While the numbers disappointed some, the EU for the first time had hard numbers on pollution across the bloc, and the European Commission also saw evidence of some pollution cuts, not least following a year of steep oil prices.

"We have to see whether (the targets) were too conservative...or if they (firms) did indeed reduce emissions. It's very complicated research we have to do," said Barbara Helfferich, spokeswoman for Environment Commissioner Stavros Dimas.

The EU's carbon trading scheme is a cornerstone of its climate change strategy, and is supposed to drive emission cuts by giving firms too few permits to pollute, forcing them either to clean up or buy extra permits from others with a surplus.

The scheme's first phase from 2005 to 2007 is seen as a trial period for 2008 to 2012, and green groups consoled themselves that countries can now change their pollution goals in the light of the first phase excesses.

Emerging carbon businesses saw the hard data making pollution goals in future more transparent.

"Companies will no longer be able to hoodwink the Commission," said James Cameron, Vice Chairman of specialist merchant banking group Climate Change Capital.

But the outlook appeared murky on Monday, as large countries sought or announced exceptional treatment under the scheme, highlighting the difficulty for consensus.

NEW RULES

Germany, whose 2005 emissions came in four percent below the country's allocated quota, said it had granted firms about 12 million more permits than necessary for 2005, and it would retroactively withdraw most of them.

Analysts saw inevitable industry opposition, given that the surplus permits were worth over 200 million euros on Monday.

Britain and the European Commission confirmed on Monday they were set to re-open a legal rift on the timing for handover of plans for the next phase of the scheme.

And France confirmed it would look to save surplus permits from 2005 to 2007 for use in the second phase of the market, something all other EU countries but Poland had rejected.

Analysts had expected Monday's news that companies had too many permits to dampen demand for these and so inject pessimism into permit trading.

Instead, in a bizarre twist the market soared nearly 8 euros to a high of 17.25 euros a tonne.

"It's unbelievable, it's rallied 5 euros in two hours on the back of nothing at all," said one trader, who still saw a return to single figures in the near-term.

"It makes for an uncertain situation, it's no way to run a market," he said referring to Germany's decision, which was seen pumping prices on the threat of future permit shortages.

Other fears persisted that the surpluses could jeopardise the EU's international commitments to cut greenhouse gas emissions under the Kyoto Protocol between 2008 and 2012 -- the EU is projected to miss its Kyoto greenhouse gas targets under present policies.

The EU Commission has previously said it would push for tougher caps in the carbon market's second phase from 2008 to 2012, if there was proof member states had been too generous.

"I will be encouraging the Commission to use this information to improve the enforcement of tough caps for Phase 2," said Ian Pearson, the UK environment and climate change minister.