Experts say the market, which from January 1 will allow trading in carbon dioxide (CO2) and five other such gases, also promises to be lucrative for a number of financial institutions.

The European carbon market is one of three incentives under the Kyoto Protocol aimed at easing companies' costs of reducing CO2 pollution, the main culprit for global warming.

"The emissions trading scheme is one of the key policies ... to ensure that the EU and its member states limit or reduce emissions of climate-changing greenhouse gases," said the European Commission this month.

The Kyoto accord, adopted in 1997, requires three dozen industrialized countries to reduce or stabilise their emissions of CO2 and other greenhouse gases between 2008 and 2012 relative to their 1990 levels.

EU nations agreed overall to an eight-percent cut in emissions while the bloc's governments have set individual emissions targets for 12,000 installations.

Under the new emissions market, a company that works hard to keep emissions low can sell their unused quotas on the carbon market to a firm requiring additional limits to avoid financial penalties for overshooting set targets.

Non-official trading of greenhouse gases is nothing new. Some 2.3 million tonnes exchanged hands in October on the informal CO2 futures market, as much as the first nine months of the year, according to market analysts.

"The market has been growing very quickly since the summer," said Atle Christiansen, a director of independent market analyst Point Carbon.

Currently on the unofficial carbon market, one tonne of CO2 trades for an average price of 8.5 euros (11 dollars), according to James Emanuel, a director for brokerage firm Evolution Markets.

"But the price is fluctuating quite widely," he said. "The lowest is 5.0 euros and it's been as high as 13.4" since informal trading began in February

The European Commission has said it has no view on what the price of allowances should be. "The price will be a function of supply and demand as in any other free market," it says on its website.

Analysts forecast a market worth 50 billion euros during the 2005-07 contract period, with 5.0 billion tonnes of CO2 being traded at an average price of 10 euros a tonne.

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