China needs to set absolute restrictions on greenhouse gas emissions  if it is to fulfill its aim to set up a carbon market over the next five years, a cabinet office think tank said in a paper. "It is only under an absolute emissions cap that carbon emission permits will become a scarce resource and possess the qualities of a commodity," the State Council"s Development and Research Center said in a paper in Seeking Truth, a magazine published by the ruling party. China has traditionally baulked  at the idea of emissions caps either on a regional basis or for industrial sectors, invoking a key Kyoto protocol principle that puts most of the burden of cutting green-house gases on developed countries. China, the world 's biggest emitter of greenhouse gases, has also been under external pressure to make stronger commitments in the battle against global warming .The country has been the biggest beneficiary  of the Clean Development Mechanism, a UN-backed scheme that allows industrialized countries to meet their CO2 reduction targets by purchasing certified emission reductions or CERs from low-carbon projects launched in developing nations. However, the European Union, the biggest buyer of CERs, has said it will not accept CERs generated by Chinese projects once the first phase of its Emissions Trading Scheme ends in 2012, though projects already registered will remain valid. How does the CER scheme work?
Countries can buy the right to produce as much carbon emissions as they like. All countries are required to set a carbon emissions cap and can then get certificates on how developed their environmental programme is. Developed countries are allowed to produce more emissions than industrial countries. Developed countries can buy the right to produce more carbon emissions from developing countries that produce less.