Both plants, the Taicang Port Huanbao Power Co., Ltd., the buyer, and the Nanjing Xiaguan Power Plant, the seller, are in east China's Jiangsu Province.

The buyer is badly in need of extra sulfur dioxide emission quota as it is planning to generate more electricity to meet local demands. The expansion plan, though environmentally friendly, will generate another 2,000 tons of sulfur dioxide a year, which is far beyond the original emission quota the company is permitted.

The seller, however, saves an emission quota of 3,000 tons per year, thanks to the state-of-art technology it has introduced from Finland.

With the Jiangsu Provincial Department of Environmental Protection as the "go-between," the two power plants began negotiations at the end of last year and have finally reached agreement.

According to the agreement, the buyer will pay 1.7 million yuan (about US$204,800) for an annual emission quota of 1,700 tons from the seller over the next three years.

The two sides agreed to re-negotiate by the year 2006 according to market conditions at that time.

The trade-off would have a slight climatic impact on Taicang City under the worst case scenario, according to an evaluation on the deal's feasibility made by the Nanjing Environmental Protection Institute of the former State Power Corporation.

"The deal is an instructive trial for China's future emission trading operation," said Xue Renjie, chief of the pollution control section of the Provincial Environmental Protection Bureau.

The practice of emission trading did not mean that money would give an unprincipled green light to pollution, said an official in charge of pollution control with the State Environmental Protection Administration (SEPA).

Buyers and sellers were allowed to trade only within the state pollution control limits, and they could not worsen the local environment, said the official.

The agreement was achieved against the backdrop of a pilot emission trading program launched in China last March.

The program, co-organized by the SEPA and the United States Environmental Defense (EDF), was China's first attempt at using economics to curb acid rain.

Sulfur dioxide creates acid rain, which has become a major environmental problem in China, due to the nation's heavy reliance on coal-burning power plants.

SEPA began the experiments in east China's Shandong and Jiangsu provinces, north China's Shanxi Province, central China's Henan Province, Shanghai and Tianjin municipalities, and Liuzhou city in south China's Guangxi Zhuang Autonomous Region.

"The Taicang case is also a win-win deal," said Dr. Zhang Jianyu, program manager of the China Emission Trading at EDF, which pioneered the successful emissions trading program in 1990 in the United States.

The buyer got the emission quota, a must for its future expansion while the seller was rewarded with a chance to recover its cost of environmental protection, he said.

Emission trading schemes have come about because of caps set on the amount of pollution that can be produced by industrial sources, such as power plants and other factories.

Those released fewer emissions than the permitted level are allowed to store the excess quota for future use or to trade with other industrial units which cannot meet the pollution targets set by the environmental protection authorities.

"The trading, introducing an idea that integrates into the Environmental Impact Assessment (EIA) process, conforms to the country's reality," Zhang said.

He expressed the hope that the pilot program would provide more practical experience for China's environmental protection decision-makers.

China plans to invest nearly 100 billion (US$12 billion) in preventing and curbing sulfur dioxide and acid rains during the Tenth Five-Year Plan (2001-2005). Regions that altogether emit two-thirds of China's sulfur dioxide are required to cut the pollution by 20 percent in 2005 from that of the year 2000.

Practice from overseas has proved emission trading to be efficient and economical in encouraging polluters to reduce pollution.

Earlier reports by Chinese media say that the SEPA-EDF pilot program is preparing to expand and include cross-provincial border trade. South China's Guangdong Province and Hong Kong and Macao special administrative regions will go on the program if all continues to go well with the first batch of the four provinces and three cities.

(Xinhua News Agency January 17, 2003)