The country's top environmental apparatus has published three key documents needed for the national carbon trading market it has been promoting, meaning that the market has gone into operation.

The Ministry of Ecology and Environment on January 5 published an interim regulation on the management of carbon trading. Prior to this, it published an action plan on the 2019-2020 allocation of carbon emission allowances for the power generation sector and a list of 2,225 companies that would be given emission allowances on December 30.

These documents marked the fact that China's national carbon market has opened for business, according to the Environmental Defense Fund's China program.

"The official operation of China's national carbon trading market, the biggest in the world, is one of the most exciting news over the past year," Zhang Jianyu, Special Adviser of CCICED, Vice President of Environmental Defense Fund, said.

Carbon trading is the process of buying and selling permits to emit carbon dioxide or other greenhouse gases. If a company curbs its own greenhouse gas emissions significantly, it can sell surplus permits in the carbon market. If it's not able to limit its emissions, it has to buy unused permits from other companies.

The two documents published late last year mean that of the 2,225 power generation companies who saw their carbon emissions from January 1, 2019 to the end of 2020 go beyond their total free allocation may have to buy permits in the market, he said.

The regulation unveiled on January 5 rules that companies could use China Certified Emission Reductions, which are generated within the China Greenhouse Gas Voluntary Emission Reduction Program, as offset credits. But companies are only allowed to use the certified emission reductions to offset 5 percent of the permits it should buy.

Market-based, the method of carbon trading values cost-efficiency and depends on cutting emissions when the cost is most friendly.

Those companies that bear lower costs in reducing the emissions are usually the major beneficiaries under the mechanism. It is expected that, while cutting emissions, the trading mechanism provides economic incentives that help further bring down carbon reduction costs.

Li Gao, head of the ministry's Climate Change Department, said in a news conference on January 5 that despite the national market currently only includes the power generation sector, preparations have been in process to extend it to other sectors that are major emitters.

The ministry had collected and worked on verification of carbon dioxide emission data from over 7,000 companies in various sectors from 2013 to 2019.

"The work has laid a very solid foundation to expand the national market from the power generation sector to other sectors in the next step," Li said.