China now has a dozen environmental exchanges where companies can buy and sell pollution permits. This comes only a year after the first three were set up in Tianjin, Beijing and Shanghai.

The nation has played a large role in the Clean Development Mechanism (CDM) under the Kyoto Protocol. By September, the government had approved 2,685 CDM projects. A total of 953 of these projects were successfully registered at the United Nations' CDM Executive Board, accounting for 40 percent of all registered projects.

China is also the largest supplier of Certified Emission Reductions (CERs).

However, voluntary emissions trading in the domestic market is new to both the government and investors.

"All three major climate exchanges in China are facing the same problem - that we are trying to create a market out of nothing," said Jian Lin, CEO of the Shanghai Environment and Energy Exchange.

The market does not have enough products or demand, said Jian, and, more important, the legislation, policy and standards are not fully in place.

Jeff Huang, the Chicago Climate Exchange's vice-president in Asia, said that the next step is to "operationalize" existing central government policies and build a large-scale domestic carbon trading market pilot program to show how market mechanisms can be harnessed to help industrial emitters achieve carbon compliance targets at lower cost and remain competitive.

(China Daily November 26, 2010)