BEIJING: China will control prices when it rolls out a broader market to trade air pollution permits, the State Council said on Monday, the latest plan by one of the world's most polluted countries to combat its deepening environmental crisis.

Chinese cities regularly suffer from severe smog, brought on by coal-fuelled heavy manufacturing and ever-increasing traffic, piling pressure on the government to launch more efficient policies to control pollution.

The State Council, China's Cabinet, on Monday confirmed and detailed plans previously announced by the Ministry of Finance to beef up permit trading for pollutants such as sulphur dioxide (SO2) and nitrous oxide (NOx) by 2017.

"By 2017, pilot regions will set up a payable trading scheme in emission permits," a statement on the State Council website showed, referring to China's existing 11 pilot pollution markets - including in Hebei, Jiangsu and Shaanxi provinces - that are currently small-scale and largely ineffectual.

The State Council said the pilot regions must set caps and develop emission verification systems by next year.

Under the scheme, emissions of selected air pollutants from electricity generators, manufacturers and others will be capped. The statement did not specify which pollutants.

The government will give out permits to covered facilities in accordance with the cap, and set a fixed price level at which they can trade permits. The market will allow firms that cut emission levels to sell their surplus permits to others.

But coal-fired power plants have been banned from trading permits with industrial users as China hopes this will lead to a cut in the consumption of coal, which currently accounts for around 80 percent of the country's electricity generation.

China will study incentive policies and explore financial instruments that could be introduced to the market to make it more efficient, the statement said.

The country has over the past year launched seven similar pilot markets for greenhouse gases and hopes to roll out a national market later in the decade, although early indications are local governments have so far handed out too many permits, making the schemes ineffective.

The State Council also said it would launch a national market for water pollution trading, although trading would be strictly limited to facilities situated along the same river.