In 2006, the BBMG Corporation, a Beijing-based company specializing in construction materials, signed a contract with Eco Securities, an emissions reduction strategy provider, to sell carbon emissions permits, in a move that is expected to make a profit of $3.3 million in 2012.

For a nation that is still putting together its carbon emissions trading schemes while facing a myriad of challenges including corruption, resistance from commercial operators and red tape, this is quite a feat.

While developed countries are committed to cutting emissions under the Kyoto Protocol, which took effect in 2005, developing nations are not obliged to meet the same targets by the end of 2012. However, they can voluntarily participate in the Clean Development Mechanism (CDM), a platform through which they can sell permits to developed countries.

This is where China enters the equation. Companies such as BBMG have voluntarily joined the scheme, and are now profiting from these trades.

But this is just the first step. The country is building its domestic carbon trading market, with the National Development and Reform Commission (NDRC) establishing these markets in seven municipalities and provinces including Beijing, Tianjin, Shanghai and Guangdong on a trial basis, hoping to further slash the nation's carbon intensity.

The trials will not officially launch until 2013. However, the challenges are daunting, not the least of which is the potential for corruption.

Up in the air

In October 2011, the NDRC approved emissions trading trials in those regions to commence in 2013.

Environmental exchanges, designed to facilitate this trading, had already been established before the decision; however, few deals have been made.

"All we can handle now are individual cases, because further details concerning trading have not yet been made clear," Du Shaozhong, chairman of the China Beijing Environment Exchange (CBEE), told the Global Times. "Have you seen a store do business without products on display?"

Sun Zhenqing, director of the Research Center of Energy Environments and Green Development at the Tianjin University of Science and Technology, who participated in research and planning for the trials in Tianjin, told the Global Times that proposals in those trial regions have been submitted to the NRDC for review.

Sun said that under the proposed schemes, emissions permits will be issued, including quotas, to companies that emit too much carbon dioxide. They will have to buy extra emissions permits from other emitters, should they surpass their quotas.

Beijing's ultimate goal is to include companies that emit more than 10,000 tons of carbon dioxide annually. As for Tianjin, Sun said that petroleum, chemical and metallurgical industries would be included. Steelmakers, petroleum processors and power generators in Shanghai that have an annual emissions of over 20,000 tons will be part of the trial.

On the ground

Designing a domestic trading scheme for the world's largest emitter is a gargantuan task.

Li Shuo, a climate and energy specialist at Greenpeace, as well as an advisor who is helping the Beijing Municipal Commission of Development and Reform prepare the trial in the city, said the biggest problem is obtaining data on previous emissions from the companies.

"Accurate data is crucial to the foundations for emissions trading, but China's system for measuring and verifying carbon emissions reduction. The Measurement, Reporting and Verification (MRV) system as defined by international standards, is in its infancy," Li said.

In regard to Tianjin, Sun said there is no quantitative tool for calculating emissions, nor is there a way of knowing how to transform the energy into carbon emissions.

Government departments will need to work together very closely.

"The tasks of saving energy and cutting emissions in Tianjin are handled by the economic and information Technology Commission and the commission of development and reform, two different agencies," Sun said. "It makes it more difficult to coordinate; the same thing happens in Guangdong too."

Qian Guoqiang, strategy director at the Sino Carbon Innovation and Investment Company, which offers consulting services on CDM, said establishing supervision mechanisms are crucial.

"In an emissions trading system, there's usually a third party checking on the accuracy of emission data," Qian said, adding that if there is room for companies to provide inaccurate information, the scheme could be abused. "If you don't monitor the companies, it's possible they will understate how much carbon dioxide they have emitted. If you don't take control, some companies, naturally, will want to make more money," he said. "With our data system so weak, it's normal for there to be corruption."

He also pointed out that even in the European scheme, there have been instances of corruption.

Into the future

In contrast, Du is confident about the trial in Beijing in 2013, saying that the environmental exchange is up to the task.

"The structural platform for emissions trading has been formulated, and the exchange will definitely start trading as scheduled," he said.

He acknowledged difficulties might emerge, saying that while emissions trading isn't new to the exchange, the transformed market environment will be. "We are still doing research into several problems, which I am sure will be solved."

However, not everyone is optimistic.

The Chinese language news portal of Financial Times quoted Zhou Jian, a researcher at Tsinghua University's Energy Environment Economy Research Institute, as saying in August that the enforcement of emissions trading might be hindered due to resistance from commercial operators.

"The NDRC officials seem to be quite clear about trading, but the understanding of the participants needs to be further improved," he said.

Sun said that although the central government aims to establish a standard trading market, the national plans seem too general, adding that the country is inexperienced in this regard. The trial regions can only fine tune their policies during the process, rather than make sweeping changes.

In fact, after the European Union's emissions trading market was launched in 2005, it also saw plunging prices caused by quotas that were well above the actual need, Wang Tao, an energy and climate researcher at the Carnegie-Tsinghua Center for Global Policy, told the Global Times.

The obligations of developing nations under the Kyoto Protocol are being discussed during the United Nations Climate Change Conference in Doha, Qatar.

Li, who is currently participating in the conference, said Chinese policies could be influenced, depending on the results of Doha discussions on emissions reduction goals for the period before 2020.

"Whether trial markets should be interconnected, or even link with international ones, it all depends," he said.