Analysis
By Alex Kirby BBC News Online environment correspondent

The scheme may be the only way for the EU to cut emissions of six gases to an average of 8% below their 1990 levels by 2012

Without it, there is little prospect the EU will be able to meet its greenhouse gas reduction targets.

The scheme's approval would also set an important example to other countries and encourage similar initiatives.

But critics say it will simply allow highly polluting members to shuffle off their responsibilities.

How it works

Emissions trading works by allowing countries to buy and sell their agreed allowances of greenhouse gas emissions.

The 1997 Kyoto protocol covers six gases

So highly polluting countries can buy unused "credits" from those which are allowed to emit more than they actually do.

The polluters gain by not having to reduce their own emissions. The frugal countries have a handy source of revenue.

The emission limits are fixed under the Kyoto Protocol, the international agreement on tackling climate change.

It covers six industrial gases: carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulphur hexafluoride.

The EU emits about 24% of industrialised countries' emissions of the six gases.

At present the protocol imposes limits only on industrialised countries' emissions, though there are plans to extend it.

Smoke and mirrors

Critics insist that emissions trading is flawed because the protocol's limits are unrealistic.

Countries in eastern Europe, for example, were given allowances which they cannot conceivably use.

The contraction of their economies means they cannot afford anything like the quantities of fossil fuel they are allowed to burn by Kyoto.

So emissions trading, the critics say, is all smoke and mirrors: buying and selling rights to purely notional emissions.

But despite that, the EU scheme may prove the only way the bloc can keep its Kyoto commitment, to cut emissions of the six gases to an average of 8% below their 1990 levels by between 2008 and 2012.

Each of the 15 member states has its own limits within this overall target.

Over-compliance

The European Environment Agency (EEA) says latest projections provided by member states show existing policies will achieve a total cut of only 4.7% by 2010.

Rapid developments in the market can be expected as soon as political agreement is reached

Point Carbon

And most of that decrease would be won by Germany, Sweden and the UK cutting their emissions by more than they need to, though there is no guarantee they will.

If they decide not to "over-comply", the EEA says, the EU's overall emissions decrease by 2010 would be a mere 0.6%.

It says the EU and most of its members are planning additional ways to limit emissions, though their effects are impossible to predict.

Margot Wallstrom, the EU Environment Commissioner, says the proposed emissions trading scheme will be "the most cost-effective way of meeting Kyoto targets".

Global standard

The scheme will cover more than 40% of European carbon dioxide emissions, creating assets worth an estimated $10 billion (�6.33 bn) a year.

Similar schemes are already up and running in several countries, often with mutually incompatible rules.

The EU proposal would help to set a global standard and open the way for the larger system envisaged from 2008 under the Kyoto Protocol.

The Norwegian emissions trading analyst Point Carbon says: "Rapid developments in the market can be expected as soon as political agreement is reached on this proposal."