Smog in a Beijing neighborhood. Photo: Chris Aston

Next month, China will begin its first carbon-trading pilot program in Shenzhen, a major Chinese city just north of Hong Kong, the Guardian reports. The program will begin modestly, targeting only certain Shenzhen companies, but will soon expand to other sectors and cities. Environmentalists hope these initial trials will help the country determine how to best go about setting caps on emissions, the Guardian writes.

China ranks as the world’s number one carbon dioxide emitter, thanks in part to the massive amounts of coal the country burns. China currently builds a new coal-fired power plant at a rate of about one every week to ten days. The country’s coal burning levels are nearly on par with the rest of the world combined.  

Politicians around the world have focused on carbon trading as the market-based strategy of choice for regulating greenhouse gas emissions. HowStuffWorks explains the basic concept:

Cap-and-trade schemes are the most popular way to regulate carbon dioxide (CO2) and other emissions. The scheme’s governing body begins by setting a cap on allowable emissions. It then distributes or auctions off emissions allowances that total the cap. Member firms that do not have enough allowances to cover their emissions must either make reductions or buy another firm’s spare credits. Members with extra allowances can sell them or bank them for future use. Cap-and-trade schemes can be either mandatory or voluntary.

But in the European Union, this system has not worked so well. The Royal Society of Chemistry explains the problem:

In theory, the cost of buying the allowances, either directly from other companies or on the open market, is supposed to provide financial incentives for companies to invest in carbon reducing technology or shift to less carbon intensive energy sources. But after reaching a peak of nearly €30 (£25) per tonne in the summer of 2008, prices have steadily fallen. By January they had crashed to under €5, providing little, if any, financial incentive for companies to reduce emissions.

This initial effort in China will extent to just 638 companies, the Guardian reports, though those businesses are responsible for 68 percent of Shenzhen’s total greenhouse gas emissions. While any efforts China undertakes to reduce its emissions will help ward off global climate change and reduce greenhouse gas build up in the planet’s atmosphere, China’s leaders say the decision primarily stems from it’s escalating in-country problems with air pollution, the Guardian reports.

If things go well, the scheme will further incorporate transportation, manufacturing and construction companies as well. China plans to enroll seven cities in the experiment by 2014. By 2020, China hopes to have implemented a nation-wide carbon control program—just in time for the country’s estimated emissions peak in 2025.

More from Smithsonian.com:

The Political History of Cap and Trade 
China Acknowledges It Has a Problem with Pollution-Laden ‘Cancer Villages’ 

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China Plans to Regulate Some of Its Carbon Emissions for the First Time Ever