Polluters in Shanghai's Pudong district will soon be able to start trading their "carbon credits" as part of a pilot program to help offset emissions.

The environmental bureau is to try Pollution Discharge Right Trade this year, with more than 300 companies using the Shanghai Environment and Energy Exchange (SEEE) as a trading platform.

The companies contribute more than 80 percent of Pudong's total pollution and the move will mean firms have to meet discharge requirements by controlling emissions or buy extra credits, explained Zhang Peijun, a director for the Pudong Environmental Protection Bureau, yesterday.

The first two pollutants to be traded on the exchange will be sulfur dioxide and chemical oxygen demand (COD), a measurement of water pollution, he said, while the authorities are still working on a price, taking environmental impact and treatment costs into consideration.

Zhang said the project limits the region's overall pollution discharge by "setting a cap equal to the maximum emissions allowed to meet water quality targets".

Companies must buy the right to discharge a credit over the course of a year, and those with excess credits can sell them to businesses that cannot meet the standards set by the environmental authorities.

"In a market-based mechanism, an emissions trading scheme provides economic incentives for reducing pollution," said Zhang. "Companies unable to limit their emissions have to pay a much higher price for extra credits on the exchange."

Bin Hui, director of the SEEE research center, said that the Shanghai experiment could provide a new model for pollution control in China. Although not a new concept - regulations for the Taihu Lake area mean firms must already pay 4,500 yuan ($660) per ton for COD emissions - a market mechanism for credit trading has not yet been established, he said.

"With the launch of Pollution Discharge Right Trade at SEEE, Shanghai could share its experiences in areas like the formulation of rules and training personnel," he said, adding that the mechanism could also serve as a stimulus for attracting more investment in the energy-saving sector.

(China Daily April 17, 2009)