China launches pilot carbon market in Shenzhen

A historical moment for China - today the country is launching its first pilot carbon trading scheme in the southern mega city of Shenzhen. The scheme, believed to be the most effective way possible to cut greenhouse gas emissions, aims to cover 635 carbon-intensive companies in the city. Analysts say it marks an important step for China in its efforts to reduce its carbon footprint.

Shenzhen has become the first city in China to introduce a mandatory emissions trading scheme. The scheme is set to cap emissions for 635 carbon-intensive companies in the city. It's also requiring them to hold sufficient tradable carbon allowances to meet government-imposed emission targets.

Chen Xiao'ou is the president and CEO of China Emissions Exchange headquartered in Shenzhen. "We welcome individual and institutional investors and companies to join in our carbon exchange market," Chen said, "We hope all companies, mandatory or non-mandatory, could all acquire experiences in the market and be prepared for the future national carbon exchange market."

China's state-owned energy giant PetroChina and privately run power plant Hanergy are the two largest buyers in the first batch under the scheme.

Keeping abreast with its economic contributions, China's unparalleled use of coal had also earned it the title of the world's biggest greenhouse gas emitter. But now, China is taking concrete action and responsibilities to curb greenhouse gas emissions.

The ETS mechanism had been adopted by many developed economies years ago. But its impact is smaller than expected as many countries found themselves facing an oversupply of carbon allowances that dilutes carbon prices. But analysts say China's ETS will try to avoid these mistakes.

The pilot ETS now covers mainly companies in industrial and construction sectors, which covers 38 percent of Shenzhen's total emissions.