The Commission has repeatedly said the EU emissions trading scheme and the carbon market it has spawned are here to stay.

That long-term perspective, reinforced by the latest proposed targets, gives support to the market for Clean Development Mechanism (CDM) credits, a key part of the the Kyoto Protocol that gives industrialised nations credit for funding emissions cuts in developing nations, officials said.

"If anything, this is positive news" for CDMs, said Peter Zapfel, policy officer at the Commission's environment directorate, referring to the 20 and 30 percent targets.

"What this means for the CDM market then depends how this 20 or 30 percent goal is translated ... for the emissions trading scheme."

The EU's emissions trading scheme (ETS) covers about 45 percent of the bloc's carbon dioxide (CO2) emissions. If the new targets are applied heavily to power companies and other sectors covered by the scheme, instead of car manufacturers and industries that are not, it would generate CDM demand, he said.

NEW INTERNATIONAL AGREEMENT CRUCIAL

Environment Commissioner Stavros Dimas said a new international agreement to cut greenhouse gas emissions, after the first period covered by Kyoto concludes in 2012, was crucial for the market's growth.

"If there is an international agreement, definitely the demand (for CDMs) will be more, so they will be more expensive," he said. "If there is no international agreement, of course the demand will be mainly from the European Union or other emissions trading systems."

In its climate change paper released in January, the Commission confirmed that Europe's trading scheme would accept CDM credits past 2012. "The EU ETS will continue to be open after 2012 to carbon credits from the Clean Development Mechanism and Joint Implementation projects under the Kyoto Protocol," it said.

Christian Egenhofer, senior fellow at the Brussels-based Centre for European Policy Studies, said even if international talks fail -- and the United Nations climate change framework that allows CDM collapses -- the EU would probably step in. "If the international system is not able anymore to generate these credits, to continue the CDM, the EU would do it on its own," he said. "The EU is willing to take over the infrastructure in case of collapse, (so) the CDM continues whatever happens. That would be a safe bet."

But environmental group Greenpeace said there was a risk Europe would abuse the CDM option.

It says the EU goal to reduce greenhouse gas emissions by at least 20 percent by 2020 should be implemented internally, otherwise the goal of limiting global temperature rises to 2 degrees Celsius above pre-industrial levels could not be met.

"When they came out with a 20 percent unilateral (goal), of course we assumed they meant domestic (emissions)," said Mahi Sideridou, climate policy director at Greenpeace in Brussels.

"A 20 percent that includes external credits as well? We might as well go home."