China is the world's biggest emitter of sulphur dioxide. Coal- and oil-fired power stations were responsible for 11 million of the 25 million tonnes discharged last year, which caused acid rain that affected a third of the country.

Wang Jinnan, vice-president of the Chinese Academy for Environmental Planning, told a seminar in Hong Kong on Wednesday that the proposal was subject to consultation with China's provinces and the power sector, the paper said.

Under the scheme, power generators would have to buy emission rights to cover their expected sulphur dioxide discharges. They would be able to sell any spare quota to other polluters that failed to meet the government's targets.

Wang, an adviser to the State Environmental Protection Administration, said he hoped the scheme would go into effect next year. He estimated it would raise electricity prices by 0.08 yuan a kilowatt-hour.

"The policy will be applicable to existing suppliers, with some allowances reserved for new market entrants," he said.

Among the obstacles to the scheme is the absence of national legislation on emissions trading, the paper quoted another environmental expert as saying.

A parliamentary report earlier this week said more than half China's cities and counties had suffered acid rain, some of them on a daily basis, posing a major threat to soil and food safety.

Hong Kong and the neighbouring manufacturing province of Guangdong plan to launch a voluntary cross-border emissions trading scheme on a pilot basis later this year aimed at clearing the territory's smoggy skies.