Hong Kong companies that reduce their carbon dioxide emissions in the city can now sell those cutbacks in a $12.9bn global carbon credit market created under the Kyoto protocol. The new arrangements, announced by the Hong Kong government yesterday, are a step towards rectifying an anomaly created by China's "one country, two systems" rule over its special administrative region. Under this rule, Hong Kong companies are treated no differently from foreign companies when doing business in China. This makes them ineligible to participate in the fast-growing trade in carbon credits created under the United Nations' Kyoto protocol, which aims to fight climate change by reducing greenhouse gas emissions. Under the Kyoto protocol's trading system, companies from developed countries earn credits for funding emissions reduction projects in developing countries. They can then use these credits to meet their emissions reduction requirements, or trade them. Environmentalists say that being excluded from the Kyoto market has discouraged Hong Kong companies from improving their environmental performance. The new arrangements mean companies that are incorporated in Hong Kong can register their emissions reduction projects under the UN's Clean Development Mechanism. This applies only to projects that are located within Hong Kong. Hong Kong-owned companies that over the past 30 years have moved their factories into mainland China remain ineligible. Copyright The Financial Times Limited 2008