Travelers to north China's Inner Mongolia Autonomous Region might be astonished by the sight of wind farms sprouting along the breezy steppes. On the outskirts of affluent Jiangsu Province, power generators operating at full capacity are equally remarkable - they are fueled by landfill gas.

Yvo do Boer, head of the UN Framework Convention on Climate Change, responds to reporters' questions at Carbon Forum Asia held in Singapore earlier this month.

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 emissions. To date China's top economic planner, the National Development and Reform Commission, has approved about 800 projects under the clean development mechanism (CDM), a component of the protocol.

The list is still expanding, reflecting China's enormous potential.

Lucrative trade

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

"It is worth much more than that now," said Andrei Marcu, president and CEO of the International Emissions Trading Association (IETA), adding that the value may double to USUS$60 billion or more in 2007, with Asia playing an increasingly larger role.

He was echoed by Joergen Fenhann from the United Nations Environment Program (UNEP) who said that China and India are the front-runners in Asia. Fenhann says 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 from UNEP Asia accounted for 80 percent of the world's total carbon trade volume, 61 percent by China, followed by India at 12 percent.

It was the second consecutive year that China led the world supply in the carbon trading. In 2005, its portion was 73 percent.

China's market dominance may continue. The UN's climate change secretariat said earlier that the nation 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 trading carbon credits totaled 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 is seeking more opportunities for cooperation with Chinese banks in financing CDM projects, said its senior executive director Fumio Hoshi.

China's role

As a dominant force in the CDM market, China influences the overall market price through its informal policy of requiring a minimum acceptable price before approving projects.

A number of countries now use China's price floor as a basis for negotiation of nearly 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 USUS$10.4 to USUS$11.7 a ton in 2006, while the vast majority of other transactions worldwide were in the range of US$8 to US$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 multi-billion-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 further open the lucrative Chinese carbon market.

Efforts praised

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

Hoshi said that many efforts are underway as the Chinese government tackles the issue of global climate change. He said that the nation has included the target of energy conservation and emissions reduction in its 11th Five-year Plan (2006-10), 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 the goal.

China is well aware of the dilemma it faces in the relationship between the economic boom with greater energy consumption and pollution, and has already taken action 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 a revision to its Energy Conservation Law, which has been in use for the past nine years. The country has also established a task force headed by 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 for knowledge management and sustainable development at the Asian Development Bank.

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

The complexity of the issue is compounded by the fact that access to energy is critical to alleviate poverty. Even as Asia dramatically increased its energy consumption, more than 600 million people still lack proper access to electricity, said Schafer-Preuss.

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

(China Daily November 19, 2007)