| Summary: | Watershed eco-compensation (WEC) is considered a significant environmental policy instrument for watershed ecological protection and management. However, in the legislation and practice of eco-compensation in China, the development of the WEC mechanism is still in the initial stages. In this paper, the institutional opportunities and challenges of WEC are analyzed from the existing policies, laws, and economical instruments. Theoretically, WEC in China has seen a combination of punitive-based “Watershed Ecological Damage Compensation (WEDC)” and incentive-based “Watershed Ecological Protective Compensation (WEPC)”. Through a comparative analysis of domestic and foreign watershed compensation practices, the results demonstrate that most of China’s WEC projects have an insufficient legal basis, a single compensatory subject, insufficient compensation funds, and an imperfect market-oriented compensation mechanism. To improve watershed eco-compensation in China, it is recommended to strengthen legislation, select diversified eco-compensation approaches, and establish a market-based and systematic eco-compensation mechanism for watersheds.
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