China's national carbon market started online trading Friday morning, a significant step to help the country reduce its carbon footprint and meet emission targets.

In the first phase, over 2,000 power companies emitting more than 4 billion tonnes per year have participated, making the Chinese carbon market the world's largest in terms of the volume of greenhouse gas emissions.

China is employing market tools to incentivize de-carbonization, as the country advances towards its carbon-neutrality goal by 2060.

The trading mechanism works on the "cap and trade" principle, allowing carbon emissions to be traded like a commodity. 

China's Ministry of Ecology and Environment sets the cap on the total amount of carbon emissions for the year, then companies receive or buy emissions quotas within the cap. A company must provide enough allowances to cover all its emissions yearly or face a fine. They can trade carbon emission allowances with one another on the trading platform.

The Emissions Trading Scheme was rolled out in February after seven pilot schemes were set up across the country. 

The first deal was sealed at 52.78 yuan ($8.16) per tonne, with total 160,000 tonnes of emissions worth 7.9 million yuan traded.