SHANGHAI will start a pilot carbon-trading program before the end of June as part of efforts to reduce the intensity of energy use and emissions.
Related regulations and rules for the trading on the Shanghai Environment & Energy Exchange will be rolled out within the year, according to the Shanghai Development and Reform Commission.
The city was one of seven provinces and municipalities chosen by the National Development and Reform Commission in late 2011 to set up carbon trade markets.
China's government expects to clean up the environment with a market-based approach rather than prescriptive command and control regulation.
Regional trials are in preparation for creating a national market.
In carbon trading, a cap is set on the amount of carbon dioxide that may be emitted and then the limit is allocated to participating firms in the form of carbon credit - or the right to discharge a specific volume.
Companies with excessive emissions must buy credits from others.
Shanghai aims to cut energy use per unit of gross domestic product - or energy intensity - by 3-3.5 percent this year and reduce carbon intensity by 3.5 percent, the Shanghai commission said.
The government said last year about 200 local companies, such as steel makers and hotel operators, will participate in the trials.