The Enhancement of the Horizontal Ecological Protection Compensation Mechanism in the Yu-Lu Section of the Yellow River Basin

Abstract

Horizontal ecological compensation represents a significant institutional innovation aimed at advancing ecological civilization and serves as a key functional strategy within China’s current management framework. This paper employs the horizontal ecological protection compensation agreement of the Yu-Lu section of the Yellow River Basin as a case study. Using a game theory model and theoretical analysis, the paper explores the underlying connotations, theoretical foundations, and legal characteristics of the basin’s horizontal ecological protection compensation mechanism. This analysis reveals several challenges within the existing horizontal ecological protection compensation system in the Yellow River Basin, including the predominance of a single compensation entity, unclear compensation standards, a compensation model limited to monetary transfers, and the absence of an effective dispute resolution mechanism. This paper further examines potential improvements to the horizontal ecological protection compensation framework in the Yellow River Basin from a legal system perspective, with the aim of addressing these practical challenges and fostering the region’s ecological, environmental, and economic development.

1. Introduction

In recent years, the ecological burden of China’s watersheds has intensified as a result of rapid economic development, leading to a significant imbalance between finite water resources and the insatiable demand for development, thus exacerbating the conflict between water supply and demand [1]. The allocation of water resources across the upper, middle, and lower reaches of the Yellow River Basin requires improved alignment with economic development. The upstream regions, which are endowed with high-quality and abundant water resources, often prioritize the preservation of the basin’s ecological environment in the pursuit of sustainability. This commitment frequently comes at the expense of economic interests, as they work to maintain the ecological integrity of the basin’s middle and lower reaches. As a result, these upstream areas allocate significant material, financial, and human resources to environmental protection without receiving equivalent benefits, creating a positive externality. To mitigate the detrimental effects of these positive externalities, it is crucial to establish an institutional-level ecological compensation mechanism, optimize the efficiency and economic benefits of water resources in the basin, promote equitable development between the upstream and downstream regions, and further improve the coordination and sustainability of ecology, environmental protection, and economic development within the basin.

On 6 April 2024, the State Council promulgated the “Regulations on the Compensation for Ecological Protection”, which are set to take effect on 1 June 2024. This constitutes China’s first legislation dedicated to ecological protection compensation, signifying the beginning of a new chapter in the rule of law regarding ecological compensation in the country. The enactment of the Regulations on Compensation for Ecological Protection has established a legal framework and standards for both vertical financial compensation among government tiers and horizontal ecological compensation between regional governments. However, the regulations primarily emphasize foundational principles and lack explicit, detailed, and practical provisions. Inter-regional horizontal compensation lacks a specific compensation standard for basin ecological protection agreements. The compensation subjects are primarily limited to local governments. Although various compensation modalities are outlined, they predominantly take the form of monetary compensation. Dispute resolution concerning compensation agreements is limited to consultations and coordination among relevant government entities, with no further specific provisions, potentially leading to practical challenges for horizontal ecological protection compensation in the basin.

While existing research has explored basin ecological compensation mechanisms, stakeholder game analysis, and compensation standards, there has been insufficient examination of the horizontal ecological protection compensation systems within specific basins. Given the vast expanse of the Yellow River Basin, the involvement of multiple provinces, and the uneven development across the upper, middle, and lower reaches of these regions, current research has yet to provide a comprehensive analysis of the horizontal ecological protection compensation system within this specific river basin. Additionally, there is a deficiency in studies addressing compensation entities, standards, methods, and related aspects.

This paper will explore the specific case of horizontal ecological protection compensation in the Yu-Lu section of the Yellow River Basin, drawing on the Regulations on Ecological Protection Compensation. It will investigate the horizontal ecological protection compensation mechanism within the watershed between Shandong and Henan, analyze the actions of the upstream and downstream governments through a game model, and evaluate the theoretical justification for the horizontal ecological protection compensation mechanism in the Yellow River Basin. Furthermore, it will assess the legal nature of horizontal ecological compensation in the Yu-Lu section of the Yellow River Basin. This study aims to investigate the necessity of the horizontal ecological protection compensation mechanism in the Yellow River Basin, focusing on a legal perspective, compensation subjects, standards, methods, dispute resolution mechanisms, and other pertinent issues related to ecological compensation in the Yu-Lu section, with the goal of informing improvements for the horizontal ecological protection mechanism in the Yellow River Basin.

2. Literature Review

Through a review and analysis of the current state of research on existing watershed ecological compensation mechanisms, it is argued that addressing issues related to compensation entities, standards, and models can provide a theoretical basis for the further optimization of the Yellow River Basin’s watershed ecological protection compensation mechanism.

2.1. Subject of Compensation

Regarding compensation, Wang et al. [2] argue that, from the perspective of the cooperative model of ecological protection compensation within the basin and its boundary characteristics, the entities involved in horizontal ecological protection compensation are the upstream and downstream governments. Shi [3] explores the issue of deriving advantages from ecological protection. She contends that the recipients of compensation should be the beneficiaries of ecological and environmental protection, specifically the downstream governments that benefit from the ecological services in the basin, along with the central government. Zhang et al. [4] assert that the definition of the issue of ecological protection compensation should be founded on the integration of responsibilities and rights, as well as the viewpoint of ecological stakeholders, and should emerge through the ongoing interactions among these stakeholders. Relying exclusively on the government as the primary entity for compensation while overlooking the roles of social and market participants may result in a static and insular ecological compensation model, thereby hindering the advancement of market-oriented ecological protection compensation. Wang et al. [5] assert that, according to the principle of “who benefits, who compensates”, the primary responsibility for compensation lies with the beneficiaries of ecological protection. In contrast, the compensation targets encompass both the preservation of the ecological environment and the mitigation of ecological damage. Engel et al. [6] assert that the eco-compensation system seeks to identify the providers of ecological services, with the beneficiaries of ecological protection compensating them, a process not restricted to governmental entities. Mariana et al. [7] assert that, to ensure the sustainable development of the ecological environment, the responsibility for compensation should shift from the state to local governments, enterprises, and water users, with all three parties contributing to compensation.

Scholars typically identify the subject of compensation from the perspective of stakeholders, which is a reasonable approach and valuable for reference. However, limiting the main body of compensation to the main body of the agreement, i.e., upstream and downstream governments, lacks consideration from the perspective of stakeholders. In fact, during the implementation of horizontal ecological protection compensation programs, the stakeholders involved extend beyond upstream and downstream governments to include enterprises, water users, and other relevant parties [8].

2.2. Compensation Standards

Compensation standards represent a central issue in the field of ecological compensation [9]. Establishing compensation standards is essential for strengthening ecological protection compensation mechanisms. Researchers have examined many approaches to establishing compensation criteria, with prevalent strategies including cost assessment, ecosystem service valuation, and negotiation. The cost method encompasses direct expenses related to watershed protection, as well as opportunity costs arising from development restrictions aimed at preserving watershed ecosystems. Building on the energy synthesis method, Zhao et al. [10] develop an energy–water resources ecological footprint model for trans-boundary river basin countries. By calculating the ecosystem service value and the consumption ecological value of trans-boundary river basin countries, the ecological spillover value for each country can be derived. Roach et al. [11] employs the equivalent substitution approach to assess potential ecological harm and the associated costs of environmental restoration, utilizing these findings as a benchmark for ecological degradation and restoration expenses. Kaczan [12] argues that the opportunity cost method is highly susceptible to information asymmetry in practice, leading to inaccuracies in the calculated compensation rates. The second method is the ecosystem service value approach, which establishes compensation standards based on the value and benefits derived from protecting a watershed’s ecological environment. Costanza et al. [13] analyze international case studies of ecosystem service value and classify 17 distinct value types that require evaluation. They examine and categorize 17 varieties of ecosystem service function value requiring assessment and succinctly evaluate each type. Zhao et al. [14] evaluate the ecological compensation standard of the Da Wen River Basin by evaluating ecosystem service values tailored to local conditions, accounting for variations across different regions and stages within the basin. This approach augments the scientific validity of the compensation standard’s implementation, ensures equitable compensation, and provides valuable insights for improving the ecological compensation mechanism in the basin. The game negotiation method is essential for establishing compensation standards based on cost measurement. It involves negotiations between the compensation entities to establish the ecological protection compensation standard. Li et al. [15] argue that basin ecological compensation standards should not be mandatory, but rather should serve as intentional, reference, and citation standards, aligning with the market-oriented and diversified nature of basin ecological compensation. Li et al. [16] employ ecosystem service value assessment to determine compensation standards, facilitating the shift from a purely quantitative approach to one driven by game-theoretic negotiation. These approaches contribute to making the ecological compensation standards of river basins more scientifically grounded and reasonable. However, significant obstacles remain in the effective implementation of these strategies in practice, and the determination of compensation standards still requires further refinement through game-theoretic negotiation methods.

Direct costs can be determined by assessing direct expenses and other costs incurred, which are reasonably straightforward to compute. However, for indirect costs, greater precision in the compensation requirements outlined by Kaczan [12] may be necessary due to numerous uncertainties in practice and potential information asymmetry. The second method is the ecosystem service function value approach, which necessitates extensive accounting, lacks feasibility [17], and is difficult to use as a foundation for establishing compensation standards in current horizontal ecological protection compensation for river basins, as existing studies have not introduced a more practical accounting method. The negotiation approach is solely dictated by the principal parties involved in the horizontal ecological protection compensation of a basin, and compensation standards established through this method may significantly diverge from the actual value of ecosystem services, thereby failing to fulfill their compensatory function.

2.3. Compensation Methods

Scholars have explored various compensation approaches, including vertical, horizontal, and market-based mechanisms. Vertical compensation primarily depends on the central government, involving transfer payments, the procurement of ecological products, and the building of water conservancy projects. Cassandra [18] argues that watershed ecological protection compensation should be implemented through a vertical approach, asserting that the central government must centralize its management. Wang et al. [19] believe that horizontal ecological compensation in river basins should move towards a government-led mechanism of the synergistic co-management of multiple subjects, and that ecological compensation between the upstream and downstream areas of basins should be negotiated under the leadership of the government. Li et al. [20] assert in their study of watershed ecosystem services that funding for ecological compensation should not be confined to public water utilities; instead, it should also engage investments from pertinent enterprises and additional sources to enhance ecological protection and sustainable economic development. Hao et al. [21] contend that addressing water environment protection issues in river basins requires the integration of market mechanisms into river basin governance and the promotion of diverse forms of water use rights trading among the regions, industries, and water users within river basins. Water rights trading is a model that can promote compensation for ecological protection in river basins, and significant progress has been made in its implementation. However, further efforts are needed to advance the marketization process. Scholars have analyzed and identified the primary entities responsible for compensation from various perspectives, each of which is reasonable to some extent; however, they also exhibit certain biases.

Vertical compensation by the central government differs from the existing horizontal ecological protection compensation within the Yellow River Basin. Financial remuneration between upstream and downstream governments, the central government’s involvement, the facilitation of water rights trading, the incorporation of social capital, industrial relocation, park development, and other compensation mechanisms suggested by scholars possess significant reference value.

Current research on the establishment of a horizontal ecological compensation system within river basins has made significant strides in the field; however, there remains a lack of studies examining this issue from a legal system perspective. This paper aims to investigate these matters at the legal system level and propose targeted recommendations to enhance the horizontal ecological protection and compensation mechanism in the Yellow River Basin, thereby offering a valuable reference.

3. Materials and Methods

3.1. The Implications of Horizontal Ecological Protection Compensation Within the Yellow River Basin

This study aims to provide a reference for improving the institutional framework of the Yellow River Basin’s horizontal ecological protection compensation mechanism. First, it is essential to clarify the theoretical foundation of horizontal ecological protection compensation and analyze its pertinent meanings, theoretical underpinnings, and legal characteristics to reinforce the system’s theoretical framework. This will enhance our understanding of a more comprehensive horizontal ecological protection compensation system within the basin and assist in the study and improvement of this mechanism.

In foreign countries, the term “Payment for Ecosystem Services” is commonly used in the context of ecological compensation. Domestic scholars have examined the implications of ecological compensation from several viewpoints, including law, economics, and environmental science. From the perspective of ecological protection and the regulation of relevant stakeholders’ interests, Yan [22] argues that ecological compensation is an institutional arrangement designed to protect and sustainably utilize ecosystem services, primarily regulating the relationship between the interests of involved parties through economic means. Considering development opportunity costs, ecological protection costs, and the value of ecological services, Li et al. [23] and Huang et al. [24] believe that ecological compensation is the act of the beneficiaries of ecological protection compensating the ecological protectors or the perpetrators of ecological damage compensating those who are affected by ecological damage as a means of filling in the losses or costs incurred by the relevant subjects. Qin et al. [25] elucidate the concept of eco-compensation from both narrow and broad perspectives. In the narrow sense, eco-compensation primarily refers to the financial compensation paid by the beneficiaries of ecosystem services to their providers. In the broad sense, it encompasses economic mechanisms that promote ecological and environmental protection. The Regulations on Compensation for Ecological Protection are analyzed primarily from a macro-policy perspective, explaining the meaning of ecological compensation in terms of its classification, beneficiaries, and methods. It is highlighted that ecological protection compensation refers to an incentive system for compensating units and individuals engaged in ecological protection through provisions or agreements, using mechanisms such as vertical compensation from the treasury, horizontal compensation between regions, and market-based compensation.

Considering the Regulations on Compensation for Ecological Protection and theoretical studies on the connotations of ecological compensation, it can be understood that ecological compensation is mostly used to balance the interests of subjects related to ecosystem services. Ecological compensation can be defined as the payment of money, materials, or other non-material benefits from the beneficiaries of ecological and environmental protection to the protectors of the environment, or from the perpetrators of ecological damage to those affected by such damage. This compensation is administered through either administrative or market-based mechanisms to offset the associated costs and losses, carefully considering the costs of ecological protection, the opportunity costs of development, and the value of ecological services [26].

Building on the clarification of the concept of ecological protection compensation, this paper defines the horizontal ecological protection compensation of the Yellow River Basin in the narrow sense, as the payment of money, materials, or other non-material benefits by the beneficiaries of ecological services in the upper, middle, and lower reaches, central and tributary streams, or left and right coasts of the basin. Alternatively, it may involve payments by the state to the ecological service providers who bear the cost of ecological services, aimed at protecting the ecological environment and balancing the interests of the relevant stakeholders. In the broader sense, the horizontal ecological protection compensation of the basin should encompass payments of money, materials, or other non-material benefits as compensation from the entities responsible for ecological damage in the basin to those who have suffered from ecological harm, distinguishing it from compensation for damage to the ecological environment itself. Basin ecosystems are resource-rich, with water resources playing a crucial role that significantly affects these ecosystems. This study focuses on water resources as the central element of the basin’s horizontal ecological protection compensation system.

3.2. Theoretical Foundation of Horizontal Ecological Protection Compensation

The theoretical foundation of horizontal ecological protection compensation involves ecological protection, economic and social development, and stakeholders’ “rights, responsibilities, and benefits”, exhibiting distinct game-theoretic characteristics. This paper applies a game model to analyze the behavior of stakeholders regarding the ecological compensation of the Yellow River Basin, specifically the Henan and Lu sections, seeking a mixed-strategy Nash equilibrium under conditions of governmental uncertainty. The aim is to analyze the theoretical necessity and systemic basis of ecological compensation in the watershed, thereby providing a reference for improving the horizontal ecological compensation mechanism in the region. The locations of Henan and Shandong in the Yellow River Basin are shown in Figure 1, and the location of the state-controlled section of Liuzhuang is shown in Figure 2.

3.2.1. Game Modeling of Watershed Ecological Compensation

This paper develops a mixed-strategy Nash equilibrium model involving upstream and downstream governments and provides a solution to the model. Firstly, the basic assumptions are as follows: the primary subjects of interest are the upstream and downstream governments, both of which are considered to be limited-rational actors. Regarding the information environment, it is assumed that the upstream and downstream watersheds have non-public information, leading to uncertainty in the behavior of the parties involved. The upstream and downstream governments of the river basin engage in strategic behaviors to maximize their respective interests.

Secondly, in the parameter settings, the upstream government has the following two strategy options: “protection” and “no protection”, denoted as x and 1 − x, respectively. Similarly, the downstream government has the following two strategy options: “compensation” and “no compensation”, denoted as y and 1 − y. The upstream and downstream governments can choose between “protection” and “no protection” strategies, while the downstream governments can select between “compensation” and “no compensation”. Different strategy choices by the upstream and downstream governments result in varying benefits, allowing the following parameters to be defined: H represents the original benefit to the upstream government when choosing the non-protection strategy; $H_1$ is the benefit derived from the improvement in the watershed’s ecological environment when the upstream government chooses the protection strategy; $C_1$ represents the environmental protection cost and opportunity cost incurred by the upstream government for watershed protection; $C_2$ is the ecological compensation cost paid by the downstream government to the upstream government; $h$ is the original benefit to the downstream government when the upstream government chooses the non-protection strategy; and $h_1$ is the positive spillover benefit to the downstream government when the upstream government chooses the protection strategy. The game payment matrix is shown in

Table 1. Ecological compensation game model for upstream and downstream governments.

Items		Downstream Government
		Compensation (y)	No Compensation (1 − y)
Upstream Government	Protection(x)	$\left(H+H_1-C_1+C_2,h+h_1-C_2\right)$	$\left(H+H_1-C_1,h+h_1\right)$
	No protection (1 − x)	$\left(H+C_2,h-C_2\right)$	$\left(H,h\right)$

.

3.2.2. Analysis of the Ecological Compensation Game Between Upstream and Downstream Governments in Watersheds

In practice, the benefits of protecting the watershed environment to the upstream government far exceed the associated costs, $(H_1-C_1<0)$. In this scenario, if the downstream entity adopts the “compensation” strategy, the benefit of the upstream government’s “no protection” strategy outweighs that of its “protection” strategy $(H+H_1-C_1+C_2<H+C_1)$; similarly, when the downstream entity chooses the “no compensation” strategy, the benefit of the upstream government’s “no protection” strategy remains greater than that of its “protection” strategy $(H+H_1-C_1<H)$ As a result, the Nash equilibrium of the game is (H, h), meaning that if the upstream government opts for the “no protection” strategy and the downstream government selects the “no compensation” strategy, the ecological compensation game between the two parties falls into a “prisoner’s dilemma”.

The anticipated payoffs for the upstream government when choosing to protect or not protect the watershed are denoted as ${\pi }_{11}$ and ${\pi }_{12}$, respectively.

$${\pi }_{11}\left(h+h_1-C_2\right)y+\left(H+H_1-C_1\right)\left(1-y\right)$$

(1)

$${\pi }_{12}=\left(l-C_2\right)y+l\left(1-y\right)$$

(2)

The expected returns of the downstream government when choosing to compensate and not compensate are ${\pi }_{21}$ and ${\pi }_{22}$, respectively.

$${\pi }_{21}=\left(H+H_1-C_1+C_2\right)x+\left(H+C_2\right)\left(1-x\right)$$

(3)

$${\pi }_{22}=\left(H+H_1-C_1\right)x+H\left(1-x\right)$$

(4)

In the ecological compensation game model, for the upstream government, the projected revenue from the “protection” and “no protection” strategies is equivalent to the mixed-strategy Nash equilibrium. Let ${\pi }_{11}={\pi }_{12}$. The likelihood that the downstream government selects the “compensation” strategy is $y={\displaystyle \frac{h-\left(H+H_1-C_1\right)}{h+h_1-H-H_1+C_1}}$, following a sequence of calculations, representing the probability of the downstream government’s decision while the upstream government is in a mixed-strategy Nash equilibrium.

For the downstream government, the mixed-strategy Nash equilibrium requires that the expected payoffs from choosing the “compensation” and “no compensation” strategies are equal. Let ${\pi }_{21}={\pi }_{22}$. The probability that the upstream government selects the “protection” strategy is $x={\displaystyle \frac{-C_2}{2H_1-2C_1}}$, ensuring that $-{\displaystyle \frac{C_2}{2}}<H_1-C_1<$0, with values constrained within the interval [0, 1], in accordance with the probability of practical significance, which corresponds to the decision-making probability of the upstream government in the mixed-strategy Nash equilibrium of the downstream government.

Through the analysis of the derived probabilities, it is clear that increasing the benefit h through appropriate technical measures, while simultaneously reducing the cost $C_1$ associated with the upstream government’s protection strategy and the ecological compensation cost $C_2$ borne by the downstream government, can significantly enhance the probability of the upstream government adopting a protection strategy and the downstream government selecting compensation, thus promoting the achievement of an optimal strategy. In the absence of agreement and central government intervention, the actions of upstream and downstream governments remain uncertain, potentially resulting in a prisoner’s dilemma, where the upstream government fails to provide protection and the downstream government refrains from offering compensation. Therefore, it is crucial to establish a legal framework that governs the actions of both upstream and downstream governments, facilitates the implementation of horizontal ecological protection compensation, and balances the interests of all stakeholders while promoting ecological preservation, environmental protection, and economic development.

3.3. The Legal Character of the Horizontal Ecological Protection Compensation Agreement of Basins

There are various doctrines regarding the legal nature of compensation agreements for horizontal state protection in watersheds, specifically civil agreements, administrative agreements, and hybrid arrangements.

3.3.1. Theory of Civil Agreements

Civil agreements regarding horizontal ecological protection compensation in basins, formed by the mutual consent of both parties, involve the creation, modification, and termination of civil rights and obligations, and should be governed by civil law [24].

Horizontal ecological protection compensation agreements in watersheds exhibit the characteristics of a civil agreement; however, they simultaneously incorporate elements of public affairs and inherently engage public interest. A horizontal ecological protection compensation agreement encompasses various aspects of basin public affairs management, including sharing regional data and information between upstream and downstream areas, formulating emergency response plans, negotiating disposal measures, and coordinating cross-border law enforcement. While civil agreements primarily seek to reconcile the interests of private entities, horizontal ecological protection compensation agreements are focused on safeguarding public interests [27]. Conversely, horizontal ecological protection compensation agreements for watersheds prioritize preserving the ecological environment, economic growth, and social development, distinguishing them significantly from the objectives of civil agreements. Moreover, if the horizontal ecological protection compensation agreement is classified as a civil agreement, its dispute resolution would require litigation. However, China has yet to establish a corresponding litigation framework for such agreements. The promulgation of the “Ecological Protection Compensation Regulations” in April 2024 designates the government as the primary entity responsible for coordinating these disputes, which clearly conflicts with the dispute resolution mechanisms inherent in civil agreements.

3.3.2. Theory of Administrative Agreements

Administrative agreements stipulate that a watershed’s horizontal ecological protection compensation agreement requires the legal relationship of the administrative contract to involve an administrative entity meeting specific conditions. Furthermore, they address public objectives such as water pollution control, water environment management, and ecological restoration, all aimed at improving watersheds’ environmental quality. Therefore, a watershed’s horizontal ecological protection compensation agreement is essentially an administrative agreement focused on environmental protection [28].

In 2019, the Supreme People’s Court issued the Provisions on Several Issues Concerning the Trial of Cases of Administrative Agreements, which explicitly define an administrative agreement as a negotiated accord containing rights and obligations under administrative law between an administrative entity and a citizen, legal person, or other organization, aimed at fulfilling administrative management or public service objectives. The concept of an administrative agreement involves one party being an administrative body and the other being a private entity, rather than both parties being the same administrative organ. The scope of administrative agreements is not negatively impacted by the absence of affiliation between local governments when entering into horizontal ecological protection compensation agreements for watersheds.

3.3.3. Integration of Civil Contract and Administrative Agreement

A combination of civil and administrative agreements may account for the rationale behind both, yet horizontal ecological protection compensation agreements for basins lack clear legal attributes, hindering the establishment of a robust foundation for the development and implementation of such a system. The significance of jurisprudence in legal practice extends beyond merely assisting in judicial decisions. The legal framework for horizontal ecological protection compensation agreements in watersheds necessitates clarification to establish a theoretical foundation for the development of a relevant legal system and the resolution of practical issues.

3.3.4. The Horizontal Ecological Protection Compensation Agreement Constitutes a Special Contract

After sorting and analyzing the various doctrines regarding the legal nature of horizontal ecological protection compensation agreements, none of the aforementioned doctrines adequately define their legal nature. Building on the aforementioned doctrines and considering the characteristics of horizontal ecological protection compensation agreements, it is posited that these agreements constitute a special contract concluded between local governments. On the one hand, they are distinguished from the administrative agreement of a “public–private agreement”, and on the other hand, the public purpose factor is incorporated into the determination of the contract’s validity, as well as the rights and obligations between the parties. Unlike standard administrative agreements, the horizontal ecological protection compensation agreement for the Yellow River Basin (Yu-Lu section) differs in subject matter. It incorporates a betting system from private law. Betting agreements, derived from financial market terminology, are outlined in various laws, judicial interpretations, and relevant financial regulatory regulations in China. Betting agreements possess a shotgun characteristic. The shot contract must possess at least two characteristics, as follows: first, the subject matter involves the parties entering into the contract based on the outcomes of a specific unpredictable event; second, all parties have the potential to incur either gains or losses [29]. The horizontal ecological protection compensation agreement for the Yellow River Basin (Yu-Lu section) stipulates that the water quality of the cross-provincial boundary segment of the Yellow River Main Stream, specifically the Liuzhuang state-controlled section between Henan Province and Shandong Province, will be the contractual focus over a designated future timeframe, with compensation disbursed depending on the water quality conditions, as outlined in the agreement. The evaluation of water quality compliance is marked by uncertainty and future consequences, with the Henan and Shandong Provinces potentially experiencing either gains or losses. This compensation agreement bears similarities to a betting agreement in its elements of chance. Therefore, the Yellow River Basin’s horizontal ecological protection compensation agreement (Yu-Lu section) can be regarded as a distinctive contract between local governments.

The justification for classifying it as a special contract stems from its distinction from civil agreements, which aim to balance the interests of private entities [30], and administrative agreements, which exhibit the characteristics of public–private agreements. A civil agreement pertinent to the legal relationship emphasizes the equality of the parties involved. The horizontal ecological compensation agreement concerning the Yu-Lu section of the Yellow River Basin, between Henan Province and Shandong Province, is based on the equal legal status of the parties, reflecting their genuine intent in forming the agreement, thereby embodying the characteristics of a civil agreement. Conversely, the legal relationship in an administrative agreement involves administrative bodies and private entities. However, in the context of the horizontal ecological protection compensation agreement within this watershed, the two governments involved do not meet the criteria required for the subject matter of an administrative agreement. Furthermore, the objective of an administrative agreement is administrative management, encompassing administrative entities that are based on national objectives, societal interests, and the need to enter into administrative contracts. The horizontal ecological protection compensation agreement focuses on water pollution control, water environmental management, and water ecological restoration, thereby exhibiting characteristics typical of an administrative agreement. In contrast, civil agreements primarily regulate the interests of private entities, leading to a misalignment between horizontal watershed ecological protection compensation and the protection of public interests.

This study posits that this horizontal basin ecological protection compensation agreement constitutes a distinct contract. The agreement displays the characteristics of a civil contract, enabling both parties to engage in and implement the agreement based on its authentic intent. In this context, a game model is employed to assess the probability of the strategic choices made by both parties. The probabilistic outcomes suggest that appropriate technical methods can be utilized to increase benefits, h, under the upstream government’s protection strategy, reduce costs, C1, under the upstream government’s protection strategy, and lower costs, C2, under the downstream government’s ecological compensation strategy. These adjustments effectively enhance the likelihood of both the upstream government to choose a protection strategy and the downstream government to choose a compensation strategy, thereby facilitating the attainment of the optimal strategy. In contrast, the agreement also demonstrates the characteristics of an administrative accord, involving intervention from both higher and central government authorities. As a result, the agreement may impact the strategic decisions of both upstream and downstream governments, motivating the upstream government to adopt a protection strategy and the downstream government to implement a compensation strategy, thereby overcoming the prisoner’s dilemma.

4. Discussion

4.1. Practical Challenges of Horizontal Ecological Protection Compensation in Watersheds

On 6 April 2024, the State Council promulgated the Regulations on Compensation for Ecological Protection, effective 1 June 2024. This marks China’s first legislation specifically focused on ecological protection compensation, heralding a new phase in the legal governance of ecological protection compensation within the country. The Regulations on Compensation for Ecological Protection, with respect to horizontal ecological protection compensation in river basins, remain insufficient. The compensation standards are vague, the compensation methods are restrictive, and the dispute resolution mechanisms lack clear guidelines, which may create legal obstacles in addressing practical issues related to horizontal ecological protection compensation. This analysis utilizes the Yellow River Basin (Henan and Lu) horizontal ecological protection compensation agreement to examine potential practical issues in the current legal framework and ecological compensation theory, aiming to offer insights for enhancing the legal system governing horizontal ecological protection compensation in the basin.

4.1.1. Analysis of Agreements

In 2021, the Henan and Shandong Provinces entered into a horizontal ecological protection compensation agreement for the Yellow River Basin (Yu-Lu section), with the aim of jointly improving the water quality at the cross-provincial boundary section of the Yellow River Main Stream (Liuzhuang state-controlled section). The agreement utilizes the mean water quality values and the yearly concentration averages of three principal pollutants, chemical oxygen demand, ammonia nitrogen, and total phosphorus, as evaluation criteria. In terms of basic compensation for water quality, if the annual average water quality is classified as Category III, no compensation will be exchanged between the Henan and Shandong Provinces. If the average annual water quality improves by one category from Category III, Shandong Province, located downstream, will compensate Henan Province, situated upstream, with CNY 60 million. Conversely, if the water quality deteriorates, Henan Province will compensate Shandong Province with CNY 60 million. For each annual reduction of one percentage point in the index of key pollutants at the Liuzhuang state-controlled cross-section, Shandong Province compensates Henan Province CNY 1 million; conversely, Henan Province compensates Shandong Province CNY 1 million, with a maximum compensation limit of CNY 40 million. Ultimately, Shandong Province has compensated Henan Province with CNY 100 million for ecological restoration efforts.

In 2023, the two provinces executed the second iteration of the horizontal ecological compensation agreement for the Yu-Lu segment of the Yellow River Basin. Compared to the initial agreement, this iteration revised the indicator framework by adjusting the compensation factor for the original surface water indicators, specifically by increasing the total nitrogen indicators. Additionally, the compensation standard became more refined, shifting from an annual water-quality-category-based compensation to a monthly-based standard. These two agreements reveal that the horizontal ecological compensation between the Henan and Shandong Provinces primarily involves the governments of both parties, with the compensation framework being relatively narrow. Negotiations between the two provinces establish the compensation standard, which is explicitly based on the annual average water quality and the yearly average concentrations of critical pollutants, among other factors. Although the second iteration of the compensation standard improves upon the first, it still falls short of aligning with the true value of ecological services, direct costs, opportunity costs, the compensation requirements outlined in the second round, and other pertinent factors, resulting in a lack of rationality and scientific basis in the compensation criteria. Moreover, the compensation approach is confined to monetary compensation, which renders it relatively simplistic. Furthermore, both agreements lack a dispute resolution mechanism, hindering the effective resolution of conflicts once they arise.

4.1.2. Analysis of the Predicament

The Main Body of Compensation Is Relatively Homogeneous

According to the Regulations on Compensation for Ecological Protection, local governments are the primary entities responsible for inter-regional horizontal compensation. Additionally, the principal parties involved in horizontal ecological protection compensation agreements within basins are the local governments of the upstream and downstream areas, as well as those from both the left and right banks and regions encompassing the main streams and tributaries. The horizontal ecological protection compensation agreement in the Yellow River Basin (Yu-Lu section) involves the governments of Henan Province and Shandong Province, with all parties in the agreement being administrative entities. In the practical execution of the horizontal ecological protection compensation agreement in the Yellow River Basin (Yu-Lu section), the primary stakeholders extend beyond administrative bodies to include businesses and individuals within the basin. During the implementation of the agreement, it is crucial to regulate the activities of businesses and individuals within the basin that may affect water quality, thus incurring opportunity costs, in order to maintain the optimal water quality and stability. Opportunity costs are usually incurred when parties tend to forgo relevant available benefits in order to fulfil a contract, usually in the context of limited resources [31]. However, under the current legal frameworks and in practice, entities and individuals who incur opportunity costs or allocate human, material, and financial resources are excluded from categories subject to restrictions under ecological protection compensation agreements.

Compensation Rates Are Unclear

The horizontal ecological protection compensation agreement for the Yellow River Basin (Yu-Lu section), implemented in 2023, is more comprehensive than the deal executed in 2021. The annual compensation standard set in the initial agreement was revised to a monthly standard, and the total nitrogen indicator was incorporated as a compensation factor. These modifications effectively incentivize and regulate the behavior of both parties, promoting the stability and improvement of water quality in the Yu-Lu segment of the Yellow River Basin. However, the provisions of both compensation agreements arise from ongoing negotiations between the parties. Nevertheless, the compensation standard established in the agreement is a singular standard focused exclusively on water quality. It does not consider the value of actual ecosystem services, costs associated with ecological protection, and opportunity costs.

The Regulations on Ecological Protection Compensation consist of abstract and general provisions, with a lack of specific criteria for horizontal ecological protection compensation within watersheds. Furthermore, regulations must address the value of ecosystem services within watersheds, requiring the development of appropriate indicators and assessment systems to evaluate this value. This can lead to continuous negotiations between two parties regarding a horizontal ecological protection compensation agreement, increasing negotiation costs and impeding the market-oriented development of the compensation framework. The current horizontal basin ecological protection compensation agreement in the Yellow River Basin primarily emphasizes the preservation of the basin’s ecological environment, leading to compensation standards that are substantially lower than the actual costs of ecological protection or the damages caused by ecological degradation.

Compensation Methods Are Limited to Monetary Compensation

Although Article 2, Paragraph 2 of the Regulations on Ecological Protection Compensation stipulates that various compensation methods, including monetary compensation, counterpart collaboration, industrial transfer, and talent training, may be utilized, the predominant practice in most horizontal ecological protection compensation agreements within basins remains confined to monetary compensation. In the horizontal ecological protection compensation agreements between Henan Province and Shandong Province in 2021 and 2023, the compensation mechanism was entirely monetary, with compensation occurring exclusively between the governments of Henan and Shandong, specifying no alternative compensation methods. The horizontal ecological protection compensation practice in the basin needs to be enhanced by exploring and implementing alternative compensation methods, such as counterpart cooperation, industrial transfer, talent training, joint park development, and the procurement of ecological products and services. Consequently, the compensation approach is restricted to monetary compensation, which hinders the sustainable and healthy development of horizontal ecological protection compensation in the basin. This limitation also restricts the mobilization of additional stakeholders and obstructs the creation of a positive development cycle for horizontal ecological protection compensation in the basin. Such limitations hinder the sustainable and healthy advancement of horizontal ecological protection compensation.

Absence of Dispute Resolution Mechanisms in Compensation Agreements

No dispute resolution mechanism has been established in the known horizontal ecological protection compensation agreements within the Yellow River Basin (Yu-Lu section). Although the agreement between Henan Province and Shandong Province was executed smoothly without disputes, an optimal horizontal ecological protection compensation system requires the establishment of an appropriate dispute resolution mechanism. The absence of such a mechanism will likely impede the agreement’s fulfillment. Legal disputes are likely to persist, even in the absence of specific legal provisions. Given the widespread implementation of horizontal ecological protection compensation agreements, disagreements are inevitable, underscoring the need for an effective dispute resolution process. Article 18 (2) of the Regulations on Compensation for Ecological Protection establishes a procedure for resolving disputes related to compensation agreements, specifically through consultations between local governments. If these consultations fail, a higher-level government will intervene to facilitate the resolution and may issue a decision. However, this provision is characterized by its abstract and general nature. It fails to offer preventive guidelines for the formulation of compensation agreements in practice, nor does it provide specific, actionable, or retroactive remedies for disputes arising from such agreements.

Generally, the Yellow River Basin has yet to establish a comprehensive horizontal ecological protection compensation system. The causes of this situation are multifaceted and complex, including the reliance on a single compensation entity, ambiguous compensation standards, a compensation framework limited to monetary compensation, and the absence of a dispute resolution mechanism, all of which contribute to the shortcomings of the current system. Moreover, these factors are interrelated and mutually reinforcing.

If a compensation framework involves a diversified range of entities, including enterprises, residents, social organizations, and other stakeholders, the compensation process is likely to become clearer, more scientifically grounded, and more equitable, thus facilitating a better balance of interests among all relevant parties. Furthermore, the involvement of enterprises, social organizations, residents, and other actors will lead to a diversification of compensation methods, extending beyond monetary compensation to include options such as industrial transfer, joint eco-park construction, the provision of human resources, and counterpart collaboration, thereby offering a greater flexibility in the compensation approach. Moreover, the participation of diverse compensation stakeholders facilitates the marketization of compensation mechanisms, including mechanisms such as water rights trading, sewage rights trading, and ecological banks. However, these market-based solutions require further development and implementation [32]. As marketization progresses, the incidence of disputes is likely to rise, making the establishment of a robust dispute resolution mechanism increasingly essential.

Compensation entities, compensation standards, compensation methods, and dispute resolution mechanisms collectively constitute a comprehensive horizontal ecological protection compensation framework for basins. These factors are interrelated and mutually influential—modifications in one element can lead to changes in others, thereby affecting the overall functioning of the basin’s horizontal ecological protection compensation system.

4.2. Improvement Path of Horizontal Ecological Protection Compensation System in Basins

Through the formulation of a mixed-strategy Nash equilibrium game model and the computation of strategy selection probabilities by upstream and downstream governments, it is clear that their actions are unpredictable in the absence of agreement limitations or governmental intervention. This uncertainty may lead to a prisoner’s dilemma, with upstream governments choosing a non-protection strategy and downstream governments choosing a non-compensation strategy. To avert a prisoner’s dilemma, it is essential to enhance the systemic components of compensation, including subjects, standards, methods, and dispute resolution mechanisms, while regulating the conduct of upstream and downstream governments through institutional constraints to attain the optimal strategy.

4.2.1. Encourage the Involvement of Various Compensation Actors

In the game model, Henan and Shandong are the main bodies of interest, with the choices of protection or non-protection and compensation or non-compensation. In order to achieve their interests to maximize the game behavior, the Nash equilibrium solution of the game for (L, l), that is, the upstream government, chooses the “no protection” strategy; the downstream government chooses the “no compensation” strategy. To prevent the ecological compensation game from devolving into a “prisoner’s dilemma”, it is essential to introduce a constraint mechanism. This could involve facilitating negotiations between the game participants to reach an agreement on ecological compensation, ensuring a balance of interests between both sides. The existing Regulations on Ecological Protection Compensation designate the government as the primary compensatory entity; nevertheless, the actual participants in the ecological protection compensation process extend beyond the government alone. The progression of marketization may promote the integration of all stakeholders’ interests and encourage the diversification of agreement parties, thereby ensuring that all relevant stakeholders are included in the compensation system. A horizontal ecological protection compensation agreement, amounting to CNY 100 million, has been established for the Yellow River Basin (Yu-Lu section). Given that taxpayers, citizens, enterprises, and other stakeholders have the right to participate in formulating this compensation agreement, the allocation of funds will be subject to oversight. Simultaneously, to reconcile the interests of pertinent stakeholders and to compensate for the opportunity costs incurred by enterprises, individuals, and other entities within or affected by the basin’s ecological environment, it is essential to incorporate these enterprises and individuals into the horizontal ecological protection compensation system, thereby granting them the status and qualifications of compensation subjects or objects. Encouraging the participation of various entities, such as businesses, civil organizations, and individuals within the basin, helps to expand the sources of compensation funds. Furthermore, negotiations between only the upstream and downstream governments are insufficient to achieve the optimal strategy. Therefore, the central government must be included as a key entity in the horizontal ecological protection compensation system within the basin. The central government should intervene, establish incentive and constraint mechanisms, and regulate the actions of both upstream and downstream governments to attain the optimal strategy. The central government should guide the participation of the entire population and promote a mixed vertical and horizontal ecological compensation system for the Yellow River Basin, tailored to local conditions [33].

Based on the mixed-strategy Nash equilibrium developed in this paper, it is evident that the central government’s intervention is crucial at the current stage, as it can effectively guide both upstream and downstream governments in their protection and compensation efforts. Simultaneously, as marketization progresses, the number of relevant stakeholders increases, allowing all parties to participate in the process in order to maximize their interests. At this point, the primary compensatory entities will no longer be restricted to the upstream and downstream governments; instead, the system can incorporate relevant stakeholders into the compensation framework, thus forming a diversified compensatory body.

4.2.2. Establishing Compensation Standards

In the horizontal ecological protection compensation game, upstream and downstream governments typically adopt optimal and stringent strategies that prioritize their own interests, often resulting in a “prisoner’s dilemma” scenario, where the upstream government selects a “no protection” strategy and the downstream government chooses a “no compensation” strategy. Therefore, it is crucial to clarify the ecological protection compensation standard for a basin, ensuring that it effectively serves the interests of all stakeholders involved. Moreover, the rapid development of horizontal ecological protection compensation within watersheds reflects a growing trend toward marketization. There is an urgent necessity to establish a scientifically grounded ecosystem service value assessment system to align compensation standards with actual ecological protection costs and ecosystem service values, thereby maximizing the efficacy and significance of the ecological protection compensation mechanism.

The horizontal ecological protection compensation agreement between the Henan and Shandong Provinces in the Yellow River Basin established a compensation standard through negotiations between the two provinces, exemplifying the method for determining ecological compensation standards. While rooted in the genuine intentions of both parties, the compensation criterion established through the game bargaining technique fails to adequately account for the costs or losses associated with ecological protection or destruction within the basin. Therefore, both parties should combine the cost measurement method and the ecosystem service value approach with the game bargaining technique to establish a compensation standard for ecological protection in the watershed, thereby improving the fairness of the compensation standard. After outlining the methodology for establishing compensation standards, it is crucial to understand how this method is applied in determining compensation standards.

The consensus reached within the game determines the negotiation approach; however, the costing method and the ecosystem service value method introduce additional objective criteria that necessitate further analysis. Utilizing the costing method requires an assessment of the direct expenses related to ecological preservation in the watershed, along with the evaluation of forgone opportunity costs. The assessment of ecological service values, which entails extensive accounting, is less operational and feasible. Nevertheless, the compensation criterion established through this approach most accurately reflects the value of the watershed’s ecological services. Therefore, it is crucial to identify relevant indicators to guide the valuation of these services [34]. Once the pertinent indicators are identified, the standard most closely aligned with the ecological service value of the basin will be calculated and incorporated into the basin’s horizontal ecological protection compensation framework, eventually being formalized into law.

Compensation standards are at the center of horizontal ecological protection compensation in river basins, and determining compensation standards is crucial. At present, it is not realistic to determine compensation standards based only on the value of ecosystem services or the cost method. However, it is possible to stipulate the minimum compensation standard at the institutional level and simultaneously encourage the relevant parties to determine compensation standards based on the game negotiation method, combining the ecosystem service value and cost measurement methods. In this way, not only can it follow the real intention of both parties, but it also does not lack reasonableness.

4.2.3. Implementing a Diversified Approach to Compensation

The compensation approach utilized in the ecological compensation agreement between Henan and Shandong in the Yellow River Basin is horizontal compensation. In principle, horizontal compensation coexists with vertical compensation, market-based compensation, and other compensation methods. From a game theory perspective, an analysis of the ecological compensation game between Henan and Shandong indicates that horizontal compensation, negotiated between the upstream and downstream governments, could lead to a different strategy. Therefore, intervention by the central government is essential to establish incentives and constraints that regulate the actions of both upstream and downstream governments to attain the optimal strategy. Moreover, market-oriented compensation could be implemented through property rights trading and financial instruments, attracting investments from relevant enterprises, including social funds for basin ecological protection. This approach would reconcile the interests of key stakeholders and promote both ecological preservation and sustainable economic development within the basin.

In the ecological compensation of the Yu-Lu region of the Yellow River Basin, horizontal compensation is the primary emphasis; nevertheless, the compensation approach is restricted to monetary remuneration. Initially, monetary compensation was a more convenient way to provide horizontal ecological protection compensation within the basin. To promote horizontal ecological protection compensation in the basin and establish a virtuous growth cycle, it is crucial to encourage the diversification of compensation mechanisms and ensure the effective implementation of these varied approaches in practice. In addition to monetary remuneration, compensation may also be provided through mechanisms such as industrial transfer, talent development, collaborative park creation, and the acquisition of ecological products and services, among others. On two separate occasions, the horizontal ecological protection compensation agreement executed between Henan Province and Shandong Province exclusively stipulated monetary compensation as the sole mode of compensation. Compared to monetary compensation, methods such as industrial transfer, talent development, collaborative park construction, and the procurement of ecological products and services are more effective in fostering the positive evolution of the horizontal ecological protection compensation system within a basin, thus promoting both economic development and ecological preservation. Consequently, it is recommended that various compensation approaches be implemented in the practice of horizontal ecological protection compensation. Initially, the professionalism and competence of staff in ecological environment management could be enhanced by targeted training initiatives. Moreover, the upstream and downstream areas of the basin, including both banks and primary and tributary streams, could collaboratively establish a park that serves as a central hub for the conservation of the basin’s water resources and ecological environment, fostering continuous interaction and cooperation to enhance ecological integrity. Additionally, all stakeholders involved in the horizontal ecological protection compensation within the basin could enhance industrial collaboration and indirectly foster the advancement of the economy, ecological environment, and ecological compensation framework by procuring ecological products and services.

As the horizontal ecological protection compensation system in the basin becomes more market-oriented and the range of compensation stakeholders diversifies, the compensation methods involved are inevitably expected to evolve. Currently, it is feasible for the government to take the lead by introducing social and enterprise funds to expand the sources of compensation funds. Simultaneously, industrial parks could be established to bolster the development of green industries within the watershed, promoting stronger linkages between the upstream and downstream regions.

4.2.4. Establishing Dispute Resolution Mechanisms

The second paragraph of Article 18 of the Regulations on Compensation for Ecological Protection addresses the dispute resolution of horizontal ecological protection compensation agreements within basins; however, it remains abstract and general, offering only broad guidelines without a practical framework for dispute resolution. The horizontal ecological protection compensation agreement in the Yellow River Basin (Yu-Lu section) involves two local governments as equal parties, with water quality serving as a condition for the agreement’s execution, followed by monetary compensation, thus characterizing it as a civil law act. If classified as a civil legal act, any resulting disputes may be subject to civil litigation procedures, requiring judicial intervention to ensure an impartial and fair resolution. However, most existing horizontal ecological protection agreements are executed by local governments, which hold significant specificity in their capacity as signatories. China has not acknowledged judicial precedents concerning civil and commercial conflicts involving local governments.

This study contends that the horizontal ecological protection compensation agreement in the Yellow River Basin is a distinct contract that differs from civil and administrative agreements, which means that its dispute resolution mechanism possesses a specific character. Specifically, it is recommended that the provisions of paragraph 2 of Article 18 of the Ecological Compensation Regulations serve as a preliminary mediation procedure prior to the initiation of litigation, with litigation incorporated into the broader framework of the horizontal ecological protection compensation system within the watershed. The subject of the agreement is distinctly unique, requiring engagement with local governments and coordination with the overarching government for effective dispute resolution while preserving its inherent characteristics. This approach would enhance the dispute settlement process of the horizontal ecological protection compensation agreement within the basin.

Advancing the enhancement and execution of the aforementioned elements can markedly refine the compensation mechanism, positively influence the ecological environment within the watershed, and boost both water quality and quantity. Moreover, correlating compensation objectives with local requirements can enhance the rationale and efficacy of eco-compensation fund allocation and elevate the employment rate and income of local inhabitants [35], thus fostering collective prosperity and social equality.

5. Conclusions

5.1. Main Contributions

This study presents the following arguments: the game theory analysis indicates the necessity and rationality of establishing a horizontal ecological compensation mechanism within watersheds; the legal characterization of the horizontal ecological compensation agreement in the Yu-Lu section of the Yellow River Basin is classified as a special contract; and the agreement’s provisions regarding horizontal ecological compensation in this section, including the compensation entities, standards, methods, and dispute resolution mechanisms, face practical challenges and warrant further optimization. The potential contributions are as follows:

• We constructed a mixed-strategy Nash equilibrium model to ascertain the probability of strategy selections by the upstream and downstream governments and contended that establishing a horizontal ecological protection compensation system for the Yellow River Basin is essential to prevent the prisoner’s dilemma and achieve the optimal strategy.
• We recognized the legal classification of the horizontal ecological compensation agreement in the Yu-Lu section of the Yellow River Basin as a distinct form of special contract, distinguishing it from civil agreements that regulate private interests and administrative agreements that differ from “public–private agreements”. Moreover, it possesses the characteristics of both civil and administrative agreements.
• We offer relevant recommendations for improving compensation subjects, standards, methods, and dispute resolution mechanisms, with the aim of serving as a reference for the development and refinement of the horizontal ecological compensation mechanism in the Yu-Lu section of the Yellow River Basin.

5.2. Limitations and Solutions

The formulation of rules is predominantly focused on choice rules and payoff rules, specifying how to cooperate and how to reward or punish, but lacking specific action scenarios and standards [36]. In practice, challenges may include stakeholder opposition, inequitable resource allocation, and inadequate execution. Consequently, the following precise solutions are recommended:

• To address stakeholder resistance, the coordination mechanism can be enhanced by establishing a cross-regional body that encompasses upstream and downstream governments, enterprises, residents, social organizations, and other entities, thereby facilitating communication and coordination among all interested parties. Furthermore, regular symposiums and hearings for stakeholders should be conducted to ensure that the concerns of all parties are adequately articulated and appropriately addressed [37].
• To address the inequitable distribution of resources, it is recommended that the central government take the lead in establishing principal compensation standards, based on which the contracting parties should allocate resources in accordance with the specific conditions of basins, thereby progressively achieving a rational distribution.
• To ensure effective implementation, the diligence of both parties regarding the agreement is crucial; simultaneously, it is imperative to enforce legal safeguards for compensation. Relevant legislation concerning horizontal ecological protection compensation within the watershed should be enacted to clearly define the scope of compensation entities and compensation standards and to establish mandatory breach-of-contract liabilities, thereby classifying these as essential provisions for an agreement’s validity and strengthening enforcement mechanisms.