The co-author of the report, economist Richard Baron, commented: "The political pressure is very high on aviation and their emissions are rising very rapidly."

The report argues that the auto industry could also be included in the pioneering pollution market and this would increase incentives for manufacturers to increase fuel efficiency.

The proposals appeared in a document this week entitled "Act Locally, Trade Globally" outlining a range of market policies to reduce pollution emissions internationally and nationally.

The first meeting of the countries involved in the Kyoto Protocol since it was ratificed earlier this year, is to be held in Montreal from Monday to December 9.

It will discuss the next emission reduction phase after 2012 of the international legally binding agreement, which the United States has not ratified.

The Kyoto plan includes the use of pollution markets through which organisations that pollute less than the assigned targets may sell s-called "rights to pollute" to organisations which exceed their targets.

Under this market-driven incentive system, created first in a simpler form in the United States, organisations which are cleaner than a given standard gain a competitive advantage, and excessive polluters bear a cost burden.

The EU Emissions Trading System (ETS) joins the two market mechanism of the Kyoto protocol known as Joint Implementation (JI) and the Clean Development Mechanism (CDM). These also allow governments and companies to acquire "credits" of CO2 if a development or energy project in a poor country helps to reduce carbon pollution.

Trading through the EU market began in January and covers the power and heavy-industry sectors that account for about half of the 25-member EU bloc's carbon emissions.

The IEA report says it is too early to judge the effectiveness of the market, while noting some shortcomings in the current system which is to be reviewed by the European Commission in a report due in the middle of 2006.

The IEA report says: "Transport is a priority for climate policy, being responsible for a quarter of global CO2 emissions and the second-fastest growing source after power and heat generation."

Emissions of carbon dioxide (CO2) from the aviation sector rose by 60.0 percent between 1990 and 2002 within the EU while total emissions fell by 3.0 percent.

By 2030, aviation emissions would account for 25 percent of total emissions by Britain.

This "startling potential growth" had led Britain to argue the case for inclusion of the aviation sector in the European carbon market by 2008.

Inclusion of the aviation sector in the system could reduce emissions by 19 million tonnes of CO2 to 27 MtCO2 by 2012 with the majority of these reductions being bought from non-aviation sectors, according to one study cited by the report.

Reduced demand for air transport would account for most short-term reductions from 0.2 to 3.0 percent against a growing baseline. In the longer term, technical and operational measures would account for half of these reductions.

The competitiveness of EU carriers is unlikely to suffer because airlines on the same routes would face the same carbon constraints, although price changes might influence the choice of tourist destinations.

For road transport, the report outlines a range of policy options including a market among car manufacturers making them "responsible for the CO2 emissions of their products" by implementing a "cap and trade" system.

Under this scheme, an overall limit on emissions in the sector is set and then tradeable allowances granted to producers according to the emissions of their fleet. Such a market could be linked to the current EU ETS.

While acknowledging the need for complementary policies in areas such as urban planning and public transport to reduce transport emissions, the report says that such a market system would foster quicker technical improvements in new cars and benefit consumers by providing more fuel-efficient or zero-emission vehicles.

The report also analyses various options for including the developing world in international emission trading schemes to cut greenhouse emissions.

"New types of emissions targets will allow countries that have not ratified the Kyoto Protocol or have not adopted emissions targets yet to participate in international trading mechanisms," the report says.

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