Future Points to Carbon Trading

Chinese companies that have long faced relatively low environmental costs will have to figure out efficient ways to cut carbon dioxide emissions as a market mechanism is right around the corner.

The country's first pilot carbon-trading program for cutting greenhouse gas emissions will make its formal debut on Tuesday in Shenzhen, the southern city in Guangdong Province that has long been a leader in China's reforms.

The Shenzhen pilot program is expected to hasten the launch of pilots in other regions. The central government has designated four other cities, including Beijing and Shanghai, and two provinces to roll out pilot carbon-trading programs by 2014.

In Shenzhen, about 635 companies accounted for about 38 percent of the city's total emissions, and they will be included in the experimental program.

Using a 2012 baseline of carbon dioxide emissions of roughly 31.73 million tons, Shenzhen will issue 100 million tons of free emissions allowances to companies complying with the program between 2013 and 2015.

Rather than copy cap-and-trade programs in Europe or California, the Shenzhen pilot sets limits on carbon intensity (carbon dioxide emissions per unit of GDP) for emitters.

The 635 companies must achieve an average annual carbon intensity reduction of 6.68 percent by 2015.

However, regions will explore various approaches in establishing their own experimental programs. Cities such as Beijing might adopt absolute emission caps, said industrial experts.

Smoke billows from a factory in Dezhou, Shandong Province. To reach mandatory efficiency goals, the government had to take some extreme steps, including power cuts and limits on electricity supply in 2010. [China Daily]