The California Climate Action Registry was set up by the state in 2001 at the urging of companies that believed gases linked to global warming would at some point be regulated either on a state or federal level.

The United States, the world's biggest polluter, pulled out of the 160-nation Kyoto Protocol in 2001 on the grounds that the mandatory reductions in greenhouse gases would hurt the economy and wrongly excluded developing nations.

In the absence of federal laws, regulations are slowly taking shape in the states.

California last month made the bold move by becoming the first state to mandate a cut in greenhouse gas emissions, equal to 25 percent by 2020.

Arizona's governor signed an executive order this month to cut emissions, while Northeastern states are set to form the first carbon dioxide (CO2) emissions market on power plants.

Traders are salivating at the potential of the greenhouse gas market in the United States.

The European Union, which operates the world's first greenhouse gas market, traded US$8.2 billion worth of greenhouse credits in 2005 -- its first year.

WIDELY RESPECTED

Since California's legislation, companies like natural gas company El Paso and printer and office services provider Xerox Corp. have signed on to the California registry, joining other energy firms like Reliant Energy and Shell Oil Co.

Companies document their greenhouse gas reductions on the registry, which also verifies them through a third party.

More than half of the emissions the registry has logged so far have come from outside the state, the Californian registry source said.

"Our standards are so broadly respected, that people feel it's the best place to log their reductions even they are outside the state," the source said.

By logging their reductions, companies also hope to avoid the "penalties" early actors got in the first cap and trade pollution market for sulfur dioxide (SO2) emissions.

When that market launched last decade, companies who voluntarily reduced emissions before the government handed down caps on them didn't get credit for their early actions. So when the rules kicked in, they had to work harder than companies that had done nothing.

Alexander Rau, a founding partner at Climate Wedge, which manages a voluntary carbon fund with Cheyne Capital, said at the 2006 Global CO2 Cap and Trade Forum in Washington that an expansion of the registry could lead to good coordination once trading in the United States begins.

He said a lack of communication between similar registries in the European Union led to liquidity problems when the carbon market there got underway.