It works by allowing countries busting their caps, like Japan, Spain and Italy, to fund projects which cut emissions in countries well within their limits, like most former communist states, and count the cuts as their own.

"I believe we can obtain a status of a country complying with Kyoto protocol requirements in early 2008," Deputy Economy Minister Andrei Sharonov told foreign investors and bankers, adding a Kyoto monitoring mission would visit Russia in July.

Sharonov said Russia aimed to sell quotas for 300 million tonnes of CO2 equivalent to European Union countries. He said 29 projects had been submitted for review to the Kyoto Protocol secretariat already.

Sharonov estimated the European Union's demand at 250-350 million tonnes of CO2 equivalent in 2008-2012 while Russia is likely to have spare quotas for 3 billion tonnes despite strong economic growth.

Projects in Russia which could prove lucrative for investors include burning methane, a potent greenhouse gas, or plugging leaky gas pipelines, also cutting methane emissions.

Russia could make billions of dollars from the Kyoto pact, which aims to stabilise emissions of greenhouse gases worldwide. Sharonov estimated the cost of reducing emissions in Russia at US$5-$15 per tonne compared with US$50-$100 in the European Union.

"Our equipment is really old and it does not cost that much to make the first improvement, for example, to plug a hole in a pipe," said Sharonov

"Foreign firms can come here, increase energy efficiency, save the quotas and sell them in the costly Western market. This is sheer arbitrage," he said, suggesting the government should make sure investors spread evenly among sectors.

However, Russia has been criticised for doing little to create infrastructure and the legal framework for the implementation of Kyoto mechanisms and investors have so far been sceptical.

Sharonov said Russia had already created a nationwide system to count greenhouse emissions as well as a registry, and was therefore on track to meet Kyoto requirements.