Emissions trading: China's once red-hot CDM market cools, but domestic trading may soon fire up [or not]

China, by far, sold the most carbon credits through that mechanism. Carbon traders jokingly referred to the CDM as the "China Development Mechanism." But with the clock ticking toward Dec. 31, 2012, when the first phase of the protocol is due to expire, the once biggest beneficiary of the program is watching business fade.

"Many Chinese CDM consulting companies now face tough times," said Chen Hongbo, a carbon trading expert at the Chinese Academy of Social Sciences, a key think tank in Beijing. "Those companies have difficulties to find buyers for their new projects. And for projects that have been signed, many buyers broke the contracts."

It is unclear how many CDM consulting companies in China have been forced out of the picture as the expiration of the Kyoto Protocol approaches, but there is evidence of shrinking activities. Yang Zhiliang, chairwoman of Accord Global Environment Technology Co., knows this well because her company is among many whose business turned south.

...Today, however, the landscape is markedly different. Those matchmakers she used to work with are out of business, Yang says. Although her company still has enough work to do this year, it is viewed merely as the last meal before fasting.

"If a project is successfully registered in the CDM program before Dec. 31, then carbon credits it generates can still be sold after 2012," Yang said. "So we are now helping clients register as many projects as possible."

But after 2012, Yang added, whether her service will still be in need remains a troubling question. Although ministers from all over the world agreed last year at the Durban, South Africa, U.N. climate conference to work out a way for renewing the Kyoto Protocol by 2015, it remains unclear which countries would be allowed to continue selling carbon credits under the renewed treaty.

"If carbon credits from China will no longer be accepted after 2012, whatever we do to generate credits will just be wasted," Yang said. "It makes no sense to start new projects without a legally binding commitment in place."