By Lan Xinzhen

Chinas carbon emission trading was formally launched at the Shanghai Environment and Energy Exchange on July 16， marking a tangible step toward the goal of peaking carbon emissions by 2030 and achieving carbon neutrality by 2060.

Chinas per-capita GDP is far lower than that of other industrialized countries and its short history of industrialization is maybe responsible for much less damage to the planets climate than theirs.

However， China is quick to take on the mission of carbon emission reduction.

The worlds largest market

Carbon emission trading means that greenhouse gas emission rights are traded as commodities. Companies are granted certain emission allowances， and those who release less than the allowance can sell their surplus； those emitting more than permitted will have to pay their overdues. The ultimate goal is to contain the total amount of carbon emissions around the world.

Among Chinas various industries， the biggest emitter is the power industry， responsible for 43 percent of carbon emissions， equal to more than 4 billion metric tons of carbon dioxide. Thus， more than 2，000 enterprises from the power industry are involved in carbon emission trading.

Chinas carbon market， the largest in the world in terms of size， presents huge business opportunities. Its estimated that carbon trading this year has thus far reached some 250 million， or even 300 million tons， at a value of roughly 16 billion yuan （$2.5 billion）.

The price of carbon trading is crucial to the market. The transaction price on the first day in Shanghai stood at around 51.2 yuan （$8） per ton， as expected. Extreme high or low prices are inappropriate. Too low， many enterprises enthusiasm for cutting emissions will be dampened； too high， some big emitters will break down as they can no longer afford the payments. A reasonable price will help encourage enterprises to actively reduce their emissions.

In the short term， carbon trading pricing will unlikely witness any big volatility as it mainly relies on the demand and supply of carbon emission quotas. However， in the long run， it hinges on the countrys overall economic performance. As the volume and the price of the carbon emission trade are notably lower than international levels， Chinas carbon trading price may well go up in the mid-and-long term.

Apart from the power sector， in the coming five years， dozens of high-energyconsuming sectors like the chemical industry， construction material， iron and steel， and civil aviation will be adopted into the carbon trading market. By then， Chinas carbon emission market will be worth around 150 billion yuan （$23.4 billion）. There is huge potential for this market. The application of carbon capture and storage technology， green chemicals， and non-fossil-fuel energy is likely to trigger disruptive innovation and incur huge investment. Together with derivatives like carbon futures， Chinas carbon emission trading is expected to reach 600 billion yuan （$93.7 billion）.