With the high growth urbanization and increasing new urban population, the huge demand for infrastructures and dwellings has become a great challenge for the sustainable development in Chinese cities. The building sector shares one fourth of total energy consumption in the country and plays an important role in reducing the energy consumption and the consequential green house gas (GHG) emissions. Some policies have been issued for promoting the low carbon sustainable development in China's buildings. However, existing barriers especially the investment barriers substantially prevent the low carbon technologies and service from being employed effectively. The carbon trading scheme of cap-and-trade is now widely accepted as one cost-effective way to deal with the climate change issue in the world, and it can be utilized for overcoming the barriers to carbon reduction activities in China's building sector. A new Clean Development Mechanism (CDM) energy performance based method is designed for reducing transaction costs in implementing CDM projects in China's buildings before 2020. And then a "step by step" approach is formed to establish the domestic and international carbon trading mechanism to effectively reduce GHG missions in China's building sector after 2020. (C) 2015 Elsevier Ltd. All rights reserved.