Payment for ecosystem services (PES) has attracted considerable attention as an economic incentive for promoting natural resource management recently. As emphasis has been placed on using the incentive-based mechanism by the central government, rapid progress on PES research and practice has been achieved. However PES still faces many difficulties. A key issue is the lack of a fully-fledged theory and method to clearly define the design scope, accounting and feasibility of PES criteria. An improved watershed criteria model was developed in light of research on PES practices in China, investigations on the water source area for the Middle Route Project of South-to-North Water Diversion and ecosystem services outflows theory. The basic principle of assessment is the direct and opportunity cost for ecological conservation and environmental protection in the water source area deduct nationally-financed PES and internal effect. Then the scope and the criteria methods were determined, and internal effect was put forward to define benefits brought from water source area. Finally, Shiyan City, which is the main water source area for the Project of Water Diversion, was analyzed by this model and its payment was calculated. The results showed that: (1) during 2003-2050, the total direct cost and opportunity cost would reach up to 262.70 billion and 256.33 billion Chinese Yuan (CNY, 2000 constant prices), i.e., 50.61% and 49.38% of total cost, respectively; (2) Shiyan City would gain 0.23, 0.06 and 0.03 CNY/m3 in 2014-2020, 2021-2030, and 2031-2050, respectively.
