SHANGHAI - Shanghai on Thursday launched a pilot carbon emission rights trading scheme in a bid to encourage carbon emission reductions.

About 200 major local polluters, including industrial companies whose annual carbon dioxide emissions reach 20,000 tonnes and non-industrial enterprises whose annual emissions total 10,000 tonnes, will take part in the trading, the city government said in a statement.

Each of the carbon market participants will get a free quota for a certain base carbon emission. Companies failing to meet emission cut targets will need to buy quota from those whose emission cuts exceed the targets.

This thus created a new, market-oriented method for major polluters to meet emission cut targets, executives from major steel maker Baosteel said, adding that aggressive emission cutting companies would get earnings from the program.

"This is a landmark step China has made in building a domestic carbon emission trading market," according to Xie Zhenhua, a vice director of China's National Development and Reform Commission, the top economic planning agency.

In November last year, the agency approved the pilot scheme's operation in seven regions: Beijing, Tianjin, Shanghai, Chongqing, Shenzhen, Hubei and Guangdong.

China has pledged to reduce carbon dioxide emissions per unit of gross domestic product by 40 to 45 percent compared to 2005 levels by 2020.