The World Bank Yangtze River Protection and Ecological Restoration Program Phase 2 (P178338) Program Information Document (PID) Concept Stage | Date Prepared/Updated: 18-May-2022 | Report No: PIDC257672 May 10, 2022 Page 1 of 16 The World Bank Yangtze River Protection and Ecological Restoration Program Phase 2 (P178338) BASIC INFORMATION A. Basic Program Data OPS TABLE Country Project ID Parent Project ID (if any) Program Name China P178338 Yangtze River Protection and Ecological Restoration Program Phase 2 Does this operation Region Estimated Appraisal Date Estimated Board Date have an IPF component? EAST ASIA AND PACIFIC 15-Nov-2022 01-Feb-2023 No Financing Instrument Borrower(s) Implementing Agency Practice Area (Lead) Program-for-Results People’s Republic of China Hubei Provincial Water Financing Development and Reform Commission Proposed Program Development Objective(s) To improve institutional coordination, enhance ecological protection and reduce water pollution loads in select regions of the Yangtze River Basin COST & FINANCING FIN_SRC_TABLE1 SUMMARY (USD Millions) Government program Cost 4,400.00 Total Operation Cost 4,400.00 Total Program Cost 4,400.00 Total Financing 4,400.00 Financing Gap 0.00 FINANCING (USD Millions) Total World Bank Group Financing 200.00 World Bank Lending 200.00 May 10, 2022 Page 2 of 16 The World Bank Yangtze River Protection and Ecological Restoration Program Phase 2 (P178338) Total Government Contribution 4200.00 Concept Review Decision The review did authorize the preparation to continue B. Introduction and Context Country Context 1. China’s rapid growth has caused severe pressures on its environment and natural resources, with impacts on the economy, human health, and global climate. Over the past four decades, China has experienced an extraordinary period of economic growth averaging over 10 percent per year, with a 25-fold increase in per capita income. The Government announced on February 25, 2021, that it had reached its goal of eliminating rural extreme poverty.1 However, such rapid growth has come at the cost of increasing pollution and inefficiencies in resource use. The implied economic cost of environmental degradation was estimated as 2.2 to 3.1 percent of gross domestic product (GDP) annually between 2004 and 2017,2 evident in widespread air and water pollution and declining biodiversity levels.3 Impacts from climate change have compounded these environmental issues and contributed further to economic costs.4 In 2020, the Yale Environmental Performance Index ranked China 120 out of 180 countries based on multiple environmental dimensions. While this is an improvement over previous years, multiple environmental indicators remain below those of other income- comparable, upper-middle-income countries.5 2. Recognizing these challenges, transitioning to a more balanced and sustainable economic growth model has become a key government policy priority. China's 13th Five Year Plan (FYP) (2016–2020) emphasized the need for high-quality green development based on productivity and innovation, rebalancing of growth toward consumption and services, and increased stringency of environmental regulations.6 Central government funding of environmental protection and pollution control increased to US$35.7 billion by 2019, five times more than in 2017.7 The 14th FYP (2021–2025), released in March 2021, reflected a strengthening of ambitions, including planned reductions in GHG emission intensity and improved water pollution and land management. The intended shift toward green development is encapsulated by the concept of an ‘ecological civilization’, a more harmonious relationship between society and the environment.8 This concept represents a key political vision and was reflected in China’s constitution in 2018. 1 AP news, February 25, 2021. "China celebrates official end of extreme poverty." (link). 2 Ma, G., et al. 2020. “The Valuation of China’s Environmental Degradation from 2004 to 2017.� Environmental Science and Ecotechnology 1 (link). 3 Ouyang, et al. 2016. “Improvements in Ecosystem Services from Investments in Natural Capital.� Science 352: 1455–1459 (link). 4 China is ranked 32 out of 180 countries on the Climate Risk Index (CRI). A lower number indicates greater relative exposure and vulnerability to extreme weather events (link). 5 Wendling, Z. A., et al. 2020. 2020 Environmental Performance Index. Yale Center for Environmental Law & Policy. New Haven, Connecticut ( link). 6 See the 2015 Resolution of China State Council for Promoting Ecological Progress ( link). 7 China Water Risk. 2019. 2018 State of Ecology and Environment Report Review (link). 8 Ecological civilization describes a society conforming to and protecting natural environments for coexistence between people and nature. It requires social and environmental reforms to enhance resource and ecological conservation, environmental sustainability, and development. 13 Hansen, et al. 2018. “Ecological Civilization: Interpreting the Chinese Past, Projecting the Global Future.� Global Environmental Change 53: 195– 203 (link). May 10, 2022 Page 3 of 16 The World Bank Yangtze River Protection and Ecological Restoration Program Phase 2 (P178338) 3. Addressing water pollution, including plastic debris, and improving riverine ecological health are integral elements of this greener vision. Despite some improvements in recent years, challenges of water quality remain acute. Around 29 percent of major rivers fail to meet the basic quality standards (grades I–III) required for drinking water supply and ecosystem function.9 Pollution sources include industrial, domestic, and agricultural activities, with challenges increasingly around non-point sources (NPSs). Biodiversity faces continued threats from water pollution, urbanization, over- withdrawal, and other human uses of the water environment, with climate change compounding these threats by shifting habitat ranges and amplifying weather extremes such as floods and drought. Studies have also highlighted the role of China’s rivers in transporting plastic waste to oceans.17 While there is a need for further research including completion of the ongoing study funded by the ProBlue grant, it was estimated that between 1.32 and 3.53 million tons of plastics enter China's oceans, primarily via rivers, every year. In the absence of interventions, this volume is expected to grow as the consumption of plastic products doubles over the next two decades.10 Sectoral (or multi-sectoral) and Institutional Context of the Program 4. The Yangtze River Basin and the Yangtze River economic belt it defines are increasingly a major focus of the Government's efforts toward a greener China. The Yangtze River Basin includes 19 provinces, municipalities, and autonomous regions, including the nine provinces and two municipalities that define the Yangtze River Economic Belt (YREB).11 The Yangtze River, the world’s third largest river, and its basin play a major role in the historical, cultural, and political identity of China and have important implications for China's water, food, and energy security. The annual water resources of the basin are estimated at over 995 billion cubic meters, roughly 35 percent of the national total. Over 200 billion cubic meters of water are drawn from the basin annually, supporting industry and providing drinking water for almost 600 million people.22 The YREB is an important manufacturing hub, lying at the heart of global supply chain. The GDP generated in the YREB (estimated at US$5.7 trillion in 2018) accounts for some 45 percent of national GDP. If the YREB were a country, it would be the third largest economy in the world.12 5. The Yangtze River Basin has some of the highest levels of biodiversity in the world. The Basin is one of the world’s most biologically diverse ecoregions due to its climatic and geographic variation, as well as its complex hydrology and floodplain dynamics.25 The Basin supports over 200 fish species, more than 84 mammal species, 60 amphibian species, and 87 reptile species. It has a forest coverage rate of over 40 percent and is home to some of China’s most iconic and endangered species, including the Chinese sturgeon, finless porpoise, Chinese alligator, and the giant panda. It is home to 33 percent of the rare or endangered freshwater fish species in China and accounts for around 40 percent of the country’s rare or endangered plants. The Basin's lakes provide critical habitat for internationally migratory birds, including 95 percent of the wintering Siberian white crane population. 6. The Yangtze River and its tributaries face persistent challenges of water pollution and ecological degradation. Over the past four decades, the Basin has experienced large-scale, high-intensity growth and water-polluting industrial development. The Yangtze is today one of the most human-affected large rivers in the world. Development has severely impeded hydrological flows, sediment transportation and nutrient distribution. Urban areas have increased dramatically, and lake and wetland areas have decreased, with more than 800 lakes in the middle reach lost to land reclamation. Over 9 Ministry of Ecology and the Environment. 2019. State of Ecology and the Environment Report (link). 10 WEF. 2016. The New Plastic Economy: Rethinking the Future of Plastics. World Economic Forum (link). 11 Yunnan, Sichuan, Chongqing, Guizhou, Hubei, Hunan, Jiangxi, Anhui, Jiangsu, Zhejiang and Shanghai from west to east 12 After the United States (US$22.32 trillion) and China (US$15.27 trillion) ( link). 25 WWF. 2020. Living Yangtze Report. World Wildlife Fund, Beijing (link). May 10, 2022 Page 4 of 16 The World Bank Yangtze River Protection and Ecological Restoration Program Phase 2 (P178338) 40 percent of lakes and reservoirs across the Basin are subject to eutrophication26 with agricultural NPS pollution, notably runoff from excessive fertilizer application, a major contributor. The resulting degradation of water quality and loss of ecological function is driving losses of globally significant biodiversity and undermining the Basin’s contributions to human uses. 7. The Yangtze River is also reported to be a major source of global marine plastic pollution. A 2015 study13 estimated that China is a significant contributor to ocean plastic debris and that its rivers, most notably the Yangtze, are the primary conduit. While there is a need for more research on exact volumes, uncollected or mishandled rural waste and agricultural plastics are likely to be major sources, with the Yangtze River delivering an estimated 0.31–0.48 million tons of plastic to the ocean annually. 8. Many of the challenges facing the Yangtze River Basin are exacerbated by climate change, while the region is itself a source of GHG emissions. A Climate and Disaster Risk Screening14 and peer-reviewed literature highlight that the basin can expect a hotter future, with more, and more variable, rainfall. A 10–21 percent increase in runoff is forecast for 2041–2070 relative to 1970–2000,15 which is likely to exacerbate flooding and associated economic costs16 and increase the levels and variations in water pollution (including plastic debris) due to more intense precipitation and floods events resulting in spikes in runoff. Changes in the hydrological regime are likely to increase pressure on biodiversity and ecosystems, particularly sensitive wetland and floodplain species, and the fact that past flows are not necessarily a good predictor of future flows will have implications for longer-term ecological protection. Water pollution also contributes to GHG emissions, notably due to methane released from the eutrophication process that occurs in nutrient-enriched waters, for example, the Hong lake, the largest lake in Hubei province, is identified as a significant source of atmospheric mathane (CH4) due to the high nutrient loads from the catchment area. The overapplication of synthetic fertilizers also leads directly to GHG emissions from the soil, most notably nitrous oxide.17 9. Efforts to improve ecological protection and reduce water pollution in the Yangtze River Basin are critical if the Government is to achieve its stated water and environment objectives. The Government’s overarching objectives are articulated by a series of targets and plans for water and the environment. The ‘Most Stringent System for Water Resource Management’ was established in 2012, setting ‘Three Red Lines’ with specific targets for water withdrawals, water use efficiency, and water quality. The ‘Ten Water Plans’, issued in 2015, proposed measures to strengthen water pollution control and improve ecosystem services. These have been complemented by three further ‘redline’ policies promoting green development: the ‘Ecological Redlines’, the ‘Environmental Quality Baseline’, and the ‘Resource Utilization Threshold’. These complement wide-ranging sectoral reforms aimed at addressing persistent pollution challenges. For example, a National Sustainable Agricultural Development Plan (2015–2030) targets zero growth of fertilizer as part of efforts to combat NPS pollution and reduce GHG emissions. The waste management sector is under transition as part of 13 Lebreton, L. et al. 2017. “River Plastic Emissions to the World’s Oceans.� Nature Communications 8 (15611) (link). 14 The Program area was assessed using the World Bank Group’s Climate and Disaster Risk Screening Project Level Tool. Results hi ghlighted risks from extreme precipitation and flooding, informing the Program’s activities on pollution management under climate extremes (see para. 25). 15 CWR. 2016. Yangtze Water Risks, Hotspots, and Growth . China Water Risk, Hong Kong SAR, China (link). 26 The process of eutrophication is driven by changes in the concentration of nutrients (that is, phosphorous and nitrogen), which are indicated by the levels of dissolved oxygen, chlorophyll a, and transparency. It is a serious environmental problem that leads to reduced oxygen levels in the water, toxicity from algal blooms, and ecological decline. Tang, et al. 2020. “Response of Eutrophication Development to Variations in Nutrients and Hydrological Regime: A Case Study i n the Changjiang River (Yangtze) Basin.� Water 12: 1634 (link). 16 Floods in 2020, for example, affected 63 million people and caused estimated economic costs of US$26 billion. See Pike, L. 20 20. “China’s Summer of Floods is a Preview of Climate Disasters to Come.� Inside Climate News, August 17, 2020 (link). 17 Dijuan, X. et al. 2021. “China’s Greenhouse Gas Emissions for Cropping Systems from 1978–2016.� Scientific Data 8 (171) (link). May 10, 2022 Page 5 of 16 The World Bank Yangtze River Protection and Ecological Restoration Program Phase 2 (P178338) efforts toward a circular economy. Sector developments include policies banning certain plastic waste imports in 2017, plastic pollution control measures (January 2020), and specific provisions in the Solid Waste Law (April 2020) to improve the management of solid waste and reduce plastics use, including agricultural plastic film.18,19 Moreover, China’s National Biodiversity Conservation Strategy and Action Plan (2011–2030) targets measures to address environmental pollution given the significant impacts on aquatic, riverine, and coastal biodiversity and habitats, specifically prioritizing efforts in Yangtze River to improve conservation of rare and critically endangered species, such as the Siberian white crane, Chinese sturgeon, and finless porpoise. The geographic and economic significance of the Yangtze River Basin ensures that progress within the Basin will substantially determine national outcomes. 10. Significant infrastructure investments have resulted in improved water quality in the Yangtze River Basin; however, further improvements will require institutional measures. The proportion of major river basins meeting drinking water standards (class I–III) increased from 61 percent in 2011 to 83 percent in 2020. Despite these achievements, control of some specific pollutants remains challenging. Total phosphorus levels, for example, remain above national standards in some water quality monitoring sections.42 The proportion of lakes and reservoirs in the Yangtze River Basin exhibiting ‘moderate’ eutrophication20 increased from 31 percent in 2009 to 42 percent in 2018. While further infrastructure investments are needed for the control and treatment of point and non-point sources of pollution in specific locations, broader and sustained improvements will require strengthening institutions and management systems. These include harmonized and better-enforced standards, integrated monitoring platforms, basin-wide data and management systems that can improve coordination between branches and levels of government and improved technical understanding of pollution hotspots and sources. 11. Recognizing these needs, the National People’s Congress approved the Yangtze River Protection Law 21 on December 26, 2020. The law came into effect in March 2021 and is the first legislation for a specific river basin in China. It was formulated to strengthen the protection and restoration of the ecological environment in the Yangtze River Basin; it proposes the establishment of a National Yangtze River Basin Coordination Mechanism22 and infers obligations on the national line agencies and provinces to align with its goals of ecological protection and improved water quality. The law calls for local governments to establish water quality baselines, prepare total phosphorus pollution control plans, reduce pollutant discharge through investments in wastewater treatment facilities and piped networks, and control agricultural NPS pollution, including through the promotion of organic fertilizers and control of agricultural plastic film. The law also calls on governments to protect and restore ecological function and biodiversity (including through ecological flows) and improve systems for information sharing and inter-jurisdictional cooperation. The law is a critical element of the Government's national strategy for the YREB, which was articulated in the ‘YREB Development Plan’ developed by the National Development and Reform Commission (NDRC) in 2016. 12. The Yangtze River Protection Law represents the latest in a series of national-level reforms aimed at improving management of natural resources and coordination of water resources development. Earlier reforms include an amendment to the National Water Law in 2016 to support integrated planning and coordinated basin development. 18 NDRC and MEE. 2019. Further Strengthening Plastic Pollution Control (link). 19 –2018 Yangtze River Basin and Southwest Rivers Water Resources Bulletin and the 2020 Annual Report on Surface Water Quality for the Yangtze River Basin and Southwest Rivers. 20 Eutrophication is a process in which a water body becomes enriched with nutrients (notably phosphorus and nitrogen), leading to rapid algal growth and consequent oxygen depletion and ecological degradation (including fish deaths). 21 The Yangtze River Protection Law of the People's Republic of China (March 2021) (link). 22 The coordination mechanism has the responsibility of “coordinating, guiding and supervising Yangtze River protection work; co ordinating and negotiating the management work between relevant State Council departments and provincial-level governments along the river; organizing and coordinating joint law enforcement, information sharing and other systems in the Yangtze River basin� May 10, 2022 Page 6 of 16 The World Bank Yangtze River Protection and Ecological Restoration Program Phase 2 (P178338) Water-related responsibilities were reorganized within the administrative government system in 2018, with water pollution control responsibilities transferred to the Ministry of Ecology and Environment (MEE), a new Ministry of Natural Resources (MNR) established, and responsibilities within the Ministry of Water Resources (MWR) consolidated. The Government established the River Chief System (RCS), a network of officials at the provincial, municipal, county, township and village levels, who are assigned responsibility for outcomes along each section of every major waterway. It helped raise the priority level of water-related issues and proved very useful in addressing challenges of coordination and cooperation between responsible departments and regions.23 Implementation of the RCS is supported through various mechanisms including River Chief Offices (RCOs), that usually sit within water departments at the respective levels.24 China now has over 1.2 million river chiefs with more than 460,000 in the Yangtze River Basin, providing opportunities to address information asymmetries, promote integrated river basin management, and increase public participation in the decision- making process.25 13. While these institutional reforms provide the foundation for integrated river basin management, the transition is challenged by overlapping institutional and jurisdictional mandates among other factors. The YREB Development Plan and Yangtze River Protection Law are relatively high-level instruments, and their measures require new regulations and operating procedures at multiple levels of government. More broadly, while the institutional reforms of 2018 signaled an important shift toward environmentally oriented water policies and clarified responsibilities, they also created challenges such as the division of responsibilities at basin-level between water quantity management and water quality management. China’s river basin organizations do not have the administrative authority required to align provincial actions, build consensus with local government, or arbitrate in cases of dispute. Key water-related data are still segregated across various platforms and agencies, and the timely availability of data and consistency over time and between different sources remain a challenge.26 Data sharing within and between the RCS and the river basin authorities is limited, and data collection protocols are not fully standardized.27 Relationship to CAS/CPF 23 River chiefs at the village-level are required to patrol no less than once a week while also promoting river protection and mobilizing the community to assist in the removal of waste. See "Opinions on Full Implementation of the River Chief System across the Country" (2016) (link). 24 The six complementary mechanisms supporting the river chiefs are (a) River Chief Meetings; (b) Information Sharing; (c) Information Reporting; (d) Supervision; (e) Accountability and Incentives; and (f) Completion and Acceptance. 25 Wu, et al. 2020. “Public Participation of the River Chiefs System in China: Trends, Problems, and Perspectives.� Water 12: 3496 (link). 26 Hsu. et al. 2012. “Seeking Truth from Facts: The Challenge of Environmental Indicator Development in China.� Environmental Development Zhang, B., et al. 2021. “Big Data Challenges in Overcoming China’s Water and Air Pollution: Relevant Data and Indicators.� SN Appl. Sci. 3: 469 (link). 27 Wang, Y., and X. Chen. 2021. “River Chief System as a Collaborative Water Governance Approach in China.� International Journal of Water Resources Development 36 (4): 610–630 (link). World Bank and DRC (Development and Reform Commission). 2018. Watershed: A New Era of Water Governance in China - Synthesis Report. World Bank, Washington, D.C. May 10, 2022 Page 7 of 16 The World Bank Yangtze River Protection and Ecological Restoration Program Phase 2 (P178338) 14. The proposed Program is well aligned with the World Bank Group’s Country Partnership Framework (CPF) for China and it emphasizes benefits related to global public goods. The Program is well aligned with the World Bank Group’s CPF for China (FY 2020–2025) (Report No. 117875-CN), which was discussed by the World Bank Board of Executive Directors on December 5, 2019,28 and the new phase of the World Bank Group’s engagement in China. Specifically, the program focuses on institutions and systems for integrated river basin management that can make a significant contribution to global public goods such as reduction of marine pollution from plastic wastes, GHG emission reduction and biodiversity protection through pollution abatement, watershed management and ecological restoration interventions. It thus contributes to Engagement Area 2 of the CPF, "promoting greener growth," by reducing water and marine plastic pollution and strengthening sustainable management of natural resources. Moreover, lessons and knowledge generated by the Program are expected to be relevant for addressing integrated natural resource management issues elsewhere and can be scaled up (including with non-World Bank Group resources) in other river basins in China and internationally. The Program also aligns with the World Bank Group’s Green, Inclusive, and Resilient Development (GRID) framework and the Climate Change Action Plan 2021-2025.29 Rationale for Bank Engagement and Choice of Financing Instrument 15. The Yangtze River Protection and Ecological Protection (YRPERP) Program has been requested to support the Government’s national strategy in the Yangtze River. The national strategy focuses on efforts at improving institutional coordination and integrated development for improved ecological protection, pollution abatement, and promoting green development in the Yangtze River Economic Belt (YREB). Phase 1 of the YRPERP Program was approved by the World Bank’s Board of Executive Directors on December 17, 2021 as the first in a series of landscape level river basin programs that reflect the evolving partnership with China, with a focus on strengthening institutions and contributing to global public goods. 16. The Government has developed a number of strategic plans with strong financial support from the central budget investment programs. The National Development and Reform Commission (NDRC) launched the ‘YREB Development Plan’ in October 2016 to articulate the overall strategy for “prioritizing ecological protection, river basin coordination and integrated development�. In February 2018 the MOF issued the ‘Guiding Opinions on Establishing Eco- compensation and long-term Protection Mechanism in the YREB’30 indicating that the central government will establish incentive mechanisms and increase fiscal support toward eco-compensation and protection in the YREB. These are accompanied by “Management Methods for YREB Green Development Special Investments within the Central Budget� established by the NDRC in 2019 to support efforts to balance ecological environment protection and economic development.31 These are intended to further standardize the management of projects and support the green development of the YREB with central budget investment, improve the capital use efficiency and encourage the mobilization of local and social capital. The specific measures are formulated in accordance with the “ Administrative Measures on Subsidies and Discount-Interest Projects with Central Budget Investment� (NDRC No. 45 document of 2016) and other relevant central budget investment management regulations. This special central budget investment aims primarily to support Green Development Projects that are aligned to green development and the ecological priorities of the YREB, have significance for the protection and restoration, or improvement of inlands waterways transportation. The 28 World Bank Group. 2021. China - Country Partnership Framework for the Period FY2020 –2025. (Report No. 117875-CN) World Bank Group, Washington, D.C. 29 Alignment with GRID and the Climate Change Action Plan 2021-2025 (link) is seen in the Program’s focus on environmental sustainability objectives, while increasing resilience to climate change threats, mitigating emissions, and promoting inclusivity in economic opportunities. 30 MOF, Guiding Opinions on Establishing Eco-compensation & long-term Protection Mechanism in the YREB. (link) 31 NDRC, Management Methods for YREB Green Development Special Investments within the Central Budget. (link) May 10, 2022 Page 8 of 16 The World Bank Yangtze River Protection and Ecological Restoration Program Phase 2 (P178338) NDRC also released an Action Plan for the Yangtze River Protection and Restoration in 2019 with MEE32. These measures are accompanied by passage of the Yangtze River Protection Law in 2021. 17. The YRPERP Program is envisaged as a series of linked operations that contribute to the broader goals in the Yangtze River. Given the scale and complexity as well as the administrative realities of China’s fiscal responsibilities at the provincial level, it is proposed to use a series of individual loans to the participating provinces in the Yangtze River basin. The State Council approval of World Bank financing for the YRERP Program in early 2021, covered the provinces of Hunan, Jiangxi and Hubei. Phase 1 included Jiangxi and Hunan provinces with the understanding that Hubei Province would be considered for inclusion under Phase 2. The Phase 1 Program was approved by the World Bank’s Board of Executive Directors on December 17, 2021 for US$400 million IBRD loan to support Hunan and Jiangxi provinces along with a US$7.5m IPF basin component to be implemented by the Changjiang (Yangtze) Water Resources Commission under the Ministry of Water Resources. 18. As for Phase 1, the Program for Results (PforR) is identified as the most appropriate instrument to help improve the targeting and results orientation of public expenditures in support of the YREB development. For Phase 2, the PforR approach continues to provide an opportunity to introduce performance-based incentives that are intended to improve the efficiency and effectiveness of public spending and institutional mechanisms for sustainability of the investments. The YRPERP Program was designed to support a nested hierarchy of interlinked institutional improvements at multiple levels, including basin, province, sub-basin, and county, that are required to address the Basin's challenges in a complex and evolving development context. The PforR instrument leverages significant resources under existing Government programs, providing for impact beyond traditional Investment Project Financing (IPF). The PforR focuses on a subset of activities where the Government aims to enhance efficiency, effectiveness, and impact of expenditure by linking the disbursement of funds to the achievement of specific results. The reliance on Government systems and the design of the Program are aligned with China’s fiscal governance structure and differentiated responsibilities across governance levels as specified under the Yangtze River Protection Law. The PforR instrument is also conceptually aligned with the results- based design of some of the Government’s land and water management programs such as the eco-compensation program, making it a natural complement in this sector.33 19. The YRPERP Program builds on and leverages ongoing analytical work. These include the World Bank’s Country Water Resources Partnership Strategy34, the Water Governance Strategy35 prepared with the Development Research Center of the State Council, a study on the valuation of water in the construction of an ecological civilization for China, 36 an evaluation of eco-compensation mechanisms and their contribution to a green China37 along with ecological protection and water pollution control in the Yangtze River Basin,38 as well as ongoing analytical work on the contribution of the water sector to Global Public Goods in China that includes an assessment of GHG emissions from river and lake pollution and wastewater, and identification of key issues associated with the protection, management and restoration of 32 MEE, NDRC, Action Plan for the Uphill Battle for the Conservation and Restoration of the Yangtze River, Jan. 24, 2019. (link) 33 Eco-compensation programs aim to financially incentivize improved land and water management by sub-national governments, firms, or households. See World Bank. 2021. Eco-compensation in China's Evolving Environmental Management Regime: Ecological Protection and Water Pollution Control in the Yangtze River Basin. World Bank Group, Washington, D.C. 34 World Bank (2013). China Country Water Resources Partnership Strategy (2013-2020). Washington, D.C. (link) 35World Bank and Development Research Center (2019). Watershed: A new era of water governance in China (Policy Brief). Washington, D.C. and Beijing. (link) 36 World Bank (2019). Evaluating and Realizing the Value of Water in the Construction of an Ecological Civilization for China (link) 37 World Bank. 2022. Ecological Compensation in China : Trends and Opportunities for Incentive-Based Policies Towards a Greener China. World Bank. [link] https://openknowledge.worldbank.org/handle/10986/37031 38 World Bank. 2021. Eco-Compensation in China’s Evolving Environmental Management Regime : Ecological Protection and Water Pollution Control in the Yangtze River Basin. World Bank. [link] https://openknowledge.worldbank.org/handle/10986/36270 May 10, 2022 Page 9 of 16 The World Bank Yangtze River Protection and Ecological Restoration Program Phase 2 (P178338) freshwater biodiversity and ecosystems. These all highlight the importance of five key water governance reform priorities: (a) further strengthening the legal basis for water governance; (b) clarifying and enhancing the responsibilities of water governance institutions and expanding their roles in ecosystem protection; (c) improving the enabling economic policy instruments; (d) increasing resilience of the society and ecosystems to future challenges and threats; and (e) improving data and information sharing to support scientific and participatory water management decision making. C. Program Development Objective(s) (PDO) and PDO Level Results Indicators Program Development Objective(s) 20. The proposed Program Development Objective of Phase 2 remains to improve institutional coordination, enhance ecological protection and reduce water pollution in select region of the Yangtze River basin. PDO Level Results Indicators 21. The 23. The outcome indicators of the Phase 1 Program shown below, possibly with some enhancements will be used to measure the progress toward achieving the program development objectives of Phase 2 Program. For example, under results area 1 there is a possibility of including a tri-provincial cooperation mechanism for lake management (covering Hubei, Hunan and Jiangxi provinces) as part of the institutional coordination improvement, linking Phase 2 and Phase 1 provinces to form an inter-jurisdictional institutional mechanism for the middle reach of Yangtze River Basin. Further, additional intermediate outcome indicators such as increased area with improved soil and water conservation measures under results areas 2 and increased coverage of test-based formula fertilization under results area 3, are likely to be included as part of the results framework for the PforR. (a) PDO#1: River Chief System platforms integrated (for integrated data sharing from local to basin scale): measured by the number of counties and municipalities that have established and maintained a functional connection between their river chief information platform and the provincial river chief information platform which will in turn be connected to the basin river chief information platform; (b) PDO#2: Improved water environment management system for the demonstration sub-basins: measured by the number of defined water environment management actions undertaken at sub-basin level, including (i) approval of sub-basin water environment protection plan for the sub-basins; (ii) enhancement of inter- jurisdictional cooperation in water environment information sharing; and (iii) compliance with ecological flow requirements (meeting the defined flow targets) on the mainstream and major tributaries of the demonstration sub-basins; and (c) PDO#3: Reduced pollutant loads entering waterways in demonstration counties: measured by the number of annual pollution control targets met by the demonstration counties for: (i) reductions in chemical oxygen demand (COD) at township wastewater treatment plants; (ii) quantity of agricultural plastic film collected; and (iii) livestock/poultry manure utilization rates. D. Program Description PforR Program Boundary 22. The overarching government plan is the YREB development plans at the national and provincial levels which are supported by different government programs. As indicated above, since the launch of the YREB Development Plan by the national government in 2016 different government investment programs have been rolled out to support the Plan May 10, 2022 Page 10 of 16 The World Bank Yangtze River Protection and Ecological Restoration Program Phase 2 (P178338) implementation. The national level Plan lays out the key principles of harmonious development of rivers and lakes, promotion of ecological civilization, reform and innovation, integrated planning and coordinated actions. It also provides the strategic directions and general targets for water environment protection and management, ecological protection, water and air pollution reduction, multi-modes transportation, green industry development, eco-compensation, innovation platforms and institutional mechanisms for coordinated regional development, etc. At the sub- national/provincial level, each of the provincial governments has developed their respective YREB plans first for the 13th FYP period (2016-2020) and now for the 14th FYP period (2021-2025) to support Yangtze River protection, water pollution abatement and ecological restoration among other development objectives. 23. The sub-national program in Hubei Province is outlined in the “Hubei’s 14th FYP for YREB Green Development�. This Plan was issued on November 21, 2021, covering all 103 counties within the province. It has the objective of protecting the ecological environment in important rivers and lakes in Hubei, including the Yangtze River, Han River and Qing River basins , as well as Hong Lake and other lakes in the province while enhancing the level of green development. The provincial government program provides detailed information on the specific activities, expected results and indicative targets relating to the following areas: (i) environmental protection, including water and air pollution reduction; (ii) ecological protection and restoration; (iii) green development; and (iv) environmental safety management. The provincial program is financed through pooling a range of financing sources including earmarked funds from national, provincial, municipal, and county governments, fiscal transfers through eco-compensation programs as well as private sector contributions. 24. Scope of PforR Activities: The proposed PforR will support a sub-set of activities as part of the Government’s national program for the Yangtze River Protection and Ecological Restoration. These activities are based on the sub- national provincial program within Hubei Province as articulated in the provincial YREB green development plan. This sub- set of activities is focused on specific counties within the demonstration sub-basin, the Qing River Basin, as well as in Hong Lake basin. The timeline for the PforR is from 2023 to 2028, with 2022 being the baseline year against which outcomes are measured (see Table 1 for more details). 25. Geographical Boundary: In terms of geographic boundary, the proposed PforR will cover the whole of Hubei province which is located in the middle reaches of the Yangtze River Basin. As in Phase 1, the Phase 2 Program has a layered geographic scope reflecting the tiered governance structure of the YREB national program. The geographic scope of the Program differs by activity — with province-, sub-basin-, and county-level activities reflecting the differentiated responsibilities of government and nature of the activity. At the sub-basin level, the Program’s geographic focus is the Qing River Basin, which is the second largest tributary of the Yangtze River in Hubei and runs entirely within the province. The Qing River has a length of 423 km and a catchment area of 16,700 km2. The Qing River Basin is significant in terms of Yangtze River ecological protection due to its rich biodiversity and importance in water and environmental conservation, its buffer function for floods and safeguard other ecosystem services, being classified as a key ecological function zone. Among the ten counties in the Qing River, nine were considered national-level poverty counties prior to 2021, including all seven counties in the upstream Enshi Municipality. By 2021, GDP per capita in Enshi Municipality, USD 5,890, still ranked the last among all the municipalities in Hubei, less than half of that of the provincial capital Wuhan. At the county level, the Program focuses on several counties in Qing River basin, as well counties in the Hong Lake basin which is the largest lake among the 755 lakes in the province and a Ramsar site of international importance. 26. Together with Hunan and Jiangxi supported under Phase 1, the YRPERP Phases 1 and 2 thus target the entire middle reach of the Yangtze River, where challenges between development and protection are especially pressing. The middle reach includes three provinces: Jiangxi, Hunan and Hubei. Hubei province is strategically important to Yangtze River protection in terms of water resources contributions, freshwater ecosystems and biodiversity. Hubei has the longest May 10, 2022 Page 11 of 16 The World Bank Yangtze River Protection and Ecological Restoration Program Phase 2 (P178338) Yangtze River sections (1,061 km) with 775 lakes occupying 20 percent of the provincial area, while facing increasing pressures from NPS and plastic pollution and ecosystem degradation owing to human activities and climate change. The complex river and lake systems in Hubei are important channels connecting the Poyang and Dongting Lakes systems, so called ‘two kidneys of the Yangtze’ whose protection is supported under Phase 1. The demonstration counties within Hubei are selected from the Qing River and Hong Lake basins, based on several factors, including: (a) an RCS in place and either an existing management information platform or willingness to connect to the provincial river chief platform; (b) a long-term water environment protection plan or an equivalent plan under preparation; and (c) plans to take innovative measures to ensure sustainability of program investments. An overview of the (sub-national) government program and the proposed PforR Program in terms of development objective, duration, geographic boundary, results areas and financing. Table 1. Overview of the Government Program and PforR Program: Results Areas and Activities by Geographic Unit Hubei’s 14th FYP for YREB Green Development Program supported by the Bank’s PforR (Government program) (PforR Program) Objective To establish the basic system for green To improve institutional coordination, enhance economy, strengthen ecological environment ecological protection and reduce water protection, increase resource use efficiency, pollution in select region of the Yangtze River upgrade green infrastructure, promote green basin. lifestyle and improve institutional mechanisms for green development. Duration 2021-2025 2023-2028 Geographic Entire Hubei province covering 103 counties and Three Levels: Hubei province, demonstration Boundary urban districts sub-basin and 5-6 demonstration county levels Results Areas 1. Land-based ecosystem protection and RA1: Improving Institutions and Innovations restoration; (Provincial level); 2. Integrated water environment management RA2: Advancing Ecological Protection through for key basins; Integrated River Basin Management 3. Coordinated basin ecological environment (Demonstration sub-basin level); and improvement; RA3: Reducing Water Pollution and 4. Agriculture green development; Transmission of Plastic Waste. 5. Deepening inter-jurisdiction cooperation in green development; 6. Solid waste classification and resource utilization; 7. Upgrading urban and township environmental infrastructure; 8. Rural living environment improvement; 9. Establishment of long-term mechanism for protection of Yangtze River in Hubei province; and 10. Supporting green development pilots and demonstrations. Financing US$4.2 billion for entire province (preliminary IBRD Loan of US$200 million estimate to be further assessed. Final scale will be based on the scope of physical activities） May 10, 2022 Page 12 of 16 The World Bank Yangtze River Protection and Ecological Restoration Program Phase 2 (P178338) 27. The Program’s results areas support a nested hierarchy of activities, at provincial, sub-basin, and county levels. The PforR results areas are the following: Results Area 1: Improving Institutions and Innovations (provincial level). This results area will support institutional improvements for inter-jurisdictional cooperation and cross-sectoral coordination in Hubei. Activities under Results Area 1 include: (a) Strengthening of RCS coordination through the integration of county and municipal, provincial, and basin- level RCS information platforms; (b) Development of provincial-level policies, regulations and guidelines on integrated water environment, ecological protection, and plastic waste management; and (c) Public engagement in water management, through pollution awareness campaigns, participatory management and river cleanup activities, and development and dissemination of public engagement manuals for the RCS. Activities supported by Results Area 1 will be implemented by the Provincial Development and Reform Commission (PDRC) as the coordinating counterpart, with the Provincial Department of Finance (PDF), Department of Water Resources (DWR), Department of Ecology and Environment (DEE), and Department of Agricultural and Rural Affairs (DARA). The supported activities are expected to provide institutional coordination and the policy foundation for environmental and water management outcomes and increased ecological resilience via healthier river and lake ecosystems. Activities will further contribute to climate adaptation and mitigation through increased public awareness and extensive climate-related data integration and sharing. Results Area 2: Advancing Ecological Protection through Integrated River Basin Management (sub-basin level). This results area will support ecological protection and climate resilience of river and lake ecosystems in the demonstration sub-basins of Qing River Basin and Hong Lake Basin. Activities under Results Area 2 include: (a) Strengthening of integrated water environment management systems, including water environment management plans; (b) Development of river health assessment and ecological flow guidelines based on national standards; (c) Implementation of water allocation schemes based on national standards; (d) Determination of ecological flow requirements and incorporation into county water allocations to ensure long-term restoration and protection of the ecosystem services, and (e) Implementation of sustainable soil and water conservation. Activities supported by Results Area 2 will be implemented by the PDRC as the coordinating counterpart, with the DWR and DEE. Activities will contribute to improved ecological protection by safeguarding water for the environment as well as through policy, planning, and data measures that strengthen the long-term basis for protection of aquatic ecosystems. Activities will further contribute to climate adaptation and mitigation through climate-related data collection and climate- sensitive planning and ecological restoration, as well as through improved water management under climate-change- induced runoff and water quality extremes. Results Area 3: Reducing Water Pollution and Transmission of Plastic Waste (county level). This results area will support reduction of point- and non-point-source pollution in demonstration counties. This will contribute to the reduction of water pollution loads, including plastics, by improving the operation of township wastewater systems, improving the management and utilization of livestock/poultry manure, and collecting and recycling agricultural plastic waste, in line with provincial policies in the demonstration counties. Activities under Results Area 3 include: May 10, 2022 Page 13 of 16 The World Bank Yangtze River Protection and Ecological Restoration Program Phase 2 (P178338) (a) Improved integrated wastewater management services and collection systems at township level; (b) Prevention of plastics entering waterbodies through collection and recycling of agricultural plastic film; (c) Reduced nutrient runoff via improved management and utilization of livestock/poultry manure; and (d) Promotion of test-based fertilization for agricultural production. Activities supported by Results Area 3 will be implemented by the DARA and Department of Housing and Urban-Rural Development (DHURD), and respective equivalents in demonstration counties. In addition to the benefits of reduced water pollution loads and more efficient wastewater operations, activities supported by Results Area 3 are expected to contribute to reduced GHG emissions. 28. Program Financing: Total Program financing over 2023–2028 is expected to be around US$2,325 million (to be confirmed by further Expenditure Framework Analysis), of which an expected US$4.2 million (95.5 percent) will be funded by the Government and US$200 million equivalent (4.5 percent) financed through IBRD. The proposed PforR will exclude high risk activities with potentially adverse impacts on the environment and or affected people. In addition, it will exclude activities that involve the procurement of: (a) works estimated to cost US$75 million equivalent or more per contract; (b) goods and non-consulting services estimated to cost US$50 million equivalent or more per contract; or (c) consulting services estimated to cost US$20 million equivalent or more per contract. E. Initial Environmental and Social Screening 29. Preliminary Environmental and Social Risk Screening. The Program will draw upon Hubei provincial government program to support a sub-set of the activities of the Government’s national program for the Yangtze River Protection and Ecological Restoration. The Program will have significant and broadly positive environmental and social (E&S) effects in the Program region, including reduced wastewater, plastic waste and agricultural pollution; improved river and lake water quality; and ecological environment rehabilitation. An initial E&S screening was conducted to define the proposed Program boundaries and activities and exclude those likely to have significant adverse impacts that are sensitive, diverse, or unprecedented on the environment and/or affected people. Overall, the Program will support pollution control and ecological restoration activities including county- and township-level wastewater treatment plants and pipelines, agricultural plastic film collection and recycling, waste management of existing animal farms, chemical fertilizer use reduction, soil and water conservation activities, and related institutional, policy and capacity building support. 30. Excluded Activities. The Program will exclude all types of activities listed in paragraphs 14 and 16 of Bank Guidance on PforR ESSA (issued in September 2020). Based on the information available at this stage and experience with implementation of related Programs in the country (particularly the YRPERP Phase 1 Program), the Program will also exclude (a) activities involving large-scale infrastructure construction; (b) activities that would involve any acquisition of basic farmland (which requires State Council approval); (c) activities that would involve the acquisition of, restoration of or restriction on the use of large scale farmland or resources (for instance, forests, water resources) that affect the livelihoods of a large population; (d) activities that would have significant adverse impacts to ethnic minorities; (e) activities that have substantial impacts on river hydrology and ecology; (f) activities involving closure or relocation of livestock, poultry, or aquaculture farming; (g) activities that are classified as Class A (Environmental Impact Assessment Report category) according to the National Catalogue for the Classified Management of the Environmental Impact Assessment of Capital Construction Projects. Neither OP 7.50 - Projects on International Waterways nor OP 7.60 - Projects in Disputed Areas is applicable to the Program. 31. The overall E&S risk for the Program is deemed Substantial. Potential adverse E&S impacts include construction- related impacts such as dust, noise, disturbance of water bodies, soil erosion, waste management, health and safety of May 10, 2022 Page 14 of 16 The World Bank Yangtze River Protection and Ecological Restoration Program Phase 2 (P178338) workers and communities, small-scale land acquisition or temporary land occupation; impacts during operation of wastewater treatment facilities, plastic waste recycling facilities, and animal farms such as odor, sludge, effluent, noise, and working conditions issues; safe application of fertilizers; impacts on farmers’ livelihoods; exclusion risks to vulnerable groups; and downstream impacts from implementation of policy study recommendations. These adverse E&S impacts are mostly not significant and can be well identified and readily avoided, minimized, and mitigated through enhancing the designs and the implementation of well-established technologies and good management practices. The E&S risk for potential activities is currently considered substantial. During Program preparation, the task team will undertake a more comprehensive E&S screening to inform potential risks and opportunities that warrant further analysis through the Environmental and Social Systems Assessment (ESSA), and also identify the E&S risks of potential linked or associated activities which would be required to meet Program objectives but are not explicitly defined as Program activities or included in the expenditure framework. 32. An Environmental and Social Systems Assessment (ESSA) will be conducted, consulted upon, and disclosed prior to the PforR Program Appraisal. Once the Program is endorsed by Bank management for further preparation, the task team will conduct an ESSA to examine the scope, context and potential impacts of the Program from an E&S perspective and scope out high E&S risk interventions. Based on assessment results from the Phase 1 Program, China has established a comprehensive system for the management of E&S issues at both national and provincial levels, which system consists of laws, regulations, guidelines, specifications, and standards principally consistent with the World Bank’s PforR Policy and Directive, and provides an acceptable basis for addressing the possible E&S issues related to the typologies of activities supported under the Phase 1 Program. For this Phase 2 Program, the ESSA will entail a review of domestic E&S legislation framework and the implementing capacities and performance of the respective government agencies of Hubei Province and the counties that will participate in the Program and evaluate their consistency with the core principles and key planning elements specified in Bank Policy, Directive and Guidance on PforR ESSA. The ESSA will include recommendations to address any issues or gaps that are identified, which will be included in the Program Action Plan (PAP) and/or considered for potential results indicators or DLIs. During the process of ESSA, the task team will meaningfully engage with both internal and external stakeholders to inform ESSA preparation and solicit inputs to strengthen E&S risk management throughout the lifecycle of the operation. The draft ESSA will be disclosed to the public and consulted with key stakeholders prior to appraisal. . CONTACT POINT World Bank Name : Xiaokai Li Lead Water Resource Management Designation : Role : Team Leader(ADM Responsible) Specialist Telephone No : 5720+7761 / Email : xli@worldbank.org Name : Giovanni Ruta Designation : Lead Environmental Economist Role : Team Leader Telephone No : 5788+7760 / Email : gruta@worldbank.org Borrower/Client/Recipient May 10, 2022 Page 15 of 16 The World Bank Yangtze River Protection and Ecological Restoration Program Phase 2 (P178338) Borrower : People’s Republic of China Acting Director, Finance & Portfolio Contact : Xiang Peng Title : Management Division Telephone No : 010-68552866 Email : pengxiang@mof.gov.cn Implementing Agencies Implementing Hubei Provincial Development and Agency : Reform Commission Director, Foreign Capital and Contact : Sha Li Title : Overseas Investment Division Telephone No : 027-87826961 Email : 2637960583@qq.com FOR MORE INFORMATION CONTACT The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 473-1000 Web: http://www.worldbank.org/projects . 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