China has reached a historic landmark in its efforts to reduce carbon emissions with the launch of its first pilot emissions trading scheme (ETS).

The country is the world’s biggest emitter of carbon dioxide and chose the city of Shenzen in Guangdong as the location of the first of seven planned pilot ETS.

Launched on 18 June, the scheme covers both direct sources of emissions as well as indirect emissions from power and heat consumption. The aim of the scheme is to reduce China’s emissions intensity – i.e., CO2 emissions per unit of GDP.

Six further pilot schemes will be located in Beijing, Tianjin, Shanghai, Chongqing, Guangdong and Hubei, with a nation-wide ETS scheduled to start in 2015. In the city of Shenzen, 635 companies in the industrial sector accounting for 38 per cent of the city’s total emissions, will participate in the scheme.

China’s Nationa Development and Reform Commission (NDRC) has set Shenzen an emissions intensity reduction target of 21 per cent over 2010 levels by 2015. The city is already the most energy-efficient city in terms of energy intensity within Guangdong, according to a research note from Thomson Reuters Point Carbon.

"While the official list of covered companies is yet to be published, big names such as PetroChina, CNOOC, China Resources and Huawei will probably be covered, due to their business in the city, which has a population of over 10 million," said Hongliang Chai, analyst at Thomson Reuters Point Carbon. "Despite market uncertainties, we forecast the covered companies will reduce total emissions due to such an ambitious intensity reduction target set by the government."

China has set a target of reducing its emissions intensity by 40 per cent from 2005 levels by 2020.