The State Council has introduced new regulations governing a mechanism for ecological compensation, which aims to provide incentives for institutions and individuals that carry out environmental and ecological protection.

The new regulations, signed by Premier Li Qiang, will come into force on June 1.

Following Xi Jinping Thought on Ecological Civilization, the regulations uphold the idea that lucid waters and lush mountains are invaluable assets, a release from the State Council said on Wednesday.

It said the central government will encourage and guide regions to reach ecological compensation agreements between those rolling out environmental protection measures and those regions that benefit from those measures.

Regions that make remarkable achievements in promoting the mechanism may also enjoy preferential policies from the National Development and Reform Commission and the Ministry of Finance.

In addition, the central government and provincial-level governments will offer guidance funds to regions with important ecological functions that reach agreements with each other, it said.

For instance, the provinces of Henan and Shandong reached an agreement in 2021 about ecological compensation regarding the Yellow River, which runs through Henan and into neighboring Shandong.

Under the agreement, if Henan helps improve the water quality upstream, Shandong pays Henan for its efforts. If the water quality falls in Shandong, then Henan has to pay.

According to the deal, Shandong will pay Henan 60 million yuan ($8.3 million) if the water quality in the Yellow River improves by one tier in a year, according to the country's five-tier quality rating system for surface water.

Shandong will also pay Henan 1 million yuan for every 1 percentage point decrease in the annual density of key pollutants, with a ceiling of 40 million yuan.

In return, Henan agreed to pay Shandong the same amount for a decrease in the water quality tier, and for every percentage point increase in pollutants.

The regulations also vow to make the market play its full role in promoting the ecological compensation mechanism.

The release said the central government will encourage the private sector and local governments to purchase ecological products and services to contribute to funding for ecological compensation.