"It means the world's largest privately owned utility will reduce the impact of its gas emissions on the world environment by laying down plantations in NSW," state premier Bob Carr said in a statement received by Reuters on Wednesday.

Under the deal the Tokyo Electric Power Company (TEPCO) will pay A$30 million for an initial 10,000 hectares of forest to be planted, but has the option to plant up to 40,000 hectares worth A$130 million, over 10 years.

Carr said the carbon trade agreement was in line with the Kyoto Protocol, an agreement signed by 83 nations to cut greenhouse gas emissions back to 1990 levels by 2010.

Carbon credits are units equal to the carbon dioxide absorbed by trees, which offsets greenhouse gas emissions.

NSW Minister for Foresty Kim Yeadon said planting of the initial forests would begin immediately.

"Planted forests are a key driver for economic development, particularly in rural NSW. It is estimated that every 50 hectares of forest creates one new job," Yeadon said.

Yeadon said the new forests would help Australia address major environmental problems such as rising salinity in agricultural lands and provide renewable energy systems and additional timber resources.

A spokesman for Yeadon told Reuters that under the deal the state forestry department would manage the new forests, determining what type of trees and where they would be planted.

"The deal is a management agreement whereby land is bought and trees are planted on behalf of TEPCO," he said.

State Forests of NSW is also talking with other Japanese corporations, including Nippon Steel Trading Co Ltd and Oji Paper, as well as European and U.S. firms, he said.