to 14 per (Tan 2017). unit volume of pollutant would be levied on water The differences in fee and tax structures across users pollutants nationwide, rather than leaving such rates to and jurisdictions is demonstrated in Table 4.2. However, the discretion of local authorities (Zhang 2017b). Such also of note is the fact that the water resource tax is reforms, which aim to better capture the externalities not progressive, but is based on fixed volumes instead associated with unsustainable water use and water of a marginal pricing basis. Such an approach does pollution, should be both continued and enhanced. not provide as strong a signal as marginal cost pricing Cost recovery is an especially important objective for to water users to reduce groundwater use in favor of the irrigation sector given the high cost of service deliv- alternatives, and therefore may not fully capture the ery. The 2002 Water Law attempts to codify the princi- environmental externalities associated with excessive ple of cost recovery for major water projects, stipulat- groundwater abstraction (World Bank/DRC 2017h). ing that water supply providers should directly receive Jurisdictions seeking to shift water use away from water fees collected by local governments and admin- groundwater should therefore consider marginal cost istrative units (World Bank/DRC 2017h). However, most pricing. agricultural water prices remain far below cost recovery In 2016, China launched a pilot scheme in Hebei levels, and are far too low to promote sustainable Province to replace water resource fees with a single water use. According to a 2010 survey of 414 large- water resource tax based on the quantity of water scale irrigation districts, the cost of agricultural water Table 4.2 Water Tax and Fee Rates and Structure RMB per m3 Water Use Water Resource Tax - Wastewater Treatment Beijing (2017) ­ Fee - Beijing (2017) Residential 1.57 1.36 ­ overnmental n.a. Administrative / G 3.0 Industrial Urban Surface Water: 2.3 3.0 Urban Groundwater: 4.3 Rural Surface Water: 1.8 Rural Groundwater: 3.8 Service Urban Surface Water: 2.3 3.0 Urban Groundwater: 4.3 Rural Surface Water: 1.8 Rural Groundwater: 3.8 Special Use 153.0 3.0 Source: Beijing Government-Services (http://www.beijing.gov.cn/bmfw/jmsh/jmshshjf/shjfs/sj/t1492197.html) Note: n.a. = not applicable. 46 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — SYNTHESIS REPORT supply was up to RMB 1.18 per cubic meter, but the require careful coordination between central and local maximum water price was RMB 0.35 per cubic meter, governments to ensure that pricing mechanisms are with prices in 90 percent of surveyed districts being fully leveraged to achieve such objectives as the Three even lower. Nationally, average agricultural bulk water Red Lines. Finally, though water pricing reforms are supply prices are only RMB 0.0611 per cubic meter broadly on track, further analysis of their effectiveness (World Bank/DRC 2017h). Further indication of this is needed. This includes detailed empirical analysis gap is provided in table 4.3, which displays agricultural on whether current pricing structures and policies are water price data from several irrigation districts in having their intended effects (e.g., reducing water the Tarim River Basin in Xinjiang, which has been the use, curbing groundwater over-extraction, and moving site of a long-running agricultural water price reform closer to cost recovery and financial sustainability). effort. This effort involves a three-phase price reform beginning in 2016, and for some districts extending Strengthen the Effectiveness to 2020. Nonetheless, in only a few cases do prices approach cost recovery levels. For arid and semi-arid of the Three Red Lines Xinjiang in particular, such prices are moreover far too The most important element of China’s current water low to reflect the scarcity value of water (World Bank/ governance system is the Most Stringent System for DRC 2017h). The situation is similar in Ningxia, where Water Resource Management, otherwise known as the despite an effort to charge farmers a higher rate for Three Red Lines. The core of this system consists of above quota water use, prices remain far below scar- targets that limit total national water use, specify min- city pricing levels (World Bank/DRC 2017h). Continued imum standards for water use efficiency, and establish efforts toward full cost recovery are therefore needed. clear limits on pollutant loads. The experience thus far has been largely positive with demonstrable results. In summary, deepening reform of economic policy Under China’s hierarchical water management system, instruments is critical for China to achieve its water these targets are broken down by province and local policy goals. Existing attempts to modify water pricing jurisdictions according to a detailed, formulaic process. structures and generally increase water prices also The target setting process relies on a comprehensive present an opportunity to better capture externalities monitoring and evaluation system established in 2014 associated with unsustainable water uses such as that measures progress on several key indicators: total the over-abstraction of groundwater. It also provides water quantity use, industrial water productivity, agri- an opportunity to move closer to full cost recovery cultural water use efficiency, and water quality. In 2016, for some water infrastructure, helping ensure the two additional indicators were added: domestic water fiscal sustainability of China’s water sector. However, use productivity and total pollutant loads (World Bank/ adopting these reforms will also require institutional DRC 2017g). reform. Various water pricing mechanisms, such as taxes and fees, have in the past been employed by Detailed procedures have been developed to guide separate bureaucratic entities, and often represented target setting for each major element of the Three Red an important revenue stream. Deepening reform will Lines. For each jurisdiction, factors to be considered Table 4.3 Irrigation Water Price Reforms in Xinjiang RMB per m3 Region / Irrigation Water Supply Cost Phase 1 Water Price Phase 2 Water Price District (2010) Reform (2016) Reform (2018) Kaidouhe 0.0405 0.0324 0.0405 Sundonghe 0.0932 0.0746 0.0932 Akedonghe 1 0.0168 0.0118 0.0143 Akedonghe 2 0.0168 0.0084 n.a. Akedonghe 3 0.0168 0.005 n.a. Akedonghe 4 0.0168 0.0118 0.0143 Akedonghe 5 0.0328 0.023 0.0279 Kashgar 0.0149 0.0131 0.0153 Hetian 0.0076 0.0053 0.0065 Source: World Bank/DRC 2017h. Note: n.a. = not applicable. 47 include local water resource conditions, planned con- Broadly speaking, wider participation of stakeholders struction and infrastructure projects, national economic during the target setting process can ensure better and social development plans, and local development integration of the physical and administrative. Third, the plans. Water use is to be controlled through the existing use of water intensity (cubic meter per RMB 10,000) withdrawal permit system and economic instruments metrics for the industry targets ensures that the most (e.g., prices, fees, and taxes) to encourage water con- value is to be generated from the water usage. Similar servation. Water efficiency target setting is conducted metrics on water productivity could be applied to the at the enterprise or production unit level. A water use irrigation sector. This would signal in the long run that quota based on the total water quantity usage limit water should be allocated to those crops that gener- is assigned to each production unit, which is then ate the most value for the country. Moreover, actual used as the basis for setting efficiency targets. Water field-based irrigation efficiency measurements should use efficiency targets are meant to be implemented be taken and more scientifically based approaches to chiefly through a reward and punishment system that determining efficiency be pursued. provides either recognition or financial penalties for Finally, once the water use targets are set at lower production units depending on their adherence with administrative levels, there is little flexibility for adjust- the policy. Water pollution targets are set on a zone ments. Such flexibility, however, is needed because basis, meaning that they specify total pollutant loads water availability and demands are constantly changing for different waterways or water bodies, depending on in space and time. One option is to consider these caps whether they are zoned for source water protection, on withdrawal in the context of water rights trading. environmental protection, industrial, or other water That is, local level targets can serve as established uses. Implementation is conducted through expan- caps for which the holder can then be empowered to sion of sewage and effluent treatment, strict control buy and sell with other local entities. There may be of pollution discharge permits, and the imposition places for instance in which the effort and cost to reach of d ­ ifferentiated fees depending on pollutant type compliance with these targets are more difficult than (World Bank/DRC 2017g). others. Thus, by allowing such trades, the cost of com- Four reforms would help to further enhance the Three pliance to reaching the overall national level targets Red Lines. First, the Three Red Lines water quantity can be minimized. Such an approach would also help to control targets could also be based on actual con- better leverage China’s existing pilot efforts to institute sumption. The current targets are based on water water rights trading systems at the national scale. withdrawals with the implicit assumption that reduc- China has experimented with water rights trading tions in withdrawals lead to “saved” water. However, programs since the early 2000s (Moore 2015). In 2003, in the agriculture sector, this water is not totally lost, Ningxia and Inner Mongolia established the first com- nor are the savings real. This is because water may pensated inter-provincial water transfer pilot project, return to the system through run-off or recharge into which created a mechanism for irrigation districts to the groundwater to be used elsewhere in the system. invest in water conservation and then sell the “saved” Thus, to achieve genuine savings, measures should water to industrial enterprises. As of 2012, the pilot be taken to reduce non-beneficial evapotranspiration.1 project had completed 39 such transfers. A further The Three Red Lines target can be strengthened by important step was taken in 2007, when Ningxia man- including actual water consumption (evapotranspira- dated that all new industrial enterprises purchase water tion) amounts (and not simply withdrawal volumes) rights from existing rights holders, thereby effectively in water quantity permitting and control targets. This capping localized water use. In 2014, the Ministry of consumption-based control can be aided by advances Water Resources established seven provincial water in technologies such as satellite remote sensing. China rights pilot projects. These pilot projects attempted to already has experience with designing evapotranspi- tackle each of the three principle elements of water ration-based water rights administration systems as rights trading establishment, namely cap setting, water part of the Xinjiang Turpan Conservation Project, which rights allocation, and water rights trading, and aimed could be expanded to other regions of the country (see to create the foundation for province-wide water rights box 4.2) (World Bank 2013b). trading. Progress has been slower than initially antic- Despite the consolidation of responsibility for water ipated (World Bank/DRC 2017i). Further research is quality within the Ministry of Ecology and Environment, needed on the outcomes of these pilots. To date, of the achieving targets related to pollution is likely to require seven provinces only Ningxia, Gansu, Jiangxi, and Hubei cooperation between multiple agencies and sub-na- have begun verifying water rights allocations. In a few tional governments. Target setting in the future should regions, this process has enabled relatively large-scale accordingly be formulated jointly. This is important also trades to take place. In Jiangxi, for example, a 25-year in setting shared responsibility toward these goals. contract was concluded to transfer 62.05 million cubic 48 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — SYNTHESIS REPORT meters from Shankouyan Reservoir to Anyuan District or individual water users. The China Water Exchange, and the Pingxiang economic and technological devel- a state-owned company founded in 2016, represents opment zone at a total cost of RMB 2.55 million per a promising innovation to expand water rights trading year. In other provinces, such as Jiangsu, basin-level below the jurisdictional level. China Water Exchange cap setting remains ongoing (World Bank/DRC 2017h). was established with an initial investment of RMB 600 million with 12 investors and sponsors, including A defining feature of these experiments with water enterprises owned by the Ministry of Water Resources, rights trading has been the dominance of inter-juris- China’s seven river basin authorities, and the Beijing dictional trades rather than transfers between sectors Municipal Government. This unique ownership structure Box 4.2 Evapotranspiration-Based Water Allocation in China’s Turpan Basin The Turpan Basin, in Xinjiang Uygur Autonomous Region, In general terms, the evapotranspiration-based water is the hottest and driest area in China. With rapid eco- rights administration system for the Turpan Prefecture nomic growth in recent years, consumption of water is consists of five key elements to help control total exceeding supply and has led to severe groundwater water use. First, evapotranspiration measurements over-­exploitation, threatening the livelihoods of many of throughout the basin are compiled to give an accurate the basin’s farmers. In Turpan, as in many parts of China, measurement of the total water balance in the area, farmers are given a specific quota for water withdrawals, and the amount of water that can be sustainably con- creating an incentive to “use it or lose it,” and driving sumed by crops. Second, each of the three counties increases in total water consumption throughout the basin. that make up the Turpan Basin are given a total water consumption target based on the overall basin total. To help remove this perverse incentive and promote Third, these targets are disaggregated to individual more sustainable water use, the World Bank-financed farmers. Fourth, satellite-based evapotranspiration Xinjiang Turpan Water Conservation Project created measurements are used to verify each farmer’s a new system to monitor and enforce restrictions on compliance with water consumption caps, based on water use using satellite-based evapotranspiration measurements of field-level crop water consump- measurements. Evapotranspiration measures how tion. Fifth, these measurements are verified through much water crops are consuming. More conventional periodic household and field surveys. Together, these measurements are based on water withdrawals from elements provide a durable framework to control wells or canals, but do not accurately account for water total water consumption throughout the Turpan Basin that seeps back into the soil or evaporates. (World Bank 2013b). Map B4.2.1 Sample Monitoring Platform for ET-Based Water Consumption Measurement in the Turpan Basin Source: World Bank 2013b. 49 helps to give the exchange unusual national reach, and trades have been conducted jointly with provin- promises to help avoid some of the inter-governmental cial-level exchanges, most notably in Inner Mongolia. conflicts that have occasionally hindered other water These trades, as shown in table 4.4, illustrate several resource management institutions. The China Water features of water rights trading as currently practiced in Exchange is intended to promote water rights transfers China. First, such trades are disproportionately concen- by identifying potential trades, serving as a resource for trated in a few jurisdictions such as Inner Mongolia and entities interested in engaging in transfers, and helping Beijing. Second, trades are overwhelmingly conducted broker transfers between water users. Its organizational within single jurisdictions; there are few inter-provincial structure resembles that of a limited liability corporation, water trades. Third, trades take a number of distinct including a shareholders’ conference, board of directors, forms. These include inter-governmental agreements, and four divisions, including trading operations, devel- usually referred to in Chinese as “agreed trades” (xieyi opment and information, and risk management. jiaoyi), company-to-company transactions, called “pub- lic trades” (gongkai jiaoyi), and transfers involving a In its one year of operation, the company has devel- state-owned water storage entity, such as a reservoir or oped standards to promote water rights trading in irrigation district (xieyi zhuanrong). Fourth, most trades the form of guidelines covering fees, trading proto- are facilitated through irrigation district water savings, cols, awareness raising, and risk management. The most often through lining canals to prevent seepage, exchange has also enjoyed initial success in brokering after which the “saved” water is transferred to indus- 10 water trades as of March 2017. Some of these try. Fifth, prices remain quite low, and are highest in Table 4.4 Water Rights Transactions Brokered by the China Water Exchange as of March 2017 Buyer Seller Quantity Source of Water Trade Price Trade Trade of Water Traded (RMB/m3) Duration Type Traded (m3) (years) Xinzheng People’s Gov- Nanyang Water Conser- 240 million South-North Water 0.74 3 Agreed ernment (Henan) vancy Bureau (Henan) Transfer trade Songxin Chemical Com- Inner Mongolia Auton- 20 million Irrigation District 0.6 25 Public pany (Inner Mongolia) omous Region Water Water Savings trade Rights Trading Center Company Jingnengshuangxin Elec- Inner Mongolia Auton- 5 million Irrigation District 0.6 25 Public tric Generating Company omous Region Water Water Savings trade (Inner Mongolia) Rights Trading Center Company Niaohaishenwu Coal Inner Mongolia Auton- 1.25 billion Irrigation District 0.6 25 Public Chemical Technology omous Region Water Water Savings trade Company Rights Trading Center Company Alxa Prefecture Luan- Inner Mongolia Auton- 2.5 million Irrigation District 0.6 25 Public jinghuai Demonstration omous Region Water Water Savings trade Area Water Affairs Rights Trading Center Company Company Shanxi Zhongshehua- Shanxi Yunchengkuiquan 90,000 Irrigation District 1.2 5 Agreed pushozao Company Irrigation District Water Savings transfer Beijing Baihebao Res- Hebei Zhangjiakou City 1.3 million Reservoir 0.06–0.35 1 Agreed ervoir Yunzhou Reservoir transfer Beijing Gongting Res- Hebei Zhangjiakou City 5.741 million Reservoir 0.294 1 Agreed ervoir Faxie Reservoir transfer Xinmi City Water Affairs Pingdingshan City Water 2.4 million South-North Water 0.87 3 Agreed Bureau (Henan) Conservancy Bureau Transfer Project transfer (Henan) Ningxia Jingnengzhong- Zhongning State-Owned 3.285 million County agricultural 0.931 15 Agreed ning Power Plant Capital Transfer Company water savings transfer Source: World Bank/DRC 2017i. 50 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — SYNTHESIS REPORT transactions involving the South-North Water Transfer alternative to purchasing surface water usage rights. Project (World Bank/DRC 2017h). These features of And second, water use entitlements have been created water rights trading in China suggest the potential of for environmental uses, helping to ensure that mini- trading mechanisms, but also the lingering challenges mum streamflow and environmental water availability to creating a fully functional, thickly traded market that are maintained. These features of water rights trading covers most water users throughout the country. in the Murray-Darling Basin have helped to address increasing water scarcity by allocating most water to A comparison to the water rights trading system in its highest marginal value uses, increasing the total Australia’s Murray-Darling River Basin can highlight economic benefit of water use (Grafton et al. 2010). By areas for improvement in China. Average market adopting similar principles for water rights trading sys- turnover in the Murray-Darling Basin is some $A 2 tems and using the opportunity of the Three Red Lines’ billion per year. Water rights in the basin are entitle- regional water use caps, China can help to build robust ments (based on withdrawals and not consumption), water markets that efficiently allocate water between and legally provide owners with the right to a clearly uses and users. defined right to a share of the available water in a particular water source. Shares vary from year to year (and within years) depending on water availability at a Cross-Reference Water sub-basin level. There are many different entitlement Withdrawal and Pollution types, defined in state legislation, which have very Discharge Permit Systems different levels of reliability. “High security” entitle- ment holders can expect to receive a “full” volumetric As is the case in many countries, China regulates water allocation in 95 percent of years. “General security” or withdrawals (or abstraction) primarily by granting “low reliability” entitlements receive full volumetric water withdrawal permits to individual water users. allocation in a lower percentage of years. Entitlements This permitting system was first established under the are thus by the water source or sub-basin, reliability, 2002 Water Law. The modification by State Council and notional full volume. Trading of entitlements (or decree in 2006 clarifies that permits should be granted seasonal allocations) does not affect these characteris- so to ensure that the overall volume of water use does tics; states sometime pose limits on trade out of their not exceed local water availability. The approval pro- jurisdictions, and exchange rates apply to long-distance cess, which was until recently handled by the Ministry trades to account for real water delivery losses. In com- of Water Resources, is supposed to entail a comprehen- parison, in such regions as the western United States sive review that may impose conditions on the water where actual seasonal water entitlements are depen- user as well as public hearings (see figure 4.1). Water dent in part on actual flows, there is less year-to-year withdrawal permits are granted for a period of five certainty, undermining confidence in water rights trans- years, during which holders may request modifications fers. Additionally, in Murray-Darling sub-basins with to the original conditions, including changes to the significant reservoir storage, entitlement holders can permitted use volume or purpose. At present, however, bank, or carry over, water from one year to another, there is no mechanism to permit water withdrawal expanding the scope of possible trading (Grafton et al. permits to be traded, so holders are incentivized to 2010). Entitlement holders have access to a propor- utilize the full permitted volume of water (Griffiths and tional share of the reservoir storage. Dongsheng 2014). Similarly, China began establishing pollutant discharge permit systems in parts of the The sophistication and relative success of the Murray- country in the late 1980s, which prohibit discharge of Darling entitlement system stemmed from a sustained designated water pollutants into waterways without process of reform that eventually produced a number securing a permit to do so (Wang 2008). In 2017, the of key features. The Water Reform Framework, intro- Ministry of Environmental Protection issued instructions duced in 1994, has created perhaps the most important strengthening and expanding the pollutant discharge of these, namely the concept of tradable water licenses permit system nationwide, requiring all stationary separate from land ownership. The National Water water pollution sources across 82 designated indus- Initiative of 2004 has created a more comprehensive tries to apply for permits to discharge into waterways. and sophisticated approach to allocating usage rights Pollutant discharge permit holders may reduce own by distinguishing between permanent, seasonal, and emissions to generate surfeit emission volumes by other forms of water use entitlements, which together eliminating backward and excess manufacturing capac- allow for the management of water use through trad- ity, promoting clean production, improving pollution able entitlements. Subsequent reforms have added two management and upgrading pollution control technol- additional key features to address flaws in the original ogy. Unlike in the case of water withdrawal permits, market design (Varghese 2013). First, new regulations these surfeit emission volumes can be traded to other were introduced to prevent groundwater mining as an holders, creating a pollutant emissions trading system 51 Figure 4.1 Water Use Permits Submitting applications in China APPLICATION PROCESS Source: Adapted from China Water Risk Complete and meet legal requirements? 2014. Yes No Within the scope of acceptance? Yes No Acceptance for applications (5 days) Public interest involved? Yes No Hearing/inquiry Other interests involved? Yes No Inform others Approval decision (within 45 days) Yes No Reasons given Rejection MPLE PER MIT EXA Valid 3 years without construction WATER Construction starting ISSUING PROCESS Examination (after 30-day operation test) Clear Issues found Modification procedure Permit granted (GoC 2017). In summary, China uses separate nation- Formulating regulations that explicitly cross-refer- wide permitting systems for both water use permits ence these systems can promote further their con- and for pollution discharge permits. trol. Moreover, this may help to coordinate economic management of natural resources that is the primary China could strengthen the administrative and regula- responsibility of the Ministry of Natural Resources. For tory ability to control water pollution as well as total example, the granting of water use rights or permits water consumption by cross-referencing the water can be coordinated with soil use management to help use and discharge permit systems. For example, if an prevent erosion and improve water quality, presenting enterprise discharges pollution more than its permit, new opportunities for the co-management of natural that violation could trigger a limitation of the enter- resources. prise’s right (permit) to withdraw its supply of water (in addition to the fine or limitation associated with the pollution violation). This dual penalty would send Note stronger signals to the firm and incentivize improved 1. Non-beneficial evapotranspiration does not contribute to stewardship of China’s water resources in terms of both crop production, such as unproductive transpiration from quantity and quality. Currently many firms routinely vio- weeds; evaporation from reservoirs, canals, sprinklers, late their pollutant discharge permits, and either ignore soil, and plant surfaces; and return flows that are not fines or pay fines as a small cost of doing business. captured and reused. P RIOR I T Y 4 Strengthen Adaptive Capacity to Climate and Environmental Change M Strengthen Resilience to Floods acro-scale pressures, including increasing urbanization and climate change, will require China’s policy makers to enhance the resilience Flood control has long been a priority for China’s water of people and infrastructure to threats like flooding and resource managers, and it has enjoyed considerable droughts. At the same time, additional investments success in reducing flood risk and exposure. Over the must be made to preserve the functioning of aquatic past 70 years, about 47 million hectares of land area ecosystems and the services they provide, including and 500 million people have been protected from water purification. Many of China’s recent environmen- flooding, and the average annual number of deaths tal and water resource management policies, including as a result of flooding has been reduced from about the environmental protection and water laws, stress 9,000 in the 1950s to 1,500 by the early 2000s. Overall the need to protect the natural environment. However, investment in flood control infrastructure increased by China’s current water governance framework has two over four times just from the 1990s to the early 2000s notable gaps relating to environmental protection: (Cheng 2006). Much of this progress, however, is built maintaining ecosystem services by ensuring adequate on a comprehensive flood control system that includes hydrology in major rivers, lakes, and aquifers; and infrastructure; early warning systems; and a closely addressing non-point source (NPS) pollution, especially coordinated flood response structure that includes from agricultural sources. The value of preserving eco- disaster response headquarters at central, river basin, system services in China in general, and of sustaining provincial, municipal, and county levels (see figure 5.1). aquatic ecosystems in particular, is substantial. Water China’s 1997 Flood Control Law, amended in 2005, ecosystems, including streams, rivers, wetlands, and designates certain regions as flood-prone, and requires lakes, provide many economically valuable services, authorities to develop appropriate flood management including flood and water retention, purification, and plans. Consequently, a particular area of focus is the recreation. Accordingly, a fourth priority for China’s integration of weather prediction and forecasting into water governance reforms should be to strengthen decision support systems to allow local officials to adaptive capacity to climactic and environmental respond more quickly to predicted flood emergencies, change by strengthening resilience to floods, exploring helping further improve the capacity of the Flood and Red Line targets for ecological flows, and by sharpening Drought Control Headquarters. Full dam and reser- the policy focus on NPS pollution. voir operation and evacuation plans have also been 54 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — SYNTHESIS REPORT developed for 98 areas designated as national flood and green land development to mitigate flood risks in storage and detention zones (Moore 2018). flood protection zones. Preserving open land can help improve aquifer recharge and enhance aquifer flood However, as presently constituted, China’s flood control storage capacity. Preserving and restoring wetlands can system is still dependent on infrastructure. Rapid urban- likewise add to flood storage capacity, while providing ization has dramatically reduced the storage capacity of additional benefits in the form of water purification and such flood retention bodies as wetlands and subsurface habitat for fish and wildlife (see box 5.1) (World Bank/ aquifers, because nonpermeable surfaces now impede DRC 2017d). China is already considering some of these aquifer recharge. In the case of Shanghai, for exam- measures under its sponge city initiative. One of the ple, the percentage of urbanized land area increased pilot cities designated under this initiative, Baicheng, from 60 percent in 1950 to 80 percent in 2001, sharply Jinan Province, embarked on an ambitious effort to increasing runoff and reducing storage capacity in connect about 25 reservoirs and 160 lakes, creating lakes, wetlands, aquifers, and other waterbodies that about 67,000 hectares of additional waterway and total were filled in and reclaimed to make room for the storage capacity of over 3 billion cubic meters, enhanc- rapidly growing city (She et al. 2015). As a result, 15 ing the city’s ability to absorb floodwaters (Li et al. million additional people in the Shanghai region are 2016). Note that this may also increase aquifer storage, expected to be exposed to coastal storm surges, and which will build further resilience to droughts. The economic damages are expected to increase by US$30 government can further expand and experiment with billion. Traditional capital-intensive flood control infra- these approaches. Hybrid solutions can also be consid- structure is likely to be too expensive to address such ered that combine traditional and green infrastructure challenges adequately (World Bank/DRC 2017d). (World Bank 2017a). In this context, green infrastructure and the use of eco- Moreover, countries are increasingly adopting more logical alternatives can be expanded upon, including integrated flood risk management approaches. Instead the use of bioswales, natural wetlands, flood retention of attempting to protect all areas from flooding, areas, permeable pavement, green roofs, and rainwater targeted investments are made based on risk assess- harvesting. It is necessary to carry out combined grey ments (Hall et al. 2003). To some extent, China’s flood control policies already incorporate similar principles. The Flood Control Law outlines an elaborate zoning system to classify flood risk, and discourages dense development or infrastructure construction in desig- Figure 5.1 Flood Control and Drought Relief nated flood retention zones (Moore 2017). In 2010, Headquarters the State Council issued a related directive to focus on improving flood risk planning and management, State flood control and drought management especially on smaller rivers (World Bank 2013a). headquarters (Ministry of Water Resources) However, other countries go considerably further in using planning, zoning, and other policy tools to reduce flood risk, rather than seek to enhance flood control. The European Union (EU) Floods Directive, for example, River basin flood control and drought management requires the formulation of flood risk management headquarters (Yangtze, Yellow, Huai, Hai, Liao, Pearl, Taihu) plans for major river basins and coastal areas that include consideration of where construction of resi- dential and industrial areas should be avoided both currently and into the future (see box 5.2). China could Provincial flood control and drought consider incorporating a similarly strong mandate into a relief administrative departments revised version of its existing Flood Control Law. Finally, China should continue its efforts to encour- age the use of flood insurance schemes. Pilot flood Prefecture/city flood control and drought insurance schemes were first introduced in China in relief administrative departments the 1980s, but they suffered from individuals’ and enterprises’ general unfamiliarity with the concept of insurance, and premiums that were widely viewed as unaffordable. Moreover, flood insurance has often County flood control and drought relief been made available as part of a basket of risks administrative departments (e.g., flood, earthquake, and typhoon). Over the past decade, however, these challenges have been 55 partly alleviated. A successful crop insurance scheme, to rationalize prices and encourage landowners to introduced in 2007, has helped to encourage the use purchase insurance. Currently, there are no official of insurance, with premium income increasing by public flood risk maps available. Second, government one-third from 2007 to 2012. Commercial insurance needs to work with industry to expand the coverage coverage has also increased from a very low rate to and indemnity amounts of insurance and improve 3.5 percent as of 2015. Recent directives, including the efficiency of claims settlement. Finally, greater a Ministry of Water Resources set of guiding opin- public awareness and understanding of the potential ions, issued in 2014, also encourage the expansion benefits of flood insurance could likewise help to of flood insurance schemes. Several additional steps strengthen the flood insurance industry and encourage are needed to improve flood insurance coverage uptake (World Bank/DRC 2017d). Special focus could and uptake (World Bank/DRC 2017d). First, carefully be placed first on encouraging uptake by commercial calibrating premiums based on improved detailed enterprises. See box 5.3 for an example of the flood flood risk data and flood risk zoning plans could help insurance program in the United States. Box 5.1 Yolo Bypass, California The 16,000-acre Yolo Bypass Wildlife Area near bypass consists of a mosaic of seasonal and permanent private Sacramento, California is one of the largest public-­ ponds, grasslands, and riparian forest, creating natural restoration projects in the United States, with 3,700 acres habitat for birds and other wildlife. The bypass was of land in the Yolo Bypass floodway restored to wet- developed by the State of California in cooperation with lands and other associated habitats (photograph B4.1.1). private foundations and the U.S. federal government, Through a system of weirs, the bypass diverts flood- is managed by the California Department of Fish and waters from the Sacramento River away from the city, Wildlife, and is widely regarded as a model for wetland helping to prevent flooding. At the same time, the construction and restoration efforts. Photograph B5.1.1 Yolo Bypass When Flooded Source: USFWS Photo/Steve Martarano. 56 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — SYNTHESIS REPORT Explore Red Line Targets for bodies have substantially reduced the value of these ecosystem services. New ecological targets can be set Ecological Water Flows with due consideration to the value of these critical Although the Three Red Lines include important ecosystem functions. targets for water quality, these targets do not directly address broader ecosystem functions and require- One possible metric is to use a river and lake health ments. Ecological systems provide important ecosystem index, which has been proposed for use by the services and functions that can generate significant government. Given the complexity and diversity of benefits to human societies and economic develop- aquatic ecosystems, the comprehensive river and ment. Such ecosystem services include purification and lake health index could be used as a target. The index regulation of water flows; oxygen generation; soil for- comprises several sub-indicators covering hydrology, mation and retention; food supply; habitats for plants, physical structure, chemistry, biology, and function animals, and microorganisms; and recreational oppor- (which include sufficient ecological flow, benthic and tunities (Cui et al. 2009). A 2008 study, for instance, plankton diversity, bank and slope vegetation and puts the value of water retention and water purification stability, and public satisfaction). Alternatively, the provided by wetlands and water bodies in the city of “quality elements for the classification of ecological Shenzhen at about Y 100 million, while a similar figure status,” defined in the EU Water Framework Directive estimated in 2015 for Beijing’s Miyun District is about (WFD), can also serve as an example for the structure Y 60 million (Li, Li, and Qian 2008). Unfortunately, both of a proposed target for ecological water. The WFD studies conclude that urbanization and the attendant Directive 2000/60/EC prescribes a list of quality ele- destruction and modification of wetlands and water ments, according to which the ecological status of EU Box 5.2 Requirements of the Box 5.3 U.S. National Flood EU Floods Directive Insurance Program The EU Floods Directive, formally issued in 2007, aims The U.S. National Flood Insurance Program (NFIP) is to reduce and manage risks from flooding, which the United States’ principal national policy related to the EU estimate has caused more than 1,000 deaths flood assistance. As its name implies, NFIP is primarily and about US$64 billion in damages in the period a federally sponsored insurance scheme that enables 1998–2009. The directive requires EU member states to homeowners, businesses, and others living in areas adopt a flood risk management approach. In contrast to at risk of flooding to insure property against flood more traditional flood control strategies that attempt to damage. However, as originally designed, NFIP is also maximize the physical protection of people and prop- intended to limit development in areas at high risk of erty from flooding, flood risk management emphasizes flooding and to base premiums on actual flood risk, so a risk-centered process whereby urban planning and that the economic costs of building in high-risk areas zoning are used to prevent construction of houses and would be passed on to policyholders. NFIP has three vulnerable infrastructure in flood-prone areas, as well primary components: the development of flood risk as using land management and land use strategies maps, promulgation of minimum structural standards to help buffer flood impacts. Preserving and restoring within flood hazard areas, and a set of regulations wetlands, for example, can help reduce the impact of governing payment of premiums. NFIP’s risk mitigation flooding by storing and retaining excess water during and premium setting policies were intended originally flood events. Increasing the percentage of permeable to enable the program to be largely self-financing. surfaces in urban areas can similarly enhance water However, political pressure to keep premiums low com- absorption and prevent urban surface flooding. bined with a rising number of claims due to extensive urban development and an increasing frequency of The directive requires member states to prepare flood extreme weather events have resulted in NFIP being hazard maps that can serve as the basis for flood risk technically insolvent, requiring large government management plans. These plans specify measures to subsidies: approximately US$25 billion since 2005. be taken to prevent flood damage, protect people and According to many assessments, NFIP has been only property where needed, facilitate emergency response partly effective in restraining development in flood- when flooding does occur, and facilitating rapid recov- prone areas because of loopholes, infrequent flood risk ery to normal conditions in the aftermath of flood mapping, and artificially low premiums that do not fully emergencies. reflect actual flood risk. Source: Lee and Wessel 2017. 57 rivers, lakes, transitional waters, and coastal waters is (Acreman and Dunbar 2004). Ecological flows also assessed. This list contains biological elements (com- help to maintain overall water quality, since they dilute position and abundance of aquatic flora and benthic pollutant concentrations. Minimum flows may also be invertebrate fauna; composition, abundance, and age important for achieving other water policy goals such structure of fish and fauna); hydro-morphological ele- as navigation or hydropower generation. Although ments (quantity and dynamics of water flow; connec- China’s water quantity allocation system does consider tion to groundwater bodies; width and depth variation; ecological water requirements, it does not specify a structure and substrate of the river and lake beds; separate process for how these requirements are deter- structure of the river’s riparian zone and lake shore); mined and ensured. Examples from other countries and chemical and physio-chemical elements (ther- offer models for how this can be accomplished. The EU mal and oxygenation conditions, salinity, acidification WFD explicitly states: “For the purposes of environmen- status, nutrient conditions, and specific pollutants). For tal protection there is a need for a greater integration the purposes of classifying the values for the quality of qualitative and quantitative aspects of both surface elements of ecological status, the WFD further provides waters and ground waters, considering the natural definitions for high, good, and moderate ecological sta- flow conditions of water.” The Directive explicitly tus for each element and each surface water category, requires EU member states to guarantee environmental respectively. A similar model could be used in China for flows, stipulating that they must “protect and enhance deriving ecological water requirements. the status of aquatic ecosystems and, with regard to their water needs, terrestrial ecosystems and wetlands Another approach would be to prescribe specific directly depending on the aquatic ecosystems.” China hydrology requirements (seasonal or annual) in each presently lacks explicit legislation or regulations con- river and tributary. To protect critical aquatic ecosystem cerning the guarantee of environmental flows. services, not only do waterways need to be of appro- priate quality (e.g., temperature, chemical composition) A challenge arises for maintaining ecological flows but also a certain hydrograph must be maintained to when, as in many parts of China, surface water flows provide sufficient habitat for flora and fauna that is con- may be affected by the allocation of water rights. sistent with their biological processes (see figure 5.2) Australia’s Murray-Darling Basin has addressed this Figure 5.2 Environmental Flow Releases from Dams Release Channel maintenance floods Floodplain connectivity Freshet trigger flows for migration River flow as a result of the releases Habitat maintenance flows Low flows for juveniles Winter Spring Summer Autumn Source: Acreman 2016. Note: Environmental flows releases from dams can be achieved by building a flow regime from a zero flow baseline using hydrograph compo- nents (blue blocks) that support particular parts of the river ecosystem. 58 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — SYNTHESIS REPORT problem through multiple interventions. Central is Box 5.4 Australia’s Commonwealth the establishment of long-term average sustainable Environmental Water Holder diversion limits under the Murray-Darling Basin Plan to limit the level of abstraction. To achieve these limits, The key function of the CEWH as laid out in the Water the Australian Government has acquired water entitle- Act (2007) is to manage the Commonwealth environ- ments (through trade and efficiency investments) to mental water holdings for protecting or restoring the establish a portfolio of environmental water, actively environmental assets of the Murray-Darling Basin (and managed by the Commonwealth Environmental Water outside the basin where the Commonwealth holds Holder (CEWH), established by the 2007 Water Act water), and in line with the requirement of the Murray- (see box 5.4). State governments have also estab- Darling Basin Plan, and the basin-wide environmental lished environmental water holders, and various watering strategy. not-for-profit entities own and manage entitlement The Water Act defines “Commonwealth environmental water for environmental outcomes. The Government water holdings” as “the rights that the Commonwealth has established rules and regulations to place limits holds that are water access rights, water delivery of abstraction during low flows (including on pumping rights, irrigation rights or other similar rights relating rates and durations) to protect both the environment to water; and the interests in, or in relation to, such and downstream users. The goal of these interven- rights.” In other words, water holdings are entitlements tions is to protect and restore environmental assets with annual allocations that are acquired through the and ecological functions through targeted watering of Australian Government’s investment in water saving floodplains and wetlands and protection and reinstate- infrastructure and strategic water purchasing through- ment of some key elements of prior flow regimes. By out the irrigation districts of the Murray-Darling Basin. strategically using its environmental water holdings, The tasks of purchasing water for the environment usually to supplement other water in the river system, and recovering water through investments in water the Australian government aims to improve the health delivery and irrigation efficiency are carried out by the of the Murray-Darling Basin’s rich natural environments Department of Agriculture and Water Resources. and protect the basin’s aquatic biota. The organization’s water holdings comprise 75 water entitlement types Regarding the water it holds, the CEWH can do the across 17 Basin Plan regions.1 As of November 2017, following: the Commonwealth environmental water holdings • Use the water to meet identified environmental total 2,670,106 megaliters of registered entitlements demands. with a long-term average annual yield of 1,835,182 • Hold on to the water and carry it over for use in the megaliters.2 China could establish an entity to define next water year. ecological water requirement and acquire and manage water to meet these requirements. This option is espe- • Trade (buy or sell water) for equal or greater envi- cially relevant as China expands the use of water rights ronmental benefit. trading as a form of water allocation, as suggested in Priority 3. A Chinese Environmental Water Holder could be established through legislation or amendments to the various regulations governing China’s water rights system. In addition, while setting the ecological flow water pollution from point sources such as factories and target of “Three Red Lines”, it is necessary to establish enterprises. Non-point source (NPS) pollution, however, the monitoring and coordinating mechanism for the remains a major challenge for which existing policy rivers with insufficient ecological flow. The enforcement frameworks remain inadequate. Because NPS pollution of ecological flow can help control the total water use is so diffuse, it is much more challenging to regulate, and enhance the water use efficiency.” monitor, and reduce. Moreover, managing NPS pollu- tion often entails significant changes to agronomic and Sharpen Policy Focus on Non- land management practices, which are often outside the remit of water resource management agencies. Point Source Pollution Agricultural NPS pollution has surpassed industrial point China has made significant strides in improving source pollution as the country’s main source of water enforcement of point source pollution regulations, as pollution according to a recent census (Xu and Berck well as expanding wastewater treatment. China has 2014). Annual application of these synthetic nitrogen established a robust set of water quality standards and fertilizers increased by almost 51 percent, and pesti- accompanying policy frameworks to support imple- cides by an astonishing 120 percent, during the period mentation. While enforcement must be improved, 1991–2008, providing some indication of the scale of this framework provides the basis for China to control NPS pollution. Much of this rapid growth in pesticide 59 and fertilizer use has been due to a combination of challenge is such that China will require more ambi- subsidies and policies encouraging farmers to boost tious, far-reaching policy options. yields, which has had the perverse effect of dramat- One option is further experimentation with water ically increasing organic pollution (Sun 2012). High quality trading. Water quality trading promises to concentrations of such chemicals in waterways none- achieve pollution control limits at lower compliance theless may lead to significant negative impacts on costs in much the same way as water rights trading. human health (Lu et al. 2015). Water quality trading establishes a cap on pollutants A series of policy reforms have been introduced by from both point and non-point sources within a given the Chinese government to address the problem of region. Because it is often easier to reduce point non-point source pollution. In 2015, the Ministry of source pollutants, compliance with an overall pollution Agriculture announced that it would promote the cap can be achieved more cheaply and efficiently by reduction of fertilizer and pesticide, encouraging allowing point source polluters to buy and sell water farmers to use more formulated fertilizers, which quality credits from NPS polluters, which may be able typically require smaller applications, and formulated to reduce pollution more cheaply, for example, by a zero-growth action plan to effectively cap national changing farming practices. Alternatively, NPS polluters fertilizer and pesticide use by 2020. In 2017, the can take measures, such as stream bank restoration, Ministry of Agriculture promulgated the “Opinions on that reduce runoff from fields or into waterways, Implementing the Key Combat of Agricultural Non- thereby creating water quality credits that can likewise Point Source Pollution Prevention and Control” and put be bought or sold (see figure 5.3). As an example, New forward the agricultural pollution control objectives, Zealand’s Lake Taupo water quality trading program, including controlling the total amount of agricultural launched in 2011, has involved the creation of a special water use and reducing the use of pesticides and fer- entity, the Lake Taupo Preservation Trust. This Trust is tilizers. The Action Plan for the Prevention and Control responsible for reducing nitrogen emissions below a of Water Pollution, formulated by 12 ministries and cap, either by buying farmland and converting it to for- commissions organized by the State Council, was a est to reduce nitrogen run-off into the lake, or purchas- landmark directive that singled out pesticide production ing water quality credits directly from farmers. As of and nitrogen fertilizers as sectors targeted for more 2012, 32 trades had occurred involving about 186,000 stringent enforcement and technological improvements pounds of nitrogen, resulting in about 5,800 hectares designed to reduce pollutant emissions. The Plan being converted from farmland into forestry (World actively promotes the control of rural non-point source Bank/DRC 2017a). Similarly, in the United States, pollution, formulates a comprehensive prevention and localized water quality trading programs have achieved control plan for agricultural non-point source pollution, significant reductions in pollutant loads at lower cost and includes a series of measures to control agricul- than command-and-control approaches (see table 5.1). tural non-point source pollution. While these steps are In the United States some estimates suggest that water important in reducing NPS pollution, the scale of the quality trading programs account for 68 percent to Figure 5.3 Options for Generating Water Quality Credits by Reducing Nonpoint Source (NPS) Pollution 1. Edge-of-field Riv er bas in Water flow 3. Instream attenuation 2. Edge-of-stream Source: Adapted from World Bank/DRC 2017a. 60 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — SYNTHESIS REPORT Table 5.1 Selected Examples of Water Quality Market Initiatives, Outcomes, and Status Example Outcome Ongoing Issues Long Island Sound, NY, U.S. Achieved a 65% reduction in nitrogen load- Transactions costs are high. ing from 79 sewer treatment plants between 2002–14. Saved US$300 million. Lake Taupo, New Zealand Achieved 16% of nitrogen reduction goal from Transactions costs are high. farmers as of 2012 from 32 trades. Farmers increasingly supportive of management interventions. Hunter River, Australia Reduced salinity pollution from farms well below Occasional exceedances of salinity tar- target of 900 µS/cm gets have occurred; however, these are largely attributed to natural or diffuse sources. South Nation, Canada Phosphorus reduction targets are being achieved. Ongoing monitoring and assessment is While water quality trends show a reduction of needed to verify phosphorus reductions. instream phosphorus, it is not possible to attribute this solely to the Total Phosphorus Management program. Source: World Bank/DRC 2017a. 83 percent of total pollutant loads (Wang et al. 2015). 0.01 million tons of total phosphorous, and 0.16 million In Long Island Sound, for example, a water quality tons in ammonia nitrogen (World Bank/DRC 2017a). trading program has achieved a 65 percent reduction Relative to the scale of such pollution nationwide, in nitrogen loading from 79 sewer treatment plants, these trading volumes are small. generating a savings of US$300 million. To achieve the full benefits of water quality markets, a For several decades, a major element of China’s water wider range of economic actors and sectors will even- quality control regime has been the issuance of pol- tually need to be included in trading. Internationally, lutant discharge permits. According to implementation several water quality markets allow for trades between guidance issued by the State Council in 2000, China’s point sources (e.g., industry) and agriculture, a key type Water Pollution Prevention and Control Law requires of NPS pollution. Programs in New Zealand, Canada, all entities discharging certain categories of pollutants, and the United States involve point sources as buyers including total phosphorous and organic nitrogen, and agriculture as sellers or agriculture as both buyer into waterways to obtain a permit to do so from local and seller (Duhan, McDonald, and Kerr 2015; O’Grady environmental protection authorities. Because total 2008; Selman, Branosky, and Jones 2009). pollutant loads are capped in any given jurisdiction and As such, inclusion of agriculture in water quality waterway, a market for buying and selling pollutant markets in China will be necessary. The characteristics permits has existed for some time. Trading pollut- of China’s agricultural sector make this challenging; ant permits has been allowed in China since the late around 200 million small farmers contribute most of 1980s, and a pilot program was initiated in the Tai Lake the national crop production in China, with an aver- basin in the mid-2000s. Growing enthusiasm for mar- age farm size of 0.60 hectares per household in 2010 ket-oriented policy tools has led to the promulgation of (Huang, Wang, and Qiu 2012). This suggests that new regulations intended to provide a stronger basis transaction costs could easily become prohibitive with- for compensated transfers of pollutants. Most notably, out innovative approaches. Programs in New Zealand in 2014, the State Council issued its Guiding Opinions and Oregon have built markets with small farmers on Further Piloting the Paid Use of Trading Emission that grow specialty crops. As a first step, the govern- Permits. This was followed by the Implementation ment might consider inclusion of more professionally Scheme for Pollutant Emission Permit Control, issued in operated larger, corporate-owned, or state farms in 2016, which explicitly permits the creation of markets water quality markets. Scaling up while also addressing in tradable pollutant emissions permits. As of 2013, transactions costs and risk might be approached by total transacted allowances in water quality markets contracting whole villages as a single entity in water were 175,600 tons of chemical oxygen demand, quality markets trades. 61 Finally, the international experience has produced sev- by a beneficiary or user of the ecosystem service. eral lessons for how to establish effective water quality Lately, however, their financial sustainability in China is trading programs in China. This includes, first, recog- of growing concern due to low or incomplete pay- nizing that water quality markets need clear goals and ments, lack of transparency in the operations, and high monitoring to verify that pollution reductions are real. transaction costs. Moreover, ecological compensation Stipulating percentage reduction targets for particular mechanism applications have largely been driven by pollutants from particular sectors is a first step to begin government interventions and transfers of public funds. generating water quality market demand. However, Market-oriented approaches may serve better in facili- key economic actors and water users will likely raise tating payments between ecosystem service providers questions at some point regarding what levels of and beneficiaries especially when the links are clear. pollution reduction are needed to support current and One alternative mechanism is a water fund; it can future water use needs, such as for clean drinking finance investments in environmentally sensitive areas water, industrial processes, agriculture, fisheries, and to change farming practices in water source regions, recreation. To anticipate and address these questions, reforest, or undertake other measures that naturally the government will need to provide guidelines for abate NPS pollution. Water funds can be structured how to (i) measure and report pollution reductions; (ii) around a variety of payment mechanisms, including centralize the databases and reporting structures for fees or contributions paid by downstream water users pollution discharges; (iii) ensure these databases can that benefit from improved water quality (The Nature also track pollution reductions and market transactions; Conservancy 2016). By putting the financial burden (iv) provide tools to local government to predict and on beneficiaries of the desired ecosystem services, measure pollution reductions in a low-cost, standard- water funds can create a win-win situation for all ized way (e.g., a standardized nutrient reduction model investors. These schemes should be supported by for farms); and (v) provide a standardized verification strong evidence-based research on how changes in template for monitoring performance and compliance land use and other interventions directly contribute to for credit sellers. Second, the national government improving water quality and other ecosystem services. can do much to encourage provincial and sub-provin- For example, to help fulfill commitments made under cial experimentation with and development of water a 2000 inter-state agreement to improve the quality quality market approaches. This includes both the of the Chesapeake Bay, the State of Maryland in the standard role of market referee—monitoring and verify- United States established the Bay Restoration Fund in ing water quality and enforcing water regulations and 2004.3 The commitments made under the agreement contracts—as well as the role of market enabler (Scherr specifically relate to reducing nutrient pollution in the and Bennett 2011). This latter role consists of raising Chesapeake Bay. The purpose of the fund is to finance awareness of water quality markets as a tool, providing upgrades to wastewater treatment plants so that they technical support and guidance, conducting feasibility can significantly improve wastewater effluent quality studies to identify locales where water quality trad- by reducing nutrient loading (e.g., to no more than ing pilots are most likely to succeed, and increasing 3 milligrams per liter of total nitrogen and 0.3 milli- consistency across market policies and implementation grams per liter of total phosphorus). This program also (World Bank/DRC 2017a). The opportunity promised supports upgrading onsite septic systems and using by water quality markets in China is real, but particular cover crops to reduce further nitrogen loading into the actions will be needed to overcome the challenges. bay. Thus, this fund aims to reduce both point source Markets are not magic, and though the government’s and NPS pollution. This fund is financed through a fee, promotion of market-based approaches to water set at US$5 for most individual households, collected management is encouraging, water quality markets are from each home, commercial, and industrial user of no substitute for the fundamental reforms needed to the wastewater treatment plants and septic systems in achieve effective water management in China. the watershed. These funds also back the issuance of bonds to generate further financial resources. Innovative Financial Mechanisms There is already some experimentation with water NPS pollution may also be addressed through innova- fund-like activities in China, such as the five-year tive financial mechanisms. Ecological compensation agreement between Beijing and the City of mechanisms, for example, have been piloted in China Chengde, Hebei Province, signed in 2005. The two since the 1990s (Bennett 2009). These approaches, cities agreed that Beijing would pay Chengde RMB similar to Payment for Ecosystem Service models, 20 million per year to abate soil erosion in upstream involve payments and incentives to polluters (often watersheds, and the agreement was extended in farmers or landowners) to reduce damages to the envi- 2011 (see box 5.5 for additional examples).4 Another ronment and ecosystem. These payments can be made promising set of financial mechanisms concerns 62 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — SYNTHESIS REPORT Payments for Ecosystem Services. While China (World Bank/DRC 2017c) Finally, financing of water currently has 16 active Payments for Ecosystem quality improvements can be directly addressed Service schemes, most involve transfers between through the establishment of a dedicated revolving governments rather than direct beneficiaries. This fund. The case of the successful U.S. Environmental largely reflects insufficient knowledge of Payments Protection Agency Clean Water State Revolving Fund for Ecosystem Services; therefore, funded schemes (EPA CWSRF) offers a potential model that could be and continued experimentation are needed experimented with in China (see box 5.6). Box 5.5 Financial Mechanisms to Improve Water Quality in China Water fund for Longwu Reservoir. Longwu Reservoir is in the catchment have degraded water quality. The primarily used to supply domestic water to the villages Paddy Land to Dry Land program aims to reduce both of Qingshan and Cibi. The bamboo industry covers agricultural nutrient and chemical runoff and silt- approximately 60 percent of the total catchment. ation by offering a subsidy to farmers to switch from Fertilizers and herbicides used in bamboo production water-intensive rice cultivation to corn. These subsidies are major contributors to the nutrient pollution into are funded by Beijing urban residents. the reservoir. In 2015, with the support of The Nature Planned program for Lashihai Nature Reserve and Conservancy, a water fund was established allowing Lijiang Old City. This is a payment for ecosystem ser- local government, farmers, nongovernmental orga- vices pilot program consisting of special fees charged nizations (NGOs), and a trust company to collaborate to tourists for visiting Lijiang Old City and the Laishihai to environmentally management lands (The Nature Nature Reserve to be used to compensate upper water- Conservancy 2014). shed farmers adjacent to the Laishi Lake for changing Beijing’s Paddy Land to Dry Land program. Miyun their land use practices. The Laishi Lake is a key part of Reservoir is the main surface water source for Beijing. the Lijiang Basin from which various rivers flow through Over the years, NPS pollution from agriculture activities and around Lijiang Old City. Figure B5.5.1 General Design of a Water Fund The Nature Local NGO and Conservancy social groups Ad vis ity n or tiv tio Ac ecu ex Right to contract for management Shan Shui Trust Fund: Purchase products Farmers forest land administration Consumers Profit from rights/available funding the fund ds un tf ds Trust fund ves en supervision body In d divi ive Investors ce Wanxiang Trust Re Source: The Nature Conservancy 2014. Note: NGOs = nongovernmental organizations. 63 Notes 1. The Murray Darling Basin spans southern Queensland, the 3. See the government of Maryland’s website, http://mde​ Australian Capital Territory, much of New South Wales, .maryland.gov/programs/Water/BayRestorationFund​ over half of Victoria, and the southeast of South Australia. /Pages/Index.aspx. 2. See the Australian government’s website for details of all 4. See the government of Maryland’s website, http://mde​ Commonwealth Environmental Water holdings: http://www​ .maryland.gov/programs/Water/BayRestorationFund​ .environment.gov.au/water/cewo/about​ /water-holdings. /Pages/Index.aspx. Box 5.6 U.S. Environmental Protection Agency Clean Water State Revolving Fund The Clean Water State Revolving Fund (CWSRF) was low interest loans. As money is paid back into the established in 1987 as an amendment to the Clean state’s revolving loan fund, the state makes new Water Act to provide financial assistance to a wide loans to other recipients for high priority water quality range of water infrastructure projects (see figure activities. Under the CWSRF, states may purchase or B5.7.1). Loans are provided to eligible recipients to refinance debt, provide guarantees and insurance, construct municipal wastewater facilities, control NPS and provide additional subsidization. For example, a pollution, build decentralized wastewater treatment Green Project Reserve is established to target criti- systems, create green infrastructure projects, pro- cal green infrastructure, water and energy efficiency tect estuaries, and fund water quality projects. The improvements, and other environmentally innovative EPA provides grants to all 50 states to capitalize a activities. To date, CWSRF has provided over 36,100 state CWSRF, with states contributing an additional assistance agreements to communities throughout the 20 percent to match the federal grants. The program United States, financing over US$111 billion in high functions like an infrastructure bank by providing priority water quality projects. Figure B5.6.1 General Design of State Revolving Fund Federal capitalization provides initial funding Low interest loans Clean Water State Eligible CWSRF Revolving Fund Projects Low repayments States match federal Bond Bond capitalization grant proceeds repayments (20 percent of capitalization) Bond holders provide additional funding Source: EPA website, https://www.epa.gov/sites/production/files/2015-06/documents/cwsrf_101-033115.pdf. Note: CWSRF = Clean Water State Revolving Fund. P RIOR I T Y 5 Improve Data Collection and Information Sharing China possesses strong technical capabilities in water around the globe (UN Water 2018). The Panel also resources data collection and monitoring. However, issued Good Practice Guidelines for Water Data operational decision making and investment plan- Management Policy, which identifies seven key ele- ning can be strengthened if data and information ments of water data policy: (i) identifying priority water are more widely shared and accessible to a broader management objectives; (ii) strengthening water data set of stakeholders. Moreover, open data platform institutions; (iii) establishing sustainable water data approaches can help to foster coordination and monitoring systems; (iv) adopting water data stan- collaboration across agencies and will support entre- dards; (v) embracing an open data approach to data preneurship, innovation, and scientific discovery in access; (vi) implementing effective water data infor- the water sector. This is consistent with the govern- mation systems; and (vii) employing water data quality ment’s current focus on data and technology. management processes. Implementing these principles as part of a coherent water data policy often requires reform, which is best accomplished through building a Improve the Legislative legislative framework. Framework for Producing and A clear legislative or regulatory mandate is needed to Sharing Water-Related Data encourage all ministries and officials to share water and It is widely recognized that producing and sharing environment related data and, where appropriate, to high-quality data are essential for good water gover- disseminate it to relevant stakeholders and the public. nance and management. The importance of making This can be considered with updates to the Water Law. such data accessible to a variety of stakeholders, Currently, various ministries and government agencies including water user groups as well as policy makers, collect water-related data for their own analysis and is heightened by the increasing variability in water use. This limits an integrated view of China’s water availability as a result of climate change and other resources challenges. Legislation mandating the sharing global environmental changes (Laituri and Sternlieb of water-related data across agencies will help all agen- 2014). In its March 2018 report, the High Level Panel cies. This legislation will need to be explicit in terms of on Water (HLPW) recognizes that access to water data the types of information to be gathered and necessary is a prerequisite to better water resource management standards to be set for data quality and transfer. 66 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — SYNTHESIS REPORT For instance, the Australian Water Regulation (2008) Any future recipient of state funds must adhere to the under the Water Act (2007), provides all persons protocols to be developed by the department. The or organizations with certainty about their obliga- act also creates the Water Data Administration Fund. tions to provide water information to the Bureau of Moneys appropriated to this fund will be used for the Meteorology and the categories of water information implementation of the act, i.e., for the collection, man- (e.g., surface and ground water information, water stor- agement, and improvement of water and ecological age information, meteorological information, water use data. Finally, the legislation states that integrating exist- data, information about water rights, allocations and ing water and ecological data into an open-access plat- trades, water quality information, and water informa- form will improve state agency operations and enable tion for flood warning purposes). These categories are data-driven decision making. The Act is explicit in its comprehensive, covering almost every major aspect goal to “foster collaboration among state agencies.” of water resource management, including groundwa- The key element of both the California and Australia ter and surface water and water quality and quantity examples is a clear, strong, and legal mandate to (see table 6.1). The regulation defines who must give require and facilitate water data sharing among key specified water information to the Bureau and the time water resource management stakeholders. Provisions and format in which it must be given, and names over that support data standardization and require data col- 200 organizations required to give the Bureau speci- lection on key parameters are also important in ensur- fied water information in their possession, custody, or ing collected data can be easily distributed and utilized. control. To utilize this data most effectively, China should also Another example of data sharing legislation can be create a National Water Data Portal to expand access to found in California’s Open and Transparent Water water-related information. Data Act of September 2016. This Act requires the Department of Water Resources, in consultation with Create a National Water the California Water Quality Monitoring Council, the State Board, and the Department of Fish and Wildlife, to Information Sharing Platform “create, operate, and maintain a statewide integrated A robust, easily accessible, and transparent water water data platform.” This platform will “integrate monitoring network is needed to support a wide range existing water and ecological data information from of operational and investment planning decisions. For multiple autonomous databases managed by federal, example, to enhance the trading of water permits and state, and local agencies and academia using consis- rights and water pollution discharge permits, markets tent and standardized formats.” The act requires the need verifiable transparent data on actual transfers and Department of Water Resources to “develop proto- pollutant reductions. At present, data resides in several cols for data sharing, documentation, quality control, databases and not in a central location that is easy for public access, and promotion of open-source platforms provincial officials, market participants, and the public and decision support tools related to water data.” to see. Creation of a single, National Water Information Table 6.1 Categories and Data Collection Elements under Australian Water Regulations Information Category Data Elements Surface water Level and flow of surface water in water courses Groundwater Level and pressure of groundwater and aquifer recharge volumes Water storage Water storage level, volume, inflows, and outflows Location, capacity, and ownership of major storage facilities Meteorology Rainfall, wind, humidity, evaporation, temperature, pressure, and vapor pressure Water use Water withdrawals and returns Water rights, allocations, and trades Water access rights, irrigation rights, trades, and permit information Urban Water Management Urban water withdrawals, supplies, sewage, storm water, and recycled water Water restrictions Water use restrictions in effect Water quality Electrical conductivity, suspended solids, turbidity, nutrient content, acidity, and temperature of surface water; electrical conductivity and acidity of groundwater Flood warning Level and flow of surface water, rainfall 67 Sharing Platform would provide multiple advantages. distributed network of servers for the acquisition, pro- First, a comprehensive single data portal would facil- cessing, review, and long-term storage of water data, itate the sharing of information across government called the National Water Information System (NWIS). agencies and enhance the integrated management of The NWIS is the principal repository of water resources water resources. This would increase the transparency data for the United States. It includes data from more of water information underpinning water policies and than 1.5 million sites in all 50 States, the District management decisions across various levels. Second, of Columbia, Puerto Rico, the Virgin Islands, Guam, a comprehensive data portal available to the broad American Samoa, and the N. Mariana Islands. Some research community and the private sector could help of these sites have been in operation for more than to identify new innovations in water management and 100 years. The USGS has been providing real-time and water policy. Emerging tools and capabilities from the historic streamflow data on its website since 1994. In “Big Data” sciences could be utilized more broadly on the early 2000s, the USGS aggregated all the data from these datasets. Third, having consistent national infor- the separate websites of each State into one national mation can be used to benchmark the performance database accessible through one website. The NWIS of managed water systems both in space and time. integrates streamflow information with many other Finally, public disclosure of water entitlements, alloca- types of water data, including historic water quality tions, trades and use can help to improve the perfor- data from rivers and aquifers; historic ground water mance of water markets and improve water availability level data; and real-time water quality, precipitation, forecasts. All of this will lead to greater certainty in and groundwater levels.2 The data collected comprises water resources planning and improved community gage height (stage) and streamflow (discharge), tem- understanding of water resources management. perature, specific conductance, pH, nutrients, pesticides, and volatile organic compounds.3 As an example, in 2004 the Council of Australian Governments incorporated a directive into the National Water Data for the Nation4 is the USGS public web Water Initiative to develop water resource account- interface to much of the data stored and managed ing, requiring water data to be identified, quantified, within NWIS. The goal of the Water Data for the Nation reported, and published for the public. Water account- website is to provide all users with a geographically ing in Australia is based on the principles of financial seamless and easy-to-use interface to most of the accounting, not statistics, and focuses on the flows of USGS water data maintained in NWIS. Data provided by volumes of water (WWAP 2012). In 2007, Australia this site are regularly updated from NWIS, and current launched the $A 450 million 10-year Improving Water condition data are generally updated upon receipt at Information Program. This includes issuing national local Water Science Centers. The USGS has also devel- water information standards, collecting and publishing oped the website WaterWatch, which displays maps, water information, conducting regular national water graphs, and tables describing real-time, recent, and resource assessments, publishing an annual National past streamflow conditions for the United States.5 The Water Account, providing regular water availability real-time streamflow maps highlight flood and high forecasts, giving advice on matters relating to water flow conditions. The seven-day average streamflow information, and enhancing understanding of Australia’s maps highlight below-normal and drought conditions. water resources. The Act also requires the Bureau of Meteorology to “annually publish the National Water Account in a form readily accessible by the public.” Strengthening the Role of Public The National Water Account reports on the volumes of Awareness and Participation water traded, extracted, and managed for 10 nationally Engaging the public in general, and water users significant water regions.1 The Act also requires that all in particular, is helpful, if not essential, in address- trades in water access entitlements should be recorded ing certain challenges inherent to managing water on a water register. Registers will be “compatible, resources. Adopting a participatory approach to water publicly accessible and reliable,” recording information governance is a means of navigating complex ethical on a whole-of-catchment basis. issues concerning the allocation of water resources Another example is with the U.S. Geological Survey across different users, regions, and socioeconomic (USGS). The USGS investigates the occurrence, quan- groups (Priscoli 2004). For China, public participation in tity, quality, distribution, and movement of surface water governance holds the added attraction of helping and ground waters and disseminates the data to the compensate for the often-limited resources of local public, State and local governments, public and private environmental protection bureaus. Directly engag- utilities, and other Federal agencies involved with man- ing the public in monitoring and enforcing pollution aging water resources. As part of the USGS program regulations promises to help redress this imbalance and for disseminating water data, the USGS maintains a advance the vision stated at the 19th Party Congress of 68 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — SYNTHESIS REPORT strengthening efforts to combat water pollution (World awareness of water issues is low, with the result that Bank/DRC 2017e). public engagement often takes the form of passive participation (World Bank/DRC 2017b). The Water Law, Water Pollution Prevention and Control Law, and Environmental Impact Assessment The experience of other countries offers several lessons Law have specific provisions concerning public partic- for how to improve awareness and public participation ipation. The Water Pollution Prevention and Control in water governance. A number of countries, especially Law, for example, stipulates that each individual has in Europe, have formulated regulations, policies, and the right and responsibility to help protect water- other measures to formally incorporate the principle of ways and to report instances of illegal pollution. public participation into water resource management These legislative provisions signal that Chinese (see table 6.2). These provisions vary significantly, policy makers see a need to more directly and better ranging from simple awareness-raising activities (such engage citizens and private enterprises in the busi- as Singapore’s Clean and Green Week) to the Aarhus ness of improving water quality and use efficiency. Convention, which establishes a general right for the Local authorities have also developed some inno- public to participate in all environmental decision-mak- vative platforms to encourage public participation ing processes that might meaningfully affect them, as in some aspects of water resource management. well as to seek redress from the government if proper In Zhejiang, officials have developed an app-based procedures are not followed (Pu et al. 2007). Most of platform to enable individual citizens to report water these provisions establish at least some right for the that appears to be polluted, and to track the official public to provide input on various water resource issues response to each report. Guangdong is similarly directly to the relevant authorities, and to participate experimenting with the use of big data to better to some degree in decision-making processes. Another monitor water pollution based on crowd-sourced salient feature is a right to know concerning infor- reporting (World Bank/DRC 2017b). mation on water resource issues that might directly threaten or harm the public, including water pollution However, despite these provisions and innovations, and flooding. public participation in actual water resource manage- ment remains limited. Channels for the public to access The potential to expand public participation in water water-related data and information, submit complaints, governance more fully in China is especially evi- and otherwise engage in water resource management dent with respect to Water User Associations in are uneven in scope, and are often lacking. Current the irrigation sector. Water User Associations have regulatory and legislative provisions provide a clear gained favor in China as a means to bridge the gap right for citizens to submit complaints and opinions between old forms of organization in rural areas on water resource management, but there is no clear under collective agriculture and the realities of China’s right to engage in decision making. Moreover, public complex, modern economy. They are often used as Table 6.2 International Models for Incorporating Public Participation into Law and Policy Jurisdiction Relevant Policies and Regulations Description European Union Aarhus Convention Establishes the right of the public to know, participate, and question environmental decision making Framework Guidelines in Water Resource Encourages all interested parties to become involved Management in water resource management based on the Aarhus Convention Guidelines for Public Access to Environ- Establishes right of the public to know; defines adminis- mental Information trative responsibilities France Water Law Mandates public participation in most aspects of water resource management, including river basin manage- ment plans Singapore Special activities to make Singapore Special activities to spread awareness on water conserva- clean and clear; Clean and Green Week tion, water quality, and related issues United Kingdom Committee of Water Consumers Provides a platform for consumer input on operation of water service companies United States Clean Water Act; Safe Drinking Water Act Establishes requirements to solicit public participation in decision making Public Involvement Policy Lays out specific requirements for public participation 69 the primary means of engagement and mobilization These examples suggest several steps for improving for agricultural water users, and are often relied on public awareness and participation in water governance. to help implement government policies related to Revised legislation or regulations should clarify rights agricultural water saving and irrigation moderniza- and responsibilities of the public to have access to tion. Several studies have concluded that properly water-related information and to participate in decision designed Water User Associations improve water making. The public should also play a role in supervising use efficiency and improve irrigation service deliv- the enforcement of government policies and regulations ery, even relative to irrigation systems managed by with regard to environmental issues. This is consistent professional contractors (Huang 2014; Wang et al. with the government vision to promote public partic- 2010). However, in practice most do not function as ipation as outlined in the 19th Party Congress report. self-governing entities, and often act simply as an Legislation or regulation should also clarify freedom of extension of local government organizations. Most information with respect to water pollution, flood risk, Water User Association positions are unpaid, so there and other water-related harms. In addition, the gov- is little incentive to develop capacity (World Bank/ ernment should continue the process of strengthening DRC 2017b). Yet at the same time, they are organized Water User Associations, incorporating best practices, in most rural areas, offering an ideal platform to build and engaging them to support water conservation and local capacity and diffuse lessons related to water use water use efficiency efforts. At the same time, the Water efficiency and conservation. Efficiency Leader Campaign should be expanded. Another promising mechanism for engaging a broader set of water sector stakeholders is the Water Notes Efficiency Leader Campaign, announced in 2016 as 1. These 10 water regions are home to 75 percent of a joint initiative of the Ministries of Industry and Australia’s population: Adelaide, Burdekin, Canberra, Daly, Information Technology and Water Resources, the Melbourne, Murray–Darling Basin, Ord, Perth, South East National Development and Reform Commission Queensland, and Sydney. To download the National Water and the Ministry of Housing and Urban-Rural Accounts, visit the Bureau of Meteorology’s website, Development (World Bank/DRC 2017b). The program http://www.bom.gov.au/water/nwa/about.shtml. is intended to support several existing initiatives, 2. See the USGS website for a description of the develop- such as the Water-Saving Society, and envisions ment and contents of NWIS, https://pubs.water.usgs​ recruiting enterprises and organizations in key .gov/FS-027-98. sectors, including industrial and agricultural water users, who will serve as models for reducing water 3. See the USGS Water Resources Home Page, http://water​ .usgs.gov. consumption and improving water use efficiency. It is envisioned that Water Leader enterprises will 4. To access the platform, visit the USGS website, https:// report on their efforts at least once every two years. waterdata.usgs.gov/nwis/qw. Background information on However, the modalities of the initiative remain the platform can be found at the USGS website, https:// largely unspecified. Adding detail to this initiative help.waterdata.usgs.gov/faq/additional-background. and supporting its expansion can play a key role in 5. See the USGS Waterwatch website, http://waterwatch​ strengthening public participation. .usgs.gov. Conclusion W ater is the common currency that under- policy cannot be made in isolation from food, energy, pins China’s historical and future sustainable or land management policy) and vertically (i.e., across development. For China to maintain food and administrative jurisdictions). Implementation will also energy security while its cities grow rapidly, it will require the balance of multiple, sometimes competing need to use water more efficiently and effectively, and objectives and the participation of stakeholders at all enhance the protection and restoration of the environ- levels, especially local communities. Roles and respon- ment. For China to adapt to climate change, it must sibilities of entities should be clear to ensure account- better integrate land, urban, energy, and water policies. ability. Finally, a new water governance strategy must For China to safeguard the health and well-being of embrace innovation and experimentation, especially its people and its environment, it needs to invest in the use of advanced technologies, market mecha- maintaining natural ecosystems and improving water nisms, and integrated information sharing platforms. quality. This report has detailed several priority reform These new reforms will take time to evolve gradually, areas to enhance China’s system of water governance and will require flexibility and iteration. If China can to support these aims. successfully adopt the reforms described in this report, it can put itself on a more sustainable path to future Realizing a new era of water governance for China growth. will require integration, balance, participation, inno- vation, accountability, and gradualism. The 16 words China must address five key water governance reform of wisdom issued by President Xi Jinping give a clear priorities. First, China needs to enhance the legislative direction for the management of water in China, specif- foundation for water governance by expanding existing ically in relation to the “priority on water-saving, spatial policies and initiatives. This includes updating the exist- equilibrium, systematic governance, and the combined ing Water Law to reflect current principles and strength- efforts of government and the market”. Proper water ening the enforcement of existing water pollution laws. management is fundamentally about taking water Second, water governance needs to be strengthened at out of its sectoral silo and managing it in a way that the national and basin scales. A national coordination reflects its crucial importance and inter-connectedness mechanism for water management should be estab- to all parts of the economy and society. As such, water lished to improve coordination around key water policy policy tools must be integrated horizontally (i.e., water issues, management plans, as well as the identification 72 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — SYNTHESIS REPORT of national strategic priorities. The role of river basin issues that have hindered effective water governance agencies should be given enhanced authority and clar- in the past, they do not obviate the need to strengthen ity in key areas of planning, coordination, implementa- existing bodies, such as the river basin commissions, tion, enforcement and financing. Third, existing piloted and to establish new institutions, such as a national economic policy instruments need to be harmonized coordinating mechanism for water governance. In this for maximum effect and scaled up where appropri- new institutional architecture, water governance would ate. More empirical evidence is needed to assess the be closely integrated at the local, river basin, and effectiveness of these instruments. Early pilot programs national levels, paving the way toward a more focused on water rights trading show promise. Fourth, human approach to critical water resource management tasks and ecological systems need to be made more resilient such as NPS pollution and ecosystem protection. As to meet future threats and challenges. This includes proposed in this report, these arrangements will estab- expanding on green infrastructure approaches for flood lish a new water governance strategy by which central management and experimenting with water quality government ministries have clearly defined responsi- markets and different financial mechanisms to reduce bilities, but whose actions are closely coordinated at non-point source pollution. Fifth, data and information the national level by a coordinating mechanism, at the sharing need to be improved among agencies, jurisdic- regional level by river basin commissions, and at local tions, and water users. The establishment of a national levels by sub-basin committees. An important part of water information sharing platform will help to foster the reform process is to ensure that each ministry and coordination and collaboration across agencies and will organization possesses sufficient budget and staffing to support innovation in the water sector. fulfill its assigned responsibilities. China has already established the foundation for China’s ambitious measures to address its water-related pursuing these priorities with changes to its overall development challenges promise to offer lessons for environmental governance system announced in March other countries facing similar issues. In terms of policy 2018, most notably creation of the Ministry of Ecology and regulation, the Three Red Lines presents a model for and Environment and the Ministry of Natural Resources capping national and regional water use, which coupled along with consolidation and optimization of respon- with monitoring, enforcement, and allocation mecha- sibilities within the Ministry of Water Resources and nisms can help other countries promote more efficient other related ministries. These changes are an oppor- use of limited water resources. In terms of innovative tunity to optimize China’s water governance system governance approaches, the River and Lake Chief system further. While the authorities granted to the Ministry of presents a striking example of how to make the man- Ecology and Environment appear sufficient to allow it to agement of inter-jurisdictional water resources a core address most water quality issues, some matters, such responsibility for local officials. Finally, the experimenta- as flood management and soil erosion control, will tion with economic instruments, such as China’s Water require extensive coordination with other ministries. Rights Exchange, offers new ideas to help in allocating For the Ministry of Natural Resources, its responsibili- water resources. While this report has drawn on interna- ties with respect to water resource investigations and tional examples to inform recommendations to improve evaluation needs to be further clarified. In addition, the water governance in China, going forward, China’s composition and functions of river basin agencies and experience will be of considerable benefit and interest their relationship with local governments also need fur- to other countries as well. China can provide a strong ther clarification. While these ministerial changes prom- model for other countries in tackling the challenges of ise to address some of the institutional coordination water sustainability in the 21st century. References 2030 Water Resources Group. 2009. Charting Our Water China Water Risk. 2014. “Water Permits: How to Get Future: Economic Frameworks to Inform Decision- Water in China.” China Water Risk (blog), June 14. Making. Washington, DC. https://www.2030wrg​ http://chinawaterrisk.org/resources/analysis​ .org/charting-our-water-future/. -reviews/water-permits-how-to-get-water-in​ -china/. Acreman, Mike. 2016. “Environmental Flows—Basics.” WIREs Water 3: 622–28. ———. 2017a. “Regulations.” China Water Risk (blog), July 17. http://chinawaterrisk.org/regulations​ Acreman, Mike, and Michael Dunbar. 2004. “Defining /water-regulation/#boxE. Environmental River Flow Requirements—A Review.” Hydrology and Earth System Sciences ———. 2017b. “Revised ‘Water Pollution Prevention 8 (5): 861–76. and Control Law’ Approved.” China Water Risk (blog), June 27. http://chinawaterrisk.org/notices​ Adger, W. Neil, Katrina Brown, and Emma Tompkins. /revised​ -water-pollution-prevention-and-control​ 2005. “The Political Economy of Cross-Scale -law-approved/. Networks in Resource Co-Management.” Ecology and Society 10 (2): 9–13. Cui, Baoshan, Na Tang, Xinsheng Zhao, and Junhong Bai. 2009. “A Management-Oriented Valuation Alpert, Peter. 1988. “Citizen Suits under the Clean Air Method to Determine Ecological Water Act: Universal Standing for the Uninjured Private Requirement for Wetlands in the Yellow River Attorney General.” Boston College Environmental Delta of China.” Journal for Nature Conservation Affairs Law Review 16 (2): 283–328. 17: 129–141. 10.1016/j.jnc.2009.01.003. Barrow, Christopher. 1998. “River Basin Development Daggett, Susan. 2002. “NGOS as Lawmakers, Planning and Management: A Critical Review.” Watchdogs, Whistle-blowers, and Private World Development 26 (1): 171–186. Attorneys-General.” Colorado Journal of Bennett, Michael. 2009. Markets for Ecosystem International Environmental Law and Policy Services in China: An Exploration of China’s 1 (1): 99–114. “Eco-compensation” and Other Market-based Duhan, M., H. McDonald, and S. and Kerr. 2015. Environmental Policies—A Report from Phase 1 “Nitrogen Trading in Lake Taupo—An Analysis and Work on an Inventory of Initiatives for Payments Evaluation of an Innovative Water Management and Markets for Ecosystem Services in China. Policy.” Motu Working Paper 15-07, Motu Washington, DC: Forest Trends. Economic and Public Policy Research, Wellington, Campbell, Jonathan. 2000. “Has the Citizen Suit New Zealand. http://motu-www.motu.org.nz​ Provision of the Clean Water Act Exceeded /wpapers/15_07.pdf. its Supplemental Birth?” William & Mary Geall, Sam. 2015. “Interpreting Ecological Civilization.” Environmental Law and Policy Review 24 (2): China Dialogue (blog), July 6. https://www​ 305–44. .chinadialogue.net/article/show/single/en​ Caponera, Dante. 1992. Principles of Water Law and /8018-Interpreting-ecological-civilisation​ Administration: National and International. -part-one-. Rotterdam, The Netherlands: A. A. Balkema. GoA (Government of Australia), Bureau of Meteorology. Cheng, X. 2006. “Recent Progress in Flood 2017. “Good Practice Guidelines for Water Data Management in China.” Irrigation and Drainage Management and Policy: World Water Data 55: S75–S82. Initiative.” Bureau of Meteorology, Melbourne. 74 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — SYNTHESIS REPORT Grafton, R. Quentin, Clay Landry, Gary Libecap, and Lee, Vivien, and David Wessel. 2017. “National Flood Robert O’Brien. 2010. “Water Markets: Australia’s Insurance Program.” Brookings Institution (blog), Murray-Darling Basin and the US Southwest.” October 10. https://www.brookings.edu/blog​ NBER Working Paper 15797. Cambridge, MA: /up-front/2017/10/10/the-hutchins-center​ NBER. http://www.nber.org/papers/w15797​ -explains-national-flood-insurance-program/ .pdf. Li, Hao, Tao Liu, and Wei Huang. 2010. “Kuajie Griffiths, Martin, and Cheng Dongsheng. 2014. shuiziyuan chongtu dongyin yu xietiao moshi “Reforming Water Permits in China.” China Water yanjiu [Research on the drivers and resolution Risk (blog), November 17. http://chinawaterrisk​ modes of transbounday water resource dis- .org/opinions/reforming-water-permits-in-china/. putes].” Ziran Ziyuan Xuebao [Journal of Natural Resources] 25 (5). http://d.wanfangdata.com​ GWI (Global Water Intelligence). 2015. “Market Profile: .cn/periodical_zrzyxb201005001.aspx. China’s Industrial Water Market.” Global Water Intelligence (blog), July. Li, Tianhong, Wenkai Li, and Zhenghan Qian. 2008. “Variations in Ecosystem Service Value in ———. 2017. “‘Tariffs Need to Double’ in the USA to Response to Land Use Changes in Shenzhen.” Tackle Ageing Infrastructure & Water Scarcity.” Ecological Economics 69: 1427–35. GWI (blog), October 12. https://www.global​ waterintel.com/tariffs-need-to-double-in-the​ Li, Xiaoning, Junqi Li, Xing Fang, Yongwei Gong, -usa-global-water-tariff-survey-2017. and Wenliang Wang. 2016. “Case Studies of the Sponge City Program in China.” World Hall, Jim W., Ian C. Meadowcroft, Paul B. Sayers, and Environmental and Water Resources Congress Mervyn E. Bramley. 2003. “Integrated Flood Risk 2016. May 22-26. West Palm Beach, FL, USA. Management in England and Wales.” Natural https://www.researchgate.net/publication​ Hazards Review 4 (3). /303362681_Case_Studies_of_the_Sponge_City​ Heikkila, Tanya, Edella Schlager, and Mark Davis. 2011. _Program_in_China. “The Role of Cross-Scale Institutional Linkages in Lin, Liguo. 2013. “Enforcement of Pollution Levies in Common Pool Resources Management: Assessing China,” Journal of Public Economics 98: 32–43. Interstate River Compacts.” Policy Studies Journal 39 (1). Lu, Yonglong, Shuai Song, Ruoshi Wang, Zhaoyang Liu, et al. 2015. “Impacts of Soil and Water Pollution HLPW (High Level Panel on Water). 2018. Making Every on Food Safety and Health Risks in China.” Drop Count: An Agenda for Water Action. New Environment International 55: 5–15. 10.1016/j​ York: HLPW. https://sustainabledevelopment.un​ .envint.2014.12.010. .org/content/documents/17825HLPW_Outcome​ .pdf. Lutz, A. F., W. W. Immerzeel, A. B. Shrestha, M. F. P. Bierkens. 2014. “Consistent Increase in High Huang, J., X. Wang, and H. Qiu. 2012. Small Scale Asia’s Runoff due to Increasing Glacier Melt and Farms in China in Face of Mondernisation and Precipitation.” Nature Climate Change 4: 587–92. Globalisation. London/The Hague: IIED/HIVOS. McGregor, Dawn. 2017. “Insights from China’s Textile Huang, Qiuqiong. 2014. “Impact Evaluation of the Manufacturers: Gaps to Overcome for Clean & Irrigation Management Reform in Northern Circular Fashion.” China Water Risk (blog), August. China.” Water Resources Research 50 (5): 4323–40. MERICS (Mercator Institute for Chinese Studies). 2016. “The Party’s Nerve Centre: Deciphering Jaspers, Frank. 2003. “Institutional Arrangements for Policy-Making Structures in Xi Jinping’s China.” Integrated River Basin Management.” Water MERICS China Mapping (blog), June 22. https:// Policy 5: 77–90. www​ .merics.org/en/china-mapping/partys​ Lankford, Bruce, and Nick Hepworth. 2010. “The -nerve-centre. Cathedral and the Bazaar: Monocentric and GoC (Government of China), Ministry of Ecology and Polycentric River Basin Management.” Water Environment. 2017. “China Tightens Pollution Alternatives 3 (1): 82–101. Control with Discharge Permits.” Ministry of Laituri, Melinda, and Faith Sternlieb. 2014. “Water Data Environmental Protection (blog), August 7. Systems: Science, Practice, and Policy.” Journal of http://english.mep.gov.cn/News_service/media​ Contemporary Water Research & Education 153 (1). _news/201708/t20170807_419308.shtml. 75 GoC (Government of China), Ministry of Finance. Qin, Ying, Elizabeth Curmi, Grant M. Kopec, Julian M. 2014. “Guanyu tuiguang yunyong zhengfu he Allwood, Keith S. Richards. 2015. “China’s Energy- shehui ziben hezuo moshi youguan wenti de Water Nexus—Assessment of the Energy Sector’s tongzhi” [Opinion concerning issues related to Compliance with the “3 Red Lines” Industrial expanding the utilization of Public-Private Capital Water Policy.” Energy Policy 82: 131–43. Partnership Model].” Ministry of Finance, Beijing. Scherr, S. J., and M. T. Bennett. 2011. Buyer, Regulator, http://jrs.mof.gov.cn/ppp/zcfbppp/201410​ and Enabler—The Government’s Role in /t20141031_1155346.html. Ecosystem Services Markets: International Mo, Xing-Guo, Shi Hu, Zhong-Hui Lin, Su-Xia Liu, and Lessons Learned for Payments for Ecological Jun Xia. 2017. “Impacts of Climate Change on Services in the People’s Republic of China. Agricultural Water Resources and Adaptation Mandaluyong City, The Philippines: ADB. on the North China Plain.” Advances in Climate Change Research 8 (2): 93–8. Schneider, Keith. 2011. “Coal is China’s Largest Industrial Water Consumer.” Grist (blog), February 23. Molle, Francois. 2009. “River-Basin Planning and http://grist.org/ article/2011-02-23-coal-is​ Management: The Social Life of a Concept.” -chinas-largest-industrial-water-consumer/. Geoforum 40 (3), 484–94. Selman, M., E. Branosky, C. and Jones. 2009. “Water Moore, Scott. 2013. “China Must Strengthen Its Quality Trading Programs: An International Institutions Before Unleashing Market Forces.” Overview.” WRI Issue Brief (blog), March. http:// South China Morning Post, November 19. wriorg.s3.amazonaws.com/s3fs-public/pdf​ ———. 2014. “Hydropolitics and Inter-Jurisdictional /water_trading_quality_programs_international​ Relationships in China: The Pursuit of Localized _overview.pdf. Interests in a Centralized System.” China Shen, Dajun. 2009. “River Basin Water Resources Quarterly 219: 760–80. Management in China: A Legal and Institutional ———. 2015. “The Development of Water Markets in Assessment.” Water International 34 (4): 484–96. China: Progress, Peril, and Prospects.” Water Shi, PeiJun, Yi Ge, Yi Yuan. and Weiping Guo. 2005. Policy 17: 253–67. “Integrated Risk Management of Flood Disasters ———. 2017. “Water Policy and Politics in China: in Metropolitan Areas of China.” International Towards a Theoretical and Empirical Literature,” Journal of Water Resources Development China Quarterly. 21: 613–27. ———. 2018. “The Political Economy of Flood Shore, Randy. 2015. “Canadians Rank among Management Reform in China.” International World’s Top Water Hogs.” Vancouver Sun, Journal of Water Resources Development August 8. http://www.vancouversun.com​ 34 (4): 566–77. /Canadians+rank+among+world+water+hogs​ /11274891/story.html. The Nature Conservancy. 2016. China Urban Water Blueprint. Beijing: The Nature Conservancy. Stern, Rachel. 2014. “The Political Logic of China’s New Environmental Courts.” China Journal 72: 53–75. O’Grady, D. 2008. “Point to Nonpoint Phosphorus Trading in the South Nation River Watershed.” Sun, B., L. Zhang, L. Yang, F. Zhang, D. Norse, and WIT Transactions on Ecology and the Environment Z. Zhu. 2012. “Agricultural Non-Point Source 108: 189–95. Pollution in China: Causes and Mitigation Measures.” Ambio 41 (4): 370–79. Priscoli, Jerome Delli. 2004. “What Is Public Participation in Water Resources Management and Why Is It Tan, Debra. 2017. “Toxic Phones: China Controls Important?” Water International 29 (2): 221–27. the Core.” China Water Risk (blog), September 18. http://chinawaterrisk​ Pu, Yufei, Xueying Zhang, Liu Min, Rui Zhao, and reviews/toxic​ .org/resources/analysis-­ Lei Sheng 2007. Transparency and Public -phones-china-controls-the-core/. Participation in Water Resources Management in China. Working Paper 46919. State Information Thieriot, Hubert, and Debra Tan. 2016. “Toward Water Center, Beijing. http://siteresources.worldbank​ Risk Valuation: Investor Feedback on Various .org​/INTEAPREGTOPENVIRONMENT/Resources​ Methodologies Applied to 10 Energy Listcos.” /ReportwatergovernancePuYFEN662007Edited.pdf. China Water Risk (blog). 76 WATERSHED: A NEW ERA OF WATER GOVERNANCE IN CHINA — SYNTHESIS REPORT UN Water (United Nations Water). 2018. “Practice ———. 2013b. Design of ET-Based Water Rights Guidelines for Water Data Management Administration System for Turpan Prefecture of Policy.” UN Water, New York, February 1. Xinjiang China. Washington, DC: World Bank. http://www.unwater.org/practice-guidelines​ ———. 2016. Benchmarking Public-Private Partnerships: -water-data-management-policy/. Assessing Government Capability to Prepare, Procure, and Manage PPPs. Washington, DC: Varghese, Shirley. 2013. Water Governance in the 21st World Bank. https://library.pppknowledgelab​ Century: Lessons from Water Trading in the U.S. .org/documents/3751?ref_site=kl. and Australia. Minneapolis, MN: IATP. Wang, Hua, and Somik Lall. 2002. “Valuing Water ———. 2017a. Implementing Nature-Based Flood for Chinese Industries: A Marginal Productivity Protection: Principles and Implementation Analysis.” Applied Economics 34 (6): 759–65. Guidance. Washington, DC: World Bank. Wang, Jinxia, Jikun Huang, and Scott Rozelle. 2000. ———. 2017b. “PPP Knowledge Lab: China.” PPP “Theoretical Explanations of Property Rights Knowledge Lab (blog), July 24. https:// Innovation in the Groundwater Irrigation System: pppknowledgelab.org/countries/china. An Empirical Study of Small Scale Water Projects.” ———. 2017c. Water Scarce Cities: Thriving in a Finite Economic Research 4: 66–74. World. Washington, DC: World Bank. Wang, Jinxia, Jikun Huang, Lijuan Zhang, Qiuqiong World Bank. 2018. “People using safely managed Huang, and Scott Rozelle. 2010. “Water sanitation services, rural (% of rural population).” Governance and Water Use Efficiency: The Five WHO/UNICEF Joint Monitoring Programme for Principles of WUA Management and Performance Water Supply, Sanitation and Hygiene. https:// in China.” Journal of the American Water data.worldbank.org/indicator/SH.STA.SMSS.RU.ZS Resources Association 46 (4): 665–85. World Bank/DRC. 2017a. “Advancing Water Quality Wang, Mingyuan. 2008. “China’s Pollutant Discharge Markets in China.” Study Team Report 3. Permit System Evolves behind Its Economic World Bank, Washington, DC. Expansion.” Villanova Environmental Law Journal 19 (1): 95–121. ———. 2017b. “China’s Water Management Administrative System and Its Reform.” Study Wang, Weiliang, Tiantian Ju, Wenping Dong, Xiaohui Team Report 12. World Bank, Washington, DC. Liu, Chuanxi Yang, Yufan Wang, Lihui Huang, Zongming Ren, Li Qi, and Hongyan Wang. 2015. ———. 2017c. “Ecological Compensation and “Analysis of Nonpoint Source Pollution and Water Governance.” Study Team Report 10. World Bank, Environmental Quality Variation Trends in the Washington, DC. Nansi Lake Basin from 2002 to 2012.” Journal of ———. 2017d. “Flood Control Management and Chemistry: 1–11. Protection.” Study Team Report 9. World Bank, Webber, Michael, Jon Barnett, Brian Finlayson, and Washington, DC. Mark Wang. 2008. “Pricing China’s Irrigation ———. 2017e. “Legalization Progress and Improvement Water.” Global Environmental Change 18: 617–25. for Water Governance.” Study Team Report 11. Wilson, Scott. 2015. “Mixed Verdict on Chinese World Bank, Washington, DC. Environmental Public Interest Lawsuits.” The ———. 2017f. “PPPs and Water Governance in Diplomat (blog), July 20. http://thediplomat. China.” Study Team Report 14. World Bank, com/2015/07/mixed-verdict-on-chinese​ Washington, DC. -environmental-public-interest-lawsuits/. ———. 2017g. “Re-Examining the Three Red Lines World Bank. 2006. Integrated River Basin Policy.” Study Team Report 5. World Bank, Management: From Concepts to Good Practice. Washington, DC. Washington, DC: World Bank. ———. 2017h. “Water Prices, Taxes, and Fees.” Study ———. 2013a. China—Jiangxi Wuxikou Integrated Team Report 8. World Bank, Washington, DC. Flood Management Project. Washington, DC: World Bank. https://hubs.worldbank.org​ ———. 2017i. “Water Rights Designation and /docs/ImageBank/Pages/DocProfile/aspx?​ Transfer.” Study Team Report 6. World Bank, nodeid=17406297. Washington, DC. 77 ———. 2017j. “Evaluation of China’s Water Security Aquifer II in Changzhou, China.” Nat Hazards Status and Issues.” Study Team Report 2. 78 (1): 281–96. https://doi.org/10.1007​ World Bank, Washington, DC. /s11069-015-1714-x. ———. 2017k. “Macro-Economic Impacts of Water Xu, Yuanchao. 2017. “China’s River Chiefs: Who Are Scarcity and Redlines in China: Results from an They?” China Water Risk (blog), October 17. http:// Integrated Regional CGE Water Model.” Study chinawaterrisk.org/resources/analysis-reviews​ Team Report 4. World Bank, Washington, DC. /chinas-river-chiefs-who-are-they/. World Bank/DRC. 2014. Urban China: Toward Efficient, Yang Y, Zheng FD, Liu LC, Wang SF, Wang R (2013) Study Inclusive, and Sustainable Urbanization. on the correlation between groundwater level Washington, DC: World Bank. and ground subsidence in Beijing plain areas (in Chinese with English abstract). Geotech Invest Wouters, Patricia. 2000. “The Relevance and Role of Surv 8:44–48 Water Law in the Sustainable Development of Freshwater.” Water International 25 (2): 202–07. Yin YP, Zhang ZC, Zhang KJ (2005) Land subsidence and countermeasures for its prevention in China (in Wu, Xun, R. Schuyler House, and Ravi Peri. 2016. Chinese with English abstract). Chinese J Geol “Public-Private Partnerships (PPPs) in Water and Hazard Control 16(2):1–8 Sanitation in India: Lessons from China.” Water Policy 18: 153–76. Zhang, B., K. H. Fang, and K. A. Baerenklau. 2017. “Have Chinese Water Pricing Reforms Reduced WWAP (World Water Assessment Programme). 2012. Urban Residential Water Demand?” Water The United Nations World Water Development Resources Research 53 (6): 204–63. Report 4: Managing Water under Uncertainty and Risk. Paris: UNESCO. Zhang, Laney. 2014. “China: Notable Environmental Public Interest Lawsuit.” Global Legal Monitor Xia, Jun, Qing-Yun Duan, Yong Luo, Zheng-Hui Xie, Zhi-Yu (blog), October 17. http://loc.gov/law/foreign​ Liu, and Xing-Guo Mo. 2017. “Climate Change and -news/article/china-notable-environmental​ Water Resources: Case Study of Eastern Monsoon -public-interest-lawsuit/. Region of China.” Advances in Climate Change Research 8 (2): 63–7. ———. 2017a. “China: Laws Amended to Allow Prosecutors to Bring Public Interest Lawsuits.” Xie, Jian, Andres Liebenthal, Jeremy J. Warford, Global Legal Monitor (blog), July 6. http:// John A. Dixon, Manchuan Wang, Shiji Gao, loc.gov/law/foreign-news/article/china​ Shuilin Wang, Yong Jiang, and Zhong Ma. 2008. -laws-amended-to-allow-prosecutors​ Addressing China’s Water Scarcity: A Synthesis of -to-bring-public-interest-lawsuits/. Recommendations for Selected Water Resource Management Issues. Washington, DC: World Bank. Zhang, Maggie. 2017b. “New Environment Tax Will Hit Businesses in China Hard, Say Experts.” Xu, J., and Berck, P. 2014. “China’s Environmental Policy: South China Morning Post, October 3. http:// An Introduction.” Environment and Development www.scmp.com/business/china-business​ Economics 19 (1): 1–7. /2113650/new-environment-tax-will-hit​ /article​ Xu, Wei. 2015. “Agricultural Subsidies ‘Should Be -businesses-china-hard-say. Reconsidered.’” China Daily, May13. http:// Zhang, Ping, Liang He, Xin Fan, Peishu Huo, Yunhui www.chinadaily.com.cn/china/2015-05/13​ Liu, Tao Zhang, Ying Pan, and Zhenrong Yu. /content_20701246.htm. 2015. “Ecosystem Service Value Assessment Xu, Y. S., Y. Yuan, S.L. Shen, Z. Y. Yin, H. N. Wu, and and Contribution Factor Analysis of Land Use L. Ma. 2015. “Investigation into Subsidence Change in Miyun County, China” Sustainability Hazards due to Groundwater Pumping from 7: 7333–56. Watershed A New Era of Water Governance in China — Synthesis Report W17102