China will likely begin taxing carbon emissions in the next three years, reports China Daily.
A draft of how the system would work is under review by China's Ministry of Finance.
Companies - those that produce or use large quantities of coal, crude oil and natural gas - would pay a gradually increasing tax for each ton of CO2 discharged into the atmosphere.
They would also receive tax cuts when they take steps to curtail emissions.
The government would apply the revenue from carbon taxes to reduce other kinds of business taxes, including income taxes.
A tracking system has yet to be established, a key part of the plan. "Unlike the measurement of pollutants, carbon emissions can be found in all parts of the value chain," Lin Boqiang, director of Xiamen University's China Center for Energy Economics Research told China Daily.
The National Bureau of Statistics plans to run benchmark tests this year to measure carbon emissions and power consumption.
Austalia passed the world's first carbon tax late last year for a major economy, although New Zealand has a similar, much smaller program. Europe has a cap-and-trade program and India taxes coal. South Korea and South Africa are also planning programs that cap carbon, and California leads the US with a cap-and-trade program that begins in 2013.