"Out of that, the state can take US$3 billion to use for the Clean Development Mechanism (CDM) fund," China's Ministry of Finance said in a notice on its Web site (www.mof.gov.cn) that announced the official launch of the fund.

The CDM is part of the Kyoto Protocol. It allows rich nation polluters to fund emissions-cutting projects in the developing world in return for credits to put towards domestic quotas.

Beijing levies a fee on all CDM projects and has said it will use the cash to support activities to tackle climate change, from raising public awareness to mitigation and adaptation projects.

Managed by the Ministry of Finance, the fund appears to be profiting from China's dominant position in the CDM market, which the World Bank estimates was worth about US$5.5 billion in 2006.

It is the top producer of credits, with particularly large volumes coming from projects to destroy an industrial gas HFC 23, which is thousands of times more potent than carbon dioxide.

Because the gas is relatively cheap to destroy in proportion to the amount of credits it earns, and projects do little to further Beijing's goal of cleaning up its energy infrastructure, they attract a 65 percent tariff.

TOP EMITTER, NO CAPS

China is set to overtake the United States as the top emitter of carbon dioxide as early this year, the International Energy Agency has said, although on a per capita basis they are just a fraction of Western levels.

Beijing rejects binding caps on emissions, which it fears could dent growth, and instead has been touting greater efficiency and more renewable energy.

World governments are meeting in Bali next month to begin mapping out a plan to succeed Kyoto, which obliges 36 industrial nations to cut greenhouse gas emissions to 5 percent below 1990 levels by 2008-2012.

But on Friday, China repeated its position that rich countries responsible for most of the greenhouse gases already in the atmosphere must do more.

"Only if developed countries continue to take the lead to practically fulfil their emissions obligations can the Clean Development Mechanism gradually mature and continuously develop," the Finance Ministry quoted Vice Foreign Minister Zhang Yesui as saying.

The Bali meeting must pay attention to CDMs so the mechanism can continue to have a role to play beyond 2012, he said.

Among China's recent CDM projects, Handan Iron and Steel Group registered a project collecting waste gas to use for power generation with the United Nations, allowing it to sell credits for cutting emissions, the China Securities Journal reported.

Handan expects to earn 200 million yuan (US$26.64 million) through selling credits over the next five years. It has invested 920 million yuan in the project, which will generate 36 percent of its power and reduce fuel costs.