Two local plants under China's leading power producer Huaneng are about to sign a deal to buy and sell sulphur dioxide emission quotas.

It's expected to be the ninth deal since the start of a pilot emission trading program between the State Environmental Protection Administration (SEPA) and the US-based Environmental Defense (EDF) in 2002.

The program, which was mainly implemented in the Yangtze River Delta region which sees a lot of acid rain, is targeted to help China cut sulphur dioxide emissions by 10 percent between 2000 and the end of 2005.

In it, factories which produce less than their permitted quota of emissions can either store up what they do not use or sell off the rest to factories that produce more than their emission quota.

The plants, potential buyer Huaneng Nantong Power Plant and sellers Huaneng Taicang Power Plant, operate under Huaneng Power International in Jiangsu.

According to a feasibility report, Huaneng Nantong will need to produce more emissions as it strives to generate more electricity to meet local demand.

The expansion plan will generate another 14,810 tons of sulphur dioxide during the 2006-2008 period, which is far beyond the original emission quota the company is permitted.

Huaneng Taicang, however, by using state-of-the-art technology to decrease sulphur dioxide emissions, will produce far less and be in a position to sell off what it does not emit.

The report says Huaneng Nantong will pay 31 million yuan (US$3.7 million) for a three-year emission quota from the Taicang plant.

Such emission trading schemes have come about because of government's caps set on the amount of pollution that can be produced by industrial sources, such as power plants and factories.

Experts said further work should be done to look into the environmental impact on locals if the deal comes into effect.

"We should investigate whether there will be more acid rain in Nantong if the plant in the city generates more power and emissions," said Lin Hong, a scientist with the China Environment Science Research.

But local environmental officials said even if the deal is struck in 2006, the total emission quota in Nantong is below what is allowed by the government.

The situation is expected to improve because of the improved technology used in the Taicang plant.

China's first agreement on sulphur dioxide emission trading between two plants in different cities came into effect in July 2003.

SEPA Minister Xie Zhenhua said the pilot work should be extended to other regions and research should be carried out to set up a legal framework for the trading.

But EDF chief economist Daniel J. Dudek said there was still uncertainty ahead about the deal as the plants have not been given emission quotas for the 2006-10 period.

The central government is busy preparing a blueprint in various areas during the 11th Five Year (2006-10) Plan Period.

"The government should have a plan with a longer time range, which is useful for companies to know where they should be going," said Daniel, non-profit, non-government organization has championed successful sulphur dioxide emissions trading programmes.

SEPA and the EDF are now working towards setting up a regional market for emissions trading on the Yangtze River Delta, which is vital for the successful development of the area's economy while protecting its environment.

An earlier report from Tsinghua University said the worsening contamination of major rivers and lakes and atmospheric pollutants, especially sulphur dioxide -- the cause of acid rain -- have become major environmental problems in the region.

(China Daily December 9, 2004)