China eyes summer launch for carbon credit exchange

BEIJING, Feb 6 (Reuters) Beijing plans to launch a pilot exchange for carbon trade this summer to be ready to win a slice of the multi-billion dollar market by 2008 and capitalise on China's emergence as an hotspot for emissions-cutting projects.

The exchange would aim to combine sales of carbon credits valid under the Kyoto Protocol on climate change with a market in voluntary emissions reductions like those traded in Chicago, government and UN officials said on Tuesday.

''It is rather ambitious but we are targeting starting a pilot scheme this summer,'' Khalid Malik, head of the UN office in Beijing, told journalists on the sidelines of a conference launching a new investment programme in Beijing.

Under Kyoto's Clean Development Mechanism (CDM), companies or governments in industrialised nations can fund Emissions-cutting projects in developing countries to gain carbon credits to offset their own pollution or to sell to others with Kyoto targets.

China produced around 60 per cent of such CDM credits in a market that saw 2.3 billion dollars invested globally in the first nine months of last year. There are carbon futures exchanges in Europe but this would be the first in Asia and the developing world.

The United Nations is providing technical and financial support for the Chinese government programme, and Malik said Science and Technology Vice Minister Liu Yanhua was keen to press ahead.

China has kept a low profile in international debate about global warming, spurred by an UN report last week that said humans were to blame, but there is a growing sense of urgency as awareness grows about its vulnerability to droughts and floods.

''Responding to climate change is a strategic priority (for China),'' Ju Kuilin, from the Ministry of Finance's Department of International Cooperation, told the conference.

The exchange will have physical headquarters in the Chinese capital. Its developers are talking to potential investors and looking for firms interested in taking seats, Malik said.

Turnover in emissions markets was over 21 billion dollars in the first nine months of last year, but even with so much wealth to share the new exchange may not be welcomed by foreign competitors or the thriving brokering industry that has sprung up in China.

''This news today was a bit of a shock, it does make you wonder about your future,'' said one manager at a firm that makes its money matching carbon buyers and sellers.

BOOMING MARKET Malik declined to comment on expected turnover, or who exactly would be buying and selling, but added lack of business was not his top concern given the booming market and a UNDP developed pipeline of around 1 billion dollars of emissions projects.

''I'm not too worried about the minimum level of turnover needed, but we need to get the key technology and test it before its goes to scale,'' he said.

A majority of CDM credits so far are from factories producing gases with several thousand times the global warming potential of carbon dioxide but which are relatively cheap to destroy meaning vast profits can be had from eliminating them but the investment does little to promote clean energy.

The exchange is part of the Millennium Development Goal-Carbon project, which aims to change this by building the expertise needed to develop renewable energy projects in China's poorer region that would boost development.

''MDG-Carbon is going to be a premium product...We are trying to do it worldwide but starting up in China,'' Malik said, adding that it might be marketed for people who wanted to reduce emissions in a more sustainable way.

REUTERS SY RK1622