Sinopec Star Petroleum Co has signed an agreement with Iceland's Geysir Green Energy (GGE) for the exploration and development of geothermal resources in northern China's Inner Mongolia autonomous region, in a move to make further use of clean energy in the country.

According to the agreement, Enex China, the Chinese operation of GGE, and Sinopec Star will assist local authorities in initiating and compiling a geothermal survey in Aershan.

The parties agreed to cooperate on geothermal development and utilization in the city with an emphasis on building up indoor heating systems, greenhouse agriculture and geothermal electricity generation.

The Inner Mongolia project would be the third such investment in China for GGE.

Premier Wen Jiabao urged the two countries to expand cooperation in the sector of geothermal energy development in September during a meeting with Iceland President Olafur Ragnar Grimsson at the Summer Davos Forum in Tianjin.

Geysir Green Energy, one of the largest geothermal energy companies in Iceland, signed a five-year agreement with China's Sinopec Star in June to develop geothermal energy resources in northern China.

The five-year agreement includes developments in Shaanxi province, Hebei province, Beijing municipality, Tianjin municipality, as well as regions in northeastern China. It's estimated that the projects will cover 30 to 40 million square meters (sq m) eventually.

Geysir has already worked on two Chinese geothermal projects in Shaanxi and Hebei provinces through its subsidiary Enex.

Under the agreement signed in June, the two projects - in the cities of Xianyang and Baoding - will be expanded beyond their current capacity of 140 megawatt-hours. They are operated under a joint venture between Enex and Sinopec Star.

"The timeline would be to build up 20 million sq m of heating coverage in the next three years and further expand to 30 to 40 million sq m in the next five years," Jiang Zhu, managing director of Geysir in China, said earlier.

Sinopec's geothermal capacity can provide heating for 2.6 million sq m of housing in Xianyang, Shaanxi province, and Baoding, Hebei province, which translates into a reduction of 300,000 tons in carbon dioxide emissions, said Zan Qi, general manager of Sinopec Star.

Its current capacity can be expanded to 10 million sq m by 2015, according to the company head.

Sinopec, China's leading oil refiner, started commercial development of geothermal resources this year as part of its strategy of low-carbon economic growth through a joint venture - Shaanxi Green Energy Geothermal Development - between Sinopec Star and Enex.

According to the Ministry of Land and Resources, there are more than 1,000 geothermal energy fields around the country, and nearly a quarter of them have been developed. The country's utilization of geothermal energy ranks top in the world.

Geothermal energy could help cut carbon dioxide emissions by 25 million tons a year, according to the ministry.