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The carbon market in China has "substantial" potential, and will be decisive to the global carbon price once a national system emerges, Rachel Kyte, vice-president of the World Bank, said on Wednesday.

Meanwhile, Australia plans to introduce a carbon tax, which paves the way for carbon emissions trading and sets an example for other countries wrestling with environmental policy options, Kyte said in Beijing.

"As China embarks on pilots of a carbon market nationwide, if these pilots merge into a national system by 2015, it has the substantial potential to help set the carbon price globally or at least set a signal of the carbon price as a substantial factor," Kyte said.

The State Council approved a program this month to control greenhouse gas emissions from 2011 to 2015. It also said there would possibly be a carbon emissions trading market.

Five cities and two provinces have been chosen to test limits on carbon dioxide emissions, probably starting in 2013.

China is taking a comprehensive approach toward a greener economy, putting together all its tools, and will be one of the main places where innovative technologies will come from, Kyte said.

"For example, China's 'green credit' policy to link environment performances to the availability of credit is highly innovative and important because countries like Thailand, Laos, and Vietnam are trying to replicate this policy," she said.

The World Bank will play a helpful role in terms of lowering the barrier for entry to the carbon markets in Australia, China and other places for developing economies so they can benefit from carbon finance, she said.

Although the credit aid to China will continue to be at $1.5 billion a year over the next five years, Kyte stressed in addition to the lending, it is the knowledge partnership the World Bank is forming with Chinese authorities that is so important.

"We can take the lessons we learned in China and replicate them in Southeast Asia and Africa, and Latin America," she said.

"Everybody is looking to China not only for its own story but for how it will shape the agenda for the rest of the world," Kyte said, adding that the current economic crisis will highlight China's role as a global player.

But there is room for improvement, Kyte said, and she urged more rewards - in addition to restrictive policies - for good environmental practice by enterprises.

"You can't ask a company to take more and more responsibilities as it costs more money, and their business model has to be sustainable, which means authorities have to find ways to reward well-behaving companies," she said.

Kyte called for more Chinese banks to sign up for the Equator Principles, a set of guidelines that require signatory banks to take into account environmental and social issues when financing development projects.

"Chinese banks are increasingly global players, and it would be important to see major banks in China adopting a principle that is also globally recognized," Kyte said.

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