Tianping Auto Insurance Co (TPAIC), a Shanghai-based insurance company, yesterday purchased 8,026 tons of carbon credits generated from a public green commuting campaign carried out during last year's Beijing Olympics, sealing the first such domestic deal in China's burgeoning voluntary carbon trading market.

The carbon credits, put on auction at the China Beijing Environment Exchange (CBEX) since December last year, were purchased at around $5 per ton, and the total spending amounted to around 277,600 yuan, according to Hu Wu, chairman of TPAIC.

"This will help TPAIC to offset all its carbon emissions from daily operations between 2004 and 2008, making us the first carbon-neutral company in China," Hu said.

During last year's Green Commuting Campaign, initiated by the US-based Environmental Defense Fund (EDF) and China Association for NGO Cooperation (CANGO), 81,670 car users in Beijing voluntarily opted for public transportation between July 20 and September 20, when Beijing was hosting the summer Olympic Games.

This public campaign created 8,895 tons of carbon emission reduction credits, as calculated and verified by the Transportation Research Institute at Tsinghua University.

Mei Dewen, general manager of CBEX, said TPAIC offered the highest price among companies that were bidding for the carbon credits.

The transaction used the verified emission reductions (VERs) price of the Chicago Climate Exchange as a reference, as there was no clear pricing mechanism for such trade in China before, according to Zhang Jianyu, EDF's China program manager.

Buying VERs allows companies or individuals to offset their carbon footprints.

Zhang said the money earned from this transaction would be donated to the Green Commuting Fund, operated under CANGO, to support future voluntary actions in Shanghai, the host city of 2010 World Expo.

Ma Aimin, a division director of the climate change department under the National Development and Reform Commission, said this deal was "a good tryout" in using market-based mechanisms to reduce carbon emissions.

"The country will continue in its efforts to combat climate change during the 12th five-year plan by setting a national carbon intensity target," Ma told China Daily, adding that the NDRC was currently carrying out pilot projects to foster a domestic carbon market.

China, as a non-annex I country under the Kyoto Protocol agreement has been the largest carbon credit provider under the Clean Development Mechanism (CDM) since 2007.

Under the Kyoto Protocol, 38 industrialized nations are required to reduce their greenhouse gas emissions by an average of 5.2 percent below the 1990 levels, between 2008 and 2012.

By using the CDM projects, these countries can meet their emission reduction targets at a much lower cost by investing in clean energy projects in developing countries such as China.

But China lacks the legal and structural framework for carbon emission trading, as well as a sound financial service system for such trade, said Mei Dewen from CBEX, the country's first environmental equity trade institution. This has resulted in China's weak bargaining power in the international carbon market, he said.

"Carbon financing tools, services, institutions and products still don't exist in China," said Mei, "but they are very important factors for the country to build up a low-carbon industrial chain."

Since CBEX started operating last August, a total of 30 million tons of CO2 credits have been traded at the exchange.

(China Daily August 6, 2009)