Abstract: Huangshan City, which is located in Anhui Province, China, was selected as the pilot of eco-compensation mechanism in 2012. Difference-in-Difference (DID) method is taken to analyze whether the mechanism offsets the decline on economic, which is caused by ecological protection in Huangshan City. The results show that, ecological protection reduces the per capita GDP in Huangshan City at the level of 2.93%, regardless of the compensation from the government. In addition, the policy reduces the lagged value of per capita GDP at the level of 2.15%. Further studies suggest that, changes in industry structure could explain for the consequence. The proportion of secondary industry has been declining, while the value of tertiary industry fails to make up the opportunity cost that Huangshan City paid for ecological protection. From the perspective of policy evaluation, the implement of watershed ecological protection is at the cost of sacrificing the benefit of the upstream area. Besides, the eco-compensation mechanism could not take effect immediately and completely. Therefore, attention should be paid to the balance of economic, ecological, and society during the development of environmental governance.