Touring China's Inner Mongolia, you will be impressed by wind farms mushrooming along the breezy steppes. On the outskirts of the affluent Jiangsu Province, you will find generators fueled by landfill gas operating at full capacity.

These far-flung projects, and many others are supporting the whirlwind growth of the Chinese economy in a cleaner way.

They are a result of the 1997 Kyoto Protocol, a global initiative to cut greenhouse gas (GHG) emissions. Up to now, China's National Development and Reform Commission has approved more than?800 projects under the clean development mechanism (CDM), a component of the protocol.

The list is still expanding, as China shows its huge potential.

Lucrative market

The global carbon market, a result of the targeted emission-reduction commitments negotiated under the Kyoto Protocol, tripled in size between 2005 and 2006 to a value of more than USUS$30 billion, said experts at Carbon Forum Asia 2006, which opened in Singapore on November 6-7.

"It is worth much more than that now," said Andrei Marcu, president and chief executive officer of the International Emissions Trading Association (IETA), adding that the value may double to US$60 billion to USUS$70 billion in 2007.

Asia is playing an increasingly bigger role, said Marcu.

Joergen Fenhann from the United Nations Environment Programme (UNEP) echoed his view by saying that China and India are the front runners in Asia. He said that a large share of "certified emission reductions" (CERs), carbon credits that permit a country to emit carbon above its quota, come from China.

The latest report by IETA shows that in 2006, CERs contributed by Asia accounted for 80 percent of the world's total carbon trade volume, 61 percent of which was traded by China, followed by India at 12 percent.

This is the second consecutive year that China led the world's carbon trading market on the supply side. In 2005, the share taken by China was 73 percent.

China's market dominance may continue. The UN's climate change secretariat said earlier that China is expected to account for 41 percent of all carbon credits issued by the UN by 2012.

Made possible by the CDM, a mechanism that allows developing countries to sell their CERs to developed ones, clean coal technology is being rapidly advanced in China.

By trading CERs, China has developed an additional revenue stream to fund domestic low-carbon projects. In 2006, the revenue from the trading amounted to US$3 billion.

Statistics from the Office of the National Coordination Committee on Climate Change in China show that as of October 9, 2007, the country had 120 CDM projects successfully registered with the UN and 20 issued with CER credits.

Given its huge supply, a big portion of the market remains untapped. To better bring into play China's huge potential, Japan Bank for International Cooperation (JBIC) is seeking more opportunities of cooperation with Chinese banks in terms of financing CDM projects, said its senior executive director Fumio Hoshi at the forum.

China's role

China, as a dominant market leader in the CDM market, influences the overall market price through its informal policy of requiring a minimum acceptable price before providing approval to projects.

Currently, quite a lot of countries use China's price floor as a basis of negotiation of near-equivalent prices in their transactions.

Antonio Aguilera Lagos, a senior manager from REW Power AG, said the current China price level for CERs is reasonable.

China sets a relatively stable price floor for global supply of CERs. IETA statistics show that China's floor price was around US$10.4-11.7 per ton in 2006, while the vast majority of transactions worldwide were in the range of US$8-14.

Due to China's large market share and dominant influence, the UN has tentatively picked Beijing as the destination of Asia's first carbon trading exchange. The move could establish the Chinese capital as an important hub for the multibillion-dollar global trade in carbon credits.

If successful, the exchange would be the first in the developing world. It would compete with the Chicago Climate Exchange and the New South Wales Market, and would help to open up further the lucrative Chinese carbon market.

Efforts praised

Most of the speakers at the forum agreed that they have seen encouraging results of carbon trading from China.

Hoshi said that many efforts have been seen with the Chinese government in tackling the global issue of climate change. He said that China has included the target of energy conservation and emissions reduction in its 11th Five-year Plan (2006-2010), which aims at cutting energy consumption per unit GDP by 20 percent during the period.

Liu Yanhua, vice minister of the Ministry of Science and Technology, said earlier that he hoped the CDM would help China achieve this goal.

China is well aware of the dilemma it faces in the relationship between the economic boom and more energy consumption and emission of pollutants, and has already taken actions to try to develop a sustainable economy, according to Marcu.

Yvo do Boer, head of the UN Framework Convention on Climate Change, said that China already has in place a climate change strategy at national level.

In order to achieve its five-year goal, China just passed the draft of the revision to its Energy Conservation Law, which has been practiced for nine years. Besides, the country has set up a task force, headed by its premier Wen Jiabao, to tackle climate change and conserve energy.

Challenge ahead

"This is a global challenge, but here in Asia, the need for action is even heightened. Asia is currently facing a dual challenge of ensuring energy security and preventing environmental degradation," said Ursula Schafer-Preuss, vice president of Knowledge Management and Sustainable Development, Asian Development Bank.

Asia now accounts for 27 percent of the world's energy-related GHG emissions, compared to less than 10 percent in the 1970s, she said. "Asia needs an estimated US$6 trillion in investments in energy by 2030."

The complexity of the issue is compounded by the fact that access to energy is a critical element for poverty alleviation in Asia. While Asia dramatically increased its consumption, more than 600 million people lack proper access to electricity, said Schafer-Preuss.

"This means that while Asia needs to balance itself for having greater, but less environmentally harmful, access to energy. This is certainly not an easy task," she said.

(China Daily November 14, 2007)