Shenzhen, across the border from Hong Kong, is one of China's Special Economic Zones and is home to about 11 million permanent residents. It has committed to reduce the emissions intensity of its economy by 21 percent below 2010 levels by 2015.
Shenzhen's scheme, inaugurated on Tuesday, covers 635 companies in 26 sectors -- including industrial, manufacturing, electricity, natural gas and water supply -- with emissions above 20,000 tons of CO2 equivalent, Renew Economy reports. Together, those companies in 2010 discharged 31.7 million tons of greenhouse gases, 38 percent of the city's total, figures from Bloomberg New Energy Finance indicate.
Under the scheme, emission permits at first will be allocated to companies for free. Those that pollute more than they are allowed will have to buy credits from companies that reduce emissions below the government-set targets.
"This is definitely a big game-changer for China," Winnie Tang, a director with Kind Resources, an investment and deal advisory firm that focuses on carbon emission reduction, was quoted as saying by the BBC.
"It is a clear indication that they are serious about reducing emissions and bringing down pollution levels," she said.
China's six other planned pilot emissions trading schemes planned to begin this year -- in Beijing, Chongqing, Guangdong, Hubei, Shanghai and Tianjin -- together are expected to regulate 800 million to 1 billion tons of emissions by 2015, Bloomberg New Energy Finance said.
That would be the world's biggest cap-and-trade program after Europe's, which covers 2.1 billion tons among 31 countries and accounts for more than three-quarters of global carbon trading.
By way of contrast, Australia's carbon scheme covers 380 million tons and California's covers 165 million tons.
If China's pilot programs "are able to deliver cost effective reductions in emissions without detrimental impacts on the economy then they may well mark the future for China's approach to mitigating climate change and in turn its attitude to an international agreement in 2015," Anthony Hobley, president of the Climate Markets and Investment Association told The Financial Times, referring to the next United Nations-sponsored climate conference to negotiate a global climate pact.
"Let's not forget that the history of successful international agreements is based on countries formalizing what they are actually doing domestically," Hobley said.
China plans to eventually launch a nationwide carbon trading scheme, also around 2015.