September was a busy month for the Tianjin Climate Exchange, as it secured three deals including one offsetting the emissions of a high-profile international forum recently held in the city.

The exchange has brokered a total of six carbon deals since its establishment in 2008.

"Compared with the first two years, we have seen big changes this year," said Mu Lingling, the exchange's vice president, at the sidelines of the fourth round of the ongoing United Nations climate talks from Oct. 4 to 9.

As one of the country's three major carbon trading institutions and the first joint venture one in China, the exchange, owned by Chicago Climate Exchange and two Chinese partners, has felt pressure from operating in the new area of trade, she said. "We bear a heavy responsibility to explore the path for China's carbon trading market."

The country has played a big part in the Clean Development Mechanism (CDM) under the Kyoto Protocol. The Chinese government had approved 2,685 CDM projects by September and 953 of them were successfully registered at the UN CDM Executive Board, accounting for 40 percent of the total registered projects.

However, its voluntary emissions trade in the domestic market was new to both the government and investors.

"All three major climate exchanges in China are facing the same problem that we are trying to create a market out of nothing," said Jian Lin, chief executive officer of Shanghai Environment and Energy Exchange, in an interview with Xinhua.

The market does not have enough products and demand but, more importantly, the legislation, policy and methodology are not fully in place, he said.

"The market needs the participation of the government, enterprises, financial institutions and the public," Mu said.

The proper legislation is needed to define what exactly can be traded in China's carbon market and standards should be set to evaluate and identify the emissions reduction volume while the supervision and penalty system should be in place to sustain the market, she said.

"Carbon trade in China is not only about the exchanges. It is related to all sectors in the society," she said. "The market is like a newborn. Naturally it has some growing pains."

Henry Derwent, president and CEO of International Emissions Trading Association, was quite optimistic about the future of carbon market in China.

China like many other large countries outside the Kyoto targets, has made clear it has domestic targets though it does not have a binding target, he said.

"It is absolutely clear that the Chinese government is looking around for any policy, actions and mechanisms to achieve massive achievement in energy efficiency and carbon reduction."

"The carbon trade is to achieve a particular emission reduction objective at low cost. If China wants to make progress here, you need the industries and profit-motive working with you. To create business rather than a regulative environment has been recognized more and more among businesses, local and central governments."

And the central government did express willingness to let the market play a role in its overall campaign of reducing energy consumption and greenhouse gas emissions.

A draft regulation on voluntary emissions trade was "almost ready" and will be issued "as soon as possible," said Wang Shu, official with the climate change department under the National Reform and Development Commission (NRDC), also at the Tianjin event.

"The country will need the market mechanism to realize the emissions intensity cut of 40 to 45 percent from 2005 by 2020," Wang said. "We welcome and encourage some regions and sectors to start pilot projects of voluntary emissions trade if conditions allow."

Derwent added to this by saying that a province or city can act as an example to the whole country. "When there is uncertainty at the national level, ample history around the world shows that regions and cities can act on behalf of themselves."

Experts have also suggested a new way of allocating the 2020 emissions intensity cut quota, which will be a key benchmark for the emissions trade.

Zou Ji, China country director of the World Resources Institute, told Xinhua that China has allocated the targets of pollutant cuts based on administrative divisions but, if the emissions cut quota follows the same way, it would not be able to form an open national carbon trade market.

"If the quota is allocated among provinces, it is quite unlikely for any trade across the provinces," Zou said. "We can pick up some industries, such as power and petrochemical, and set up a carbon trade market in the sector as pilot projects. It will encourage these large emitters to adopt low-carbon technologies and apply carbon neutral strategies."

Gradually the practice can be applied to industries that are more locally based, such as housing and public transport, before a real national market is set up, he added.

"If the carbon market is not for tomorrow, it will be for the day after tomorrow. But if you don't spend today preparing for it, you could lose," Derwent said.

Business initiatives

Despite lingering doubts about the voluntary emissions trade, businesses have made moves to become more climate-aware.

China Vanke Co. Ltd, a leading real estate developer, has bought emissions reduction quotas at the Shanghai Environment and Energy Exchange, to make its pavilion at the Shanghai Expo carbon neutral.

"We are willing to try the carbon trade as we believe being a low carbon emitter is the trend. If we start now, we will be rewarded in the future," said Wang Shi, chairman of China Vanke, at the Tianjin event.

In the past two years, the company has also followed a top "green building" standard, issued by the Ministry of Housing and Urban-Rural Development, which means the energy consumption of a building should be reduced by 65 percent from its 'normal' operating level. The standard is not mandatory.

This year, about 10 million square meters of Vanke buildings adopted the standard and by 2014 all their buildings will adopt the standard, Wang said. "If the carbon market develops, we can sell the emissions cut quotas we gain through green buildings," he said.