A 60 percent price collapse in the EU market in the past three weeks has cast a shadow over the market's growth, as evidence has grown in Europe of over-generous emissions limits and poorer demand than expected for the pollution permits.

To avoid such upsets, the unit suggested countries should issue estimates of emissions every quarter. Verification of emissions is currently done on an annual basis.

"We need quarterly emissions estimates so that there are no surprises going forward," said Karen Capoor, the main author or the report presented at a news conference during a trade fair in Cologne.

Since the prices fell, critics have said EU countries in the scheme gave their industries overly generous pollution quotas.

"We need more emphasis on verification to prevent a systematic inflation with overgenerous allocations," Peter Kreuzberg of utility RWE's trading unit RWE Trading said at the World Bank news conference.

Kreuzberg said the market had been a success. It has just completed its first year after being established by the EU as a cornerstone of efforts to set commercial incentives to tackle climate change.

"Recent events may distract from the success story of developing a new market from scratch over the past 18 months," he said.

GOING GLOBAL

The World Bank figures showed that the global market, although driven by the EU scheme, relies crucially on the contribution of developing countries, which contributed nearly half of greenhouse gases emission reductions last year.

The EU market, which was launched in 2005, was already worth US$8.2 billion at the end of the year. This corresponded to 322 million tonnes of CO2 equivalents and represented an increase of nearly 40 times over the tentative broker-based market that operated in 2004, the World Bank said.

Other significant traded markets were a New South Wales scheme operated in Australia, UK emissions trading, and the Chicago Climate Exchange in the US

Trading in project-based CO2 permits -- generated via emissions reductions in poorer countries where they are cheaper to achieve -- totalled 374 million tonnes, three times as much as the year before.

The biggest buyers of carbon permits outside the EU in the 15 months to March 2006 were Japan, Britain, Italy and the Netherlands, the research showed.