Ecological Fiscal Transfers Research Articles

Wind erosion prevention and trans-boundary ecosystem service payments in the Hunshandake region

Research on ecosystem services flow has attracted increasing interest as they provide essential knowledge to payments for ecosystem services (PES) by developing the spatial relationship between service benefit area and service providing area. In this study, we calculated the wind erosion prevention service (WEPS) in the Hunshandake region using the RWEQ model, simulated the WEPS flow trajectories using the HYSPLIT model, investigated the flow process of WEPS and its monetary values to develop the relationship between the beneficiary areas and the Hunshandake region, with the aim of proposing an integrated PES framework that links beneficiary areas to the Hunshandake region. The results indicated that the WEPS in the Hunshandake region were 2.67 × 1012 kg yr−1, 2.18 × 1012 kg yr−1, and 3.26 × 1012 kg yr−1 in 2010, 2015 and 2018, respectively, and their monetary values were 3.94 × 109 USD yr−1, 3.50 × 109 USD yr−1, and 4.93 × 109 USD yr−1, respectively. Most WEPS were transferred along the track to northern and northeastern China and continued on to Mongolia, Russia, North Korea, South Korea and Japan, while some were transported through central and eastern China to southern China and Southeast Asian countries. The Chinese beneficiary regions received between 69.75% and 70.81% of the total transferred WEPS from the Hunshandake region, with beneficiary countries outside of China receiving the remainder. We developed an integrated ecological payment framework based on the transferred values of WEPS and their demands in the beneficiary areas. The total payments for WEPS from beneficiary areas were 503.91 × 106 USD yr−1, 422.83 × 106 USD yr−1, and 609.18 × 106 USD yr−1 in 2010, 2015 and 2018, respectively. The ecological payments due from the beneficiary countries except China, the beneficiary provinces in China and the actual payments made as ecological fiscal transfers (EFT) from the Government of China; their percentages were 10.24%, 35.42% and 54.34%, respectively. Actualization of payments from benefitting countries and provinces within China were simulated with the percentage of EFT to the total transferred benefits in China decreasing from 60.54% to 40% and 20%; the value of payments from government would then reduce from 95.71 × 106 USD yr−1 to 63.24 × 106 USD yr−1 and 31.62 × 106 USD yr−1, respectively, alleviating the financial burden of government substantially. This study could provide a scientific basis for the government of China to formulate policies for payments from beneficiary provinces to Hunshandake region within China and facilitate negotiations with other countries on their potential payments to Hunshandake region providing WEPS to their benefit.

Urban sustainable development goals and ecosystem services: Pathways to achieving coordination

It has been widely recognized that progress toward achieving Sustainable Development Goals (SDGs) must be better harmonized with Ecosystem Services (ESs) to tackle global challenges. In China, the National Key Ecological Function Areas (NKEFAs) were set up as one of the ecological fiscal transfer projects. Despite its significant influences on the SDGs-ESs nexus, there is a lack of empirical studies on the effects and mechanisms of policy. In response, this study provides a synthesized framework that incorporates the coupling coordination degree between the Urban Sustainable Development Goals (USDGs) and Ecosystem Services Scores (ESSs), empirically verifies the policy effect using the difference-in-differences model, and then further investigates the mechanisms of government action to coordinate urban SDGs and ESs. The results show that: (1) The coupling coordination degree between USDGs and ESSs varies significantly across different regions but steadily increases over time, with a faster increasing rate of coordination degree growth in NKEEFAs pilot cities compared to non-pilot cities. (2) The policy has demonstrated benefits in coordinating USDGs and ESSs with a coefficient of 0.005. In detail, the policy enhances ESSs but concurrently exerts a negative influence on USDGs, with coefficients are 0.008 and −0.004 respectively, suggesting an uneven distribution of the policy's impacts. (3) The study unveils the 'technological innovation effect' and the 'industrial agglomeration effect' as crucial mediating pathways for policy effect, laying a solid foundation for USDGs and ESSs coordination. In total, the study highlights the critical need to account for regional development disparities and adequate funding in ecological protection policies to ensure fairness and effectiveness from a central decision-making standpoint. It recommends enhancing transparency in fiscal expenditures and fostering regional joint coordination to address local government challenges. These insights from this study can offer valuable guidance for policymakers to refine policy implementation and promote the coordination of regional ESs and SDGs.

Design of Socio-Environmental ICMS in Pernambuco: Analysis of Legislative Progression and Environmental Mitigation Perspectives

Objective: Investigate the evolution of environmental legislation and the Socio-Environmental ICMS, analyzing its design and how it fits into the process of environmental mitigation and combating climate change in Pernambuco. Theoretical Framework: It sought to discuss the topic of public environmental management, ICMS Socio-environmental, conservation units and solid waste, sufficient to understand the context of the investigation. Method: Exploratory, qualitative study, descriptive analysis of environmental legislation and Socio-Environmental ICMS of Pernambuco during the period from 2000 to 2022. Data collection was through information contained in the portals of the Court of Auditors of Pernambuco, the Pernambuco Environmental Agency, in addition to the federal and Pernambuco Legislative Assembly. Results and Discussion: We identified 19 records relating to the country's environmental management and 15 relating to the Socio-Environmental ICMS in the state of Pernambuco. Among the main ones, we note the National System of Conservation Units, the National Water and Basic Sanitation Agency and the National Solid Waste Policy. This data contributes to the process of environmental mitigation and combating climate change in the state. Research Implications: Provide updated data that can be applied to research in the areas of environmental management in Brazil and Ecological Fiscal Transfer, specifically the ICMS Socioambiental of Pernambuco. Originality/Value: This study contributes to the literature by updating and consolidating the legal instruments of environmental policy in Brazil and the distribution of ICMS Socioambiental in Pernambuco.

Can China’s Cross-Regional Ecological Fiscal Transfers Help Improve the Ecological Environment?—Evidence from Hubei Province

Can China’s Cross-Regional Ecological Fiscal Transfers Help Improve the Ecological Environment?—Evidence from Hubei Province

The Effectiveness of Fiscal Transfer of South Sumatra Province: Initiation of Ecological Fiscal Transfer Concept

This study identifies the effectiveness of South Sumatra Provincial Government’s financial assistance budget transfer on Poverty Levels and the Human Development Index. This fiscal transfer from the Provincial Government is to assist and support the Regency/City Governments’ budget for their development program. The problem of this study is to identify the effect of this fiscal transfer to support the Regency/City Government in reducing poverty level and increasing Human Development Index. A coefficient of determination analysis is applied to assess the effect of the provincial financial assistance to reduce poverty rates and increase the Human Development Index. Analysis is also conducted to identify opportunities for the implementation of Ecological Fiscal Transfer model for the allocation of financial assistance budget. The study analyzes data from the Regional Budget of South Sumatra Province for the last 10 years. Coefficient of determination analysis shows that the fiscal transfer in the form of financial assistance fails to explain the variation of poverty rates and the Human Development Index in the area. Following that, the study also adopted an Ecological Fiscal Transfer model to simulate the allocation of Provincial Financial Assistance. Keywords: financial assistance, ecological fiscal transfer, poverty, Human Development Index

The São Paulo State (Brazil) Ecological Fiscal Transfer: Distributive and environmental effects

To restore 12 million hectares of native vegetation in Brazil by 2030, aligning environmental policies with incentive measures is crucial. The Ecological Fiscal Transfer (known as Ecological ICMS in Brazil) allows states to redistribute the ICMS tax (similar to the Value Added Tax) revenue based on environmental criteria, likely motivating municipalities to take environmental action. São Paulo recently modified its ecological ICMS legislation, increasing the ICMS revenue distributed according to environmental criteria and introducing a new criterion for native vegetation cover. We assessed the impact of these changes on tax redistribution, considering three scenarios: the former rules (2021), the new rules (2025), and the new rules with 1.5 million hectares of vegetation restored (2042). While the pattern of ICMS distribution remained mostly unchanged, there were distributional effects. Some municipalities lost up to 5% of their initial revenue, while others with high socio-environmental importance doubled their revenues. Existing environmental criteria still lack incentives for local environmental policies. However, the new criterion for native vegetation cover could, with practical limitations, boost municipal revenue after restoring 1.5 million hectares. São Paulo's initiative to incorporate native vegetation cover into an Ecological Fiscal Transfer policy holds the potential to inspire similar tax-based environmental incentives worldwide. However, it must be adapted to motivate local governments to embrace restoration actions rather than serving primarily as a compensatory measure.

Does central ecological transfer payment enhance local environmental performance? Quasi-experimental evidence from China

Central transfer payment for the key ecosystem zones has become the most funded payments for ecosystem services program in China. The ecological fiscal transfer (EFT) aims to improve the eco-environmental quality of the targeted counties by providing supplementary fiscal funds, though not strictly specifying the usage. This study employs a time-varying difference-in-difference strategy to investigate the impact of EFT on environmental outcome by using a comprehensive county-level dataset covering 1949 counties from 2004 to 2015. Estimates show that the policy had a positive impact on local air quality, whereas the dynamic effect is diminishing. The policy effect is achieved through more stringent environmental regulation and stricter industrial access. Reduction of industrial dust emission is more noticeable than that of sulfur dioxide. There is an economic scale effect that the scale of a county can increase effectiveness of EFT on air quality improvement, whereas an opposite development stage effect will undermine its effectiveness. Heterogeneities were detected concerning transfer intensity, intervention period, geographical region, and ecosystem type. These findings facilitate a deep understanding how EFT could play a significant role in protecting local environment in large developing countries. Several policy implications are drawn to enhance the effectiveness of the largest EFT program.

The innovation of ecological fiscal transfers policy at Siak Regency

For several decades, the problem of forest fires has been recurring almost every year in Siak regency, Riau Province. This phenomenon affected a huge portion of damage for public. However, the previous policy has been failed to solve the forest fires problem. However, some local government has attempting to address the problem of forest fires with policy innovation. This article focuses on innovation by the Siak local government through ecological transfer policy. Although the idea of ecological transfer policy is not new, there are few Indonesian local governments has initiate in the policy. Siak is one step ahead to initiate the ecological transfer policy during Siak Hijau vision. This article analyses the success story of Siak in formulating the ecological transfer policy in local budget. Through a qualitative research method, we found that the ecological transfer policy can occur due to combination of local elite support and advocacy of civil society organizations. Both actors played an active role in the ecological transfer policy. However, the women tended to be alienated in the formulation of the ecological transfer policy due to cultural and political barriers. In that sense, it is important to create inclusiveness for policy formulation‥

Protecting Forested Areas in Non-Forest Zone through The Ecological Fiscal Transfer Scheme in Indonesia: A case study from Kutai Timur district

Ecological fiscal transfer (EFT) is an incentive scheme of budgetary transfers from different levels of a government (central and regional) to reward performances in environmental management. In Indonesia, EFT is mainly intended to protect forest zones or protected areas but does not include forested areas in the non-forest zone. This article investigates the opportunities and challenges of adopting the EFT scheme as a policy instrument to maintain the forested areas in Kutai Timur, a district in East Kalimantan province with the largest forested areas in its non-forest zone. This study applies a socio-legal approach along with a regulatory simplification instrument to examine the laws and regulations surrounding the adoption of an EFT scheme in Kutai Timur district. It demonstrates that the Kutai Timur district government can adopt the EFT scheme, given that they have the authority to manage the APL and village funds allocation. The scheme has no specific requirements or standards, identifying priority issues in the environmental sector. To adopt the scheme, the district government should develop criteria and indicators by considering the goals and priorities of district development, the data availability, and the opportunity for every village to implement it. The preparation of these criteria and indicators must be carried out in a participatory and accountable process to be well accepted by the stakeholders. Further, the district government requires integrating the EFT scheme in district policies on village funds allocation. By implementing the EFT scheme, the district government can encourage village governments and villagers to protect and manage forested areas in their village.

Reconceptualising ecological fiscal transfers to sustainable development perspective

Reconceptualising ecological fiscal transfers to sustainable development perspective

Financing mechanisms to bridge the resource gap to conserve biodiversity and ecosystem services in Brazil

This article discusses financial mechanisms for the conservation of biodiversity and ecosystem services in Brazil. Five mechanisms were selected for in-depth analysis using the Biofin methodological approach: ecological fiscal transfer, environmental reserve quotas, payments for environmental services, tourism concessions, and forest concessions. They can reduce the current financial gap for biodiversity conservation in the country. Ecological fiscal transfer, payments for environmental services, tourism, and forest concessions can generate approximately US$ 1 billion annually. The potential to generate revenues in environmental reserve quotas markets is big, but uncertainty is also very high, with estimates from US$ 1 to US$ 20 billion up to 2030. Most of these mechanisms aim to involve the private sector in conserving biodiversity and require an active role for the public sector, either through fiscal or regulatory instruments. There is a need to adapt the financial mechanism to the political and institutional context. In Brazil, weak public management capacity, institutional uncertainties, and political opposition to environmental policy are the main challenges for large-scale implementation of these instruments.

A global review of ecological fiscal transfers

A global review of ecological fiscal transfers

A Framework for Analysing Ecological Fiscal Transfers: Case Studies from the Brazilian Atlantic Forest

AbstractThis article proposes a framework for evaluating the development and evolution of economic instruments for environmental conservation through the examination of their design and the interactional and structural aspects of their implementation. The framework is applied to comparatively describe the historical evolution of the world's longest-running ecological fiscal transfer (EFT) scheme in two Brazilian sites. Results show that while legislative aspects of programme design, such as linkages and flexibility, are crucial for performance, interactional and structural characteristics during implementation, such as capacity, knowledge-sharing and transparency, can be determining factors in how the programme functions at the municipal level. Policy recommendations are provided for the development of this type of programme elsewhere. Results contribute towards the conceptual understanding of EFTs, an under-utilised mechanism with great potential for a role in conservation policy mixes.

Ecological Fiscal Transfers and State-level Budgetary Spending in India: Analyzing the Flypaper Effects

Using panel data models, we analyze the flypaper effects — whether intergovernmental fiscal transfers or states’ own income determine expenditure commitments — on ecological fiscal spending in India. The econometric results show that the unconditional fiscal transfers, rather than the states’ own income, determine ecological expenditure in the forestry sector at subnational levels in India. The results hold when the models are controlled for ecological outcomes and demographic variables.

Reconceptualising ecological fiscal transfers to sustainable development perspective

Reconceptualising ecological fiscal transfers to sustainable development perspective

Incentive and coordination: Ecological fiscal transfers' effects on eco-environmental quality

In developing countries, ecological transfer payments (ETPs) are a preferred method of solving the dilemma of environmental governance. However, the associated policy effects have not yet been effectively evaluated. We use unique ETPs' data provided by the Ministry of Finance of China in a dynamic spatial panel data model. Our study finds that ETPs stimulate the efforts of local governments to improve environmental quality, and play a coordinated role in mitigating the race-to-the-bottom competition among regions. However, these transfer payments (TPs) do not promote ecological improvement. Although the design of non-ecological transfer payments (non-ETPs) considers ecological and environmental factors, they do not effectively play an incentive and coordinated role. The ETPs' behavior that encourages local governments to invest in environmental improvements exhibits more of a compensation rather than a leverage effect. This conclusion suggests that policymakers should pay attention to the coordinated role, and increase the weight of ecological factors, in the design of TPs.

Do industrial pollution activities in China respond to ecological fiscal transfers? Evidence from payments to national key ecological function zones

The policy of payments to National Key Ecological Function Zones (NKEFZs), a type of instrument for Ecological Fiscal Transfers, has been introduced in China. We employed propensity score matching and difference in difference estimation to investigate the effectiveness of this policy on the reduction of industrial pollution. We found evidence that the policy had reduced pollution-intensive activity in the NKEFZs. Meanwhile, implementation of the policy had been selective. First, the downstream NKEFZs with higher opportunity costs had lower efforts to reduce industrial pollution. Because performance-based payment mechanisms neglect opportunity costs, financial stress weakens the efforts to reduce pollution. Secondly, the NKEFZs policy suppresses air-polluting industries but not water-polluting industries. Local governments may reduce only the target pollutant (chemical oxygen demand) while ignoring non-target pollutants. There may be moral hazards under information asymmetry in pollution reduction.

Ecological Benefit Spillover and Ecological Financial Transfer of Cultivated Land Protection in River Basins: A Case Study of the Yangtze River Economic Belt, China

The ecological benefit of cultivated land is the non-market value or ecological service value created by cultivated land protection. Based on the trinity concept of comprehensive protection of quantity, quality, and ecology of cultivated land, this study calculates the ecological benefits of cultivated land protection in the Yangtze River Economic Belt. Through the theory of ecological supply and demand balance, the study estimated the ecological benefit spillover of cultivated land protection in the basin. The amounts and paths of ecological financial transfers for cultivated land are then examined by balancing the protection responsibilities and financial power of cultivated land. We found that overall the ecological benefits of cultivated land protection in the Yangtze River Economic Belt increased, reaching 773.224 billion RMB in 2017. Therein the upper, middle, and lower reaches compose 20.81%, 53.89%, and 25.30% of the ecological benefits. There are significant differences in the ecological benefits, respectively. There are significant differences in the ecological benefits and their variations of cultivated land within the River Basins. The ecological benefits of cultivated land in the Yangtze River Economic Belt demonstrated spatial spillovers within and between the upper, middle, and lower reaches. The middle reaches of the economic belt are the main ecological surplus areas of cultivated land. The ecological deficit areas of cultivated land are mainly distributed in the lower reaches. The spillover effect of the ecological benefits is evident between provinces. The increase of regional economy and ecological compensation policy for cultivated land can effectively stimulate the ecological benefits whereas the pressure of cultivated land protection and power spillovers are adverse to cultivated land ecological protection. The vertical and horizontal fiscal transfers in 2017 respectively amounted to 230.14 billion RMB and 27.24 billion RMB. Particularly, the upper, middle, and lower reaches received 13.07%, 58.41% and 28.52% of the ecological fiscal transfers, respectively. It is important to strengthen spatial spillovers and improve the horizontal and vertical ecological fiscal transfers for protecting ecology of cultivated land.

An analysis of delay in implementing ecological fiscal transfers in Brazil

This paper sheds light on the cases of delay, in some cases interruptions and cancellations of criteria, that followed the adoption of ecological fiscal transfers (EFT) by Brazilian states. Using the transaction costs-politics framework to analyze the policy-making process, the central argument is that state legislatives are likely to weight benefits and costs at the formulation stage. At the implementation stage, legislatives delegate the role of refining EFT procedures to state agencies and, as such, increase the costs they incur. The empirical design is based on a set of case-studies, collecting data using questionnaires devised to describe the time-lags and the interruptions and cancellations of environmental criteria. The findings provide evidence of the presence of gridlocks in the formulation stage and delegation problems in the political-bureaucratic relationship at the implementation stage. Also, the absence of a gradual increase to implement the percentage dedicated to ecological criteria in each state is likely to explain the delays in the implementation of EFT schemes. In the end, we recommend flexibility in the design of scheme and the involvement of political actors in the policy process of adopting EFT.

Did India’s ecological fiscal transfers incentivize state governments to increase their forestry budgets?

Ecological fiscal transfers (EFTs) involve higher levels of government distributing funds to lower levels of government based on ecological indicators. In 2015 India established the world’s largest system of EFTs when its 14th Finance Commission added forest cover to the formula that determines the amount of tax revenue the Union government distributes annually to each state. Here we gather state-by-state data on forestry budgets to assess whether India’s EFTs incentivized states to protect and restore forests as evidenced by increases to their forestry budgets. We find that states increased their forestry budgets by 19% in absolute terms in the three years after the introduction of EFTs relative to the three years prior. However, forestry budgets as a share of overall state budgets shrank by 16% after the introduction of EFTs, from 0.99% to 0.83%. Furthermore, states that obtained a larger share of their budget from EFTs did not disproportionately increase their forestry budget. Taken together, this suggests the introduction of EFTs has not yet led states to increase their forestry budgets. We develop a causal chain that suggests two reasons this could be: (1) low expectations on the part of state government officials that EFTs would continue in such a way that increases in forest cover would be rewarded with increases in revenue; and/or (2) insufficient motivation to increase forestry budgets as an investment in future revenue from EFTs. The 15th Finance Commission has plausibly addressed low expectations by keeping forests in the tax revenue distribution formula for another period and updating the year for which forest cover is measured from 2013 to 2017. It has plausibly addressed insufficient motivation by increasing the weight on forests in the formula from 7.5% to 10%. Future research can show whether these modified EFTs incentivize states to increase forest protection and restoration.