RIZHAO—This seaside resort city facing Japan and Korea across the Yellow Sea takes its name from an ancient poem, "ri qu shien zhao," or "first to get sunshine." More than 2.8 million residents enjoy that early sunshine (even if Gisborne in New Zealand is actually the first to see the sun in the morning) as well as a gentle sea breeze and a host of water sports. But Rizhao is also among the first—ahead of the rest of China and most cities in the world—to pledge to become carbon neutral, that is, to balance the amount of greenhouse gases it emits through industry and other human activities with the amount of greenhouse gases it eliminates.

"The city will try to go carbon neutral," says Fan Changwei, a tall, thin middle-aged lawyer with the city's Environmental Protection Bureau (EPB). "I don't know when we will succeed but we will move in that way."

Rizhao is one of four cities globally—the others are Arendal, Norway; Vancouver, Canada; and Växjö, Sweden—to even attempt the feat, according to the United Nations Environment Programme (UNEP). "Climate neutrality is an idea whose time has come" UNEP executive director Achim Steiner said in February at the launch of the Climate Neutral Network, an effort to connect cities, countries and companies working to achieve this ambitious goal. It is "driven by the urgent need to address climate change," Steiner notes, "but also the abundant economic opportunities emerging for those willing to embrace a transition to a green economy."

There is no question that it's the latter that's motivating Rizhao, which is churning out high-rises amid the former long, low buildings that still make up the majority of its homes and businesses. But these new skyscrapers have an important difference: they were built to utilize the sun's power.

Nearly 100 percent of them take advantage of Rizhao's 260 days of sunshine to heat water for bathing—and 30 percent of those going up in surrounding suburbs and villages also make use of the technology. The effort got underway in 2004 with a solar system made by Tsinghua University in Beijing and employed by the Beijing Shang Shui Hotel. Now, newer solar hot-water heating systems in China cost about $190, around the same price as electric versions only they also save about 348 million kilowatt-hours of electricity a year. "To save money is very important," Fan notes.

By comparison, hot water accounts for 17 percent of the energy used by U.S. homes and buildings, making it one of the largest sources of greenhouse gas emissions, according to the U.S. Department of Energy.

"The first important measure was to popularize solar hot water," says Wang Shugang, chief of Rizhao's EPB. Nearly every building in Rizhao now supports dark arrays of tubing to heat the water, or grill-like units beneath the ubiquitous enclosed terraces of most apartments.

The second important step, according to Wang, was to "shut down many small-size enterprises [that] are really high consumers of coal as well as use central heating. New enterprises don't need their own boilers."

Industries that shut down or moved as a result of the go-green effort include cement, papermaking and steel. The local coal-fired power plant now employs Siemens technology designed to keep a lid on dust and acid rain–forming sulfur dioxide emissions. Food, furniture and other factories have been shifted to industrial parks on the rim of the city, and industrial boilers, in some cases, are being pressed into use to provide hot water for residential heating.

But it is the local Luxin Jinhe Biochemical Company citric acid plant—a key component of beverages like Coca-Cola and Pepsi as well as various medicines—that truly illustrates the concept of a "circular economy." Mold chews up the sugar in cassava, corn and sweet potato in huge vats, turning it into the weak acid. The waste is separated, liquids flowing to so-called biodigesters where microbes break it down into methane and solids are turned to bricks of meal for domestic animals and fertilizer. The methane, or "marsh gas," is then burned to both dry the meal and produce electricity in four generators on site—50,000 kilowatt-hours a day from 882,867 cubic feet (25,000 cubic meters) of gas—while the bags of feed and fertilizer are sold to local farmers.

This citric acid plant is just one of 10 similar enterprises using marsh gas. "To develop a circular economy is a good way for carbon neutral and also for energy conserving and investing in energy efficiency," Fan says. The city also hopes to compress such methane into a liquid fuel and even pipe it to city homes for cooking. Small-scale biodigesters are being used in villages throughout the region.

As a result of these efforts, Rizhao, unlike the rest of China, has seen output rise, energy use fall by nearly a third, and carbon dioxide emissions—the leading greenhouse gas behind global warming—cut in half, according to government statistics.

Rizhao's former mayor, Li Zhaoqian, was promoted to vice governor of Shandong Province, in part in the hope that he'll be able to replicate this success on a larger scale. After all, Rizhao has both enhanced its economy (doubling gross domestic product between 2000 and 2005) and improved the environment, a recipe the rest of China—and the world—has struggled to match.

The seaside city with its enclosed marina is essentially a tourist community (last year 27 million Chinese, primarily from inland provinces, visited), so it may also spread its example to other parts of the world's most populous country. At the same time, no one is accounting for all of the greenhouse gases those same tourists emit when they travel to the resort. Even the thousands of recently planted poplars lining the roads cannot make up for that quantity of fossil fuel burning.

And then there's the shipping; Rizhao is the ninth biggest port in all of China, according to Fan, exporting seafood and other goods to Japan and South Korea. It's difficult to make such shipping carbon-neutral, he notes. "We can't do anything for those ships because they do not belong to us."