China will intensify its research into cap-and-trade markets and increase financing for a low-carbon trial project, Yi Cheng, deputy director of the research bureau of the People's Bank of China, said over the weekend in Shanghai.

China is recasting its growth model to try to promote a greener and cleaner economic expansion.

"The key is to set up a mechanism to allow companies to benefit from reducing emissions, whether it's in investment or financing," Yi told the 7th China International Finance Forum in the city on Saturday.

Linking emissions reduction to economic returns will give companies the incentive to drive low-carbon campaigns, he said.

"Talking about a domestic carbon market, we should start on a trial basis in a regional framework," Yi said. "Foreign experience shows us that a carbon market can't stand alone without the participation of financial institutions."

In a carbon-market system, companies and other polluters are given a mandatory cap on how much carbon dioxide they can emit into the atmosphere. Each company is issued emissions rights, or credits. Companies that don't use their full allotment of credits can sell the unused portion to companies that want to exceed their quotas.

So-called cap-and-trade systems, also known as emissions trading, are designed to encourage reductions in emissions while maintaining flexibility. They reward innovation and efficiency. The system has been implemented most widely in Europe.

Debate about cap and trading in many countries, including the United States and Australia, has involved issues related to cost. Acquiring technology to reduce emissions can be expensive to companies, which in turn may pass those costs onto consumers. Some worry about the burden going green may impose on economic growth.

"A low-carbon economy is the new model in China, and it needs financial channels beyond bank loans to develop," Liu Xinyi, deputy president of Shanghai Pudong Development Bank, told the forum yesterday.

"We have advised authorities to introduce low-carbon funds, bonds or other listings channels and to give incentives to private-equity, venture capital or trust funds to invest in green industries."