Abstract: Against the backdrop of deepening ecological civilization construction and the continuous improvement of China’s ecological compensation system, Yunnan Province promulgated the Implementation Rules of the Regulation on Ecological Protection Compensation (hereinafter referred to as the “Implementation Rules”) in December 2025. As the first provincial-level supporting policy for ecological protection compensation in China, the document formally incorporates, for the first time, a horizontal ecological protection compensation mechanism for large-scale hydropower stations, thereby providing an institutional basis for ecological compensation in hydropower development in Yunnan and offering a demonstrative model for similar practices nationwide. However, during policy implementation, several bottlenecks remain, including ambiguous compensation boundaries, unclear compensation standards, an underdeveloped mechanism for determining the base amount of compensation funds, and insufficient cross-regional coordination. Grounded in the local implementation practice of the Implementation Rules, this study systematically examines key pathways for improving the ecological compensation mechanism in hydropower development, focusing on the delineation of compensation scope, the coordination between existing and newly constructed projects, the establishment of a standardized compensation framework, and the determination of compensation fund bases. By addressing the “last-mile” challenges of policy implementation, this research proposes practical policy recommendations to promote synergistic gains between hydropower development and ecological protection in Yunnan. It also provides insights for other regions seeking to establish life-cycle, multi-dimensional, and sustainable ecological compensation mechanisms for hydropower development.