Payment for watersheds environmental services is an important instrument of watersheds protection and management, which can transform fortune and reduce the inequity of environment and development between the upper reach and lower reach. Both market and government play a key role in the course. By the review of national and oversea research and practice of payment for watersheds eco-services, we analyze the progress of market for watershed service payment. 4 kinds of markets have been developed in many countries: self-organized private deals, open trade system, public payment system and eco-labeling. Market for watershed services is developing in many kinds of modes and largely influenced by government in China, but the market is not perfect due to the lack of legislation and criteria of payment for watersheds services. Based on case study of Jinhua River with the mode of water rights transaction and developing in another place, we analyze market for micro-watersheds services in China. By the analysis of stakeholders, payment criteria and mechanism, we get the results: (1) Due to the lack of effective supervision mechanism, the risk of moral is high in the watersheds payment. Even under the win-win negotiation, the core stakeholders from grass roots, as the marginal groups, are losing; (2) Clear original water property and the criteria of water quality and watersheds payment are primary; (3) Establishing the relation between the payment for watersheds services and watersheds protection is very important to perfect the market for watersheds services, and it is easier in the relatively independent and closed middle or small watersheds. Market mode of water rights transaction is better than government mode to push the development of compensation for watersheds services in Jinhua River; and (4) Payment based on water supply and demand is not in balance. The largest Opportunity cost is from the limitation of development rights, so building local capacity for watershed is very important. Payment based on the demand of water quality and water quantity is feasible. Based on the case study, we get some lessons and put forward some suggestion.
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