"Comparing to China's annual 9 billion tons of greenhouse gas emissions, the 190,000-ton transaction is tiny," said Lin Boqiang, Director of the China Center for Energy Economics Research at Xiamen University based in southeast China's Fujian Province, adding that there is a long way to go before the country's CET market matures.

According to estimates by the UK-based Climate Group, the seven pilot markets will regulate more than 700 million tons of carbon dioxide annually by 2014, making China the world's second largest CET market after the EU.

Overcoming obstacles

While pilot markets are hailed as a landmark step toward forming a mature CET system, some issues in the way have been highlighted by experts and industry insiders.

One of the factors hampering the CET pilot programs is that they are unable to offer pricing for futures. It's widely believed that being able to anticipate carbon prices a few years ahead influences corporate executives' decisions about what types of mitigation equipment to invest in, or whether to buy emissions permits instead. Experts have advised opening up an accompanying futures and options market as soon as possible.

"Without futures and options, it is hard to find any long-term investment value in the carbon-trading market and the development and application of low-carbon technology will be hindered by a lack of funding," commented Xiao Ming, Chairman of GDR Carbon, a Shenzhen-based consultancy specializing in carbon-asset management and investment.

Ge Xing'an, Vice President of the CEE, also pointed out that carbon credits can be problematic financially and the risks must be countered by risk-management tools, such as futures and options.

The CEE holds a training session once a week, where it provides training for companies participating in carbon emissions trading and listens to their demands. The ultimate aim of the exchange's founders is to build a carbon-trading financial center in China.

"Cultivating the carbon trading market in China will be a long process. We shouldn't force growth, or dream of huge transaction volumes immediately. That's unrealistic. We've got a lot of work to do to build a solid foundation for the market," said Chen Haiou, President of the CEE.

Speaking at an international environmental protection forum last July in Guiyang, southwest China's Guizhou Province, Su, from the NDRC, revealed that the Chinese Government is looking to accelerate the process of building a nationwide CET market.

"The country will soon begin to record the carbon emissions of individual enterprises in major industries and find ways to allocate emissions quota appropriately, as preparations for the national market," Su said.

Contrary to Su's enthusiasm, many experts and industry leaders have expressed caution. They warned of potential difficulties facing the legislation, carbon financing, statistics gathering, as well as quota allocation, monitoring and assessment systems, all of which are key to building a mature market.

"Carbon emissions trading will remain an artificial market until these problems are solved," said Xiong Yan, President of the Chinese State-owned Property Exchanges Association.

Li Junfeng, Director of the National Climate Change Strategy Research and International Cooperation Center, agreed. He calls for legislation over the CET and low-carbon development in order to regulate the national market.

"Administration has limited influence over raising people's awareness. With legal boundaries, companies will understand their rights and duties more clearly," Li said.

A law on climate change will enable government departments and public sectors to appropriately divide their work regarding the issue, according to Wang Yi, Deputy Director of the Institute of Policy and Management with the Chinese Academy of Sciences.

Wang and his fellow experts also appealed for the government to determine China's total allowed carbon emissions.

"Without setting a target for the reduction, or a date by which China's total emissions are to start falling, we cannot allocate quotas scientifically," Wang said. He added that only when carbon emissions quotas become a scarce resource will companies be willing to trade them.

However, Wang admitted that for a developing country like China, which still relies heavily on energy-consuming industries for its economic development and relieving poverty, the task is not a simple one.

Pilot CET markets currently allocate quotas to enterprises according to their carbon emission history.

"The methods for monitoring companies' carbon emissions and the organizations that they can appeal to when treated unfairly over emissions trading or quota transfers, are all yet to be decided," said Huang Yaping, Vice Board Chairman of Huaneng Coking Gas Co. Ltd. in Guizhou.

We have to consider whether those that polluted more can manage drastic emissions reductions in a short period of time," said the NDRC's Su, adding that reducing emissions is a long-term task for enterprises.

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