Shanghai established a pilot carbon emissions trading system in November 2013. The file photo shows the launching ceremony of the program. [Photo: Ddc.net.cn]

Final preparations are underway here in China for the 2017 launch of this country's carbon trading program.

"Under the directives from our central government, we are actively preparing for the launch of the market next year. We plan to finish building the mechanism by 2020. During this time, eight industries will begin trading in the emissions trading system. Currently, our local governments are busy examining the emissions records of their industries and enterprises, with third-party agencies verifying the information. This is a crucial step that will determine whether the mechanism will succeed," said Jiang Zhaoli, an official at China's National Development and Reform Commission, at the latest ongoing UN Framework Convention on Climate Change conference in Morocco.

Emissions trading is a market-driven approach to try to reduce environmental pollution. As part of the design, an emissions cap is established for a time period, and pollution permits up to that level are created. Polluting companies are then allowed permits for their emissions, based on their historical emission levels. The companies can decide how they want to allocate their emissions based on available permits. If their emissions exceed their allowance, they must purchase additional permits on the market; if they do not exhaust their permits, they are allowed to sell the remaining allotment.

The eight industries to be included in China's emissions trading system include petrochemicals, chemical engineering, construction materials, iron and steel, nonferrous metals, papermaking, power generation and aviation. Between 2013 and 2015, China's central government tested out the trading mechanism in seven Chinese cities and provinces, which have all seen their carbon emissions intensity decrease at faster rates than other places in China.

"The central and local governments are working together to implement the emissions trading market. The central authorities determine how the polluting permits are handed out, how the total cap is set and how the market is regulated. Local governments can then issue the permits and ensure the companies observe their allowances and market regulations. This type of central-local cooperation will promote the effective operation of the trading market," said Jiang.

Once established, China's emissions trading system will be the world's largest.

"The creation of a national carbon market in China is a welcomed development for all of us, I think, in this room and on the planet. We expect the emissions trading system to actually drive investment decisions throughout the economy toward cleaner options and hopefully to lead changes in consumer behavior," said Laura Tuck, Vice President of the World Bank, in Morocco.

Tuck said the establishment of a carbon trading system in China will be critical in helping the Chinese government achieve its own goals. Plans have been laid out in China to cut carbon dioxide emissions per unit of GDP by up to 65% from 2005 levels by 2030.