CHINA should encourage carbon trading rather than impose a carbon tax for a more energy-efficient economy, a senior executive of the Chicago Climate Exchange said yesterday in Shanghai.

Carbon emissions trading, also known as cap and trade, sets a limit on the amount of carbon dioxide that can be emitted. Companies are able to trade their carbon emissions quota, which can be treated as a futures product, to reap financial benefits.

Trading of carbon quotas, introduced in the Chicago Climate Exchange in 2002, has helped encourage technology upgrading as well as innovation and management to boost energy efficiency.

"Compared with a carbon tax, carbon trading is also easier to bring the total volume of carbon emissions under control," said Jeff Huang, CCX's vice president, at an environment preservation forum yesterday.

Huang said CCX has teamed up with the Tianjin Climate Exchange to study the feasibility of introducing carbon trading into the mainland market.

"Our study finds that the most difficult part currently is to set a price for carbon emissions in different industries," Huang said.

Some Chinese political advisers have called for a carbon tax to be levied on energy-intensive and high-emission businesses.

Jia Kang, director of the Research Institute of Fiscal Science at the Ministry of Finance, said last week that the tax was "obviously necessary" and "feasible" for China, Xinhua news agency said.

Huang countered a carbon tax is ineffective compared with carbon trading.