"The German government has initiated the first legal steps and initial trades in the forwards market show that the industries are firmly convinced that emissions trading will definitely come," the head of the German government's Federal Climate Working Group Franzjosef Schafhausen told Reuters.

Traders are already brokering first speculative trades of carbon dioxide (CO2) certificates between companies, including German utilities, even though it is unclear whether they will be of value when the EU scheme officially begins.

"Volumes in the forwards market are still limited and it is unclear whether these certificates will be of any value in the future, but current trading activities should be seen as a test," said Michael Weltin, energy policy adviser at German utility E.ON (EONG.DE).

Once the EU scheme is officially put in place and market liquidity is on the rise, a bourse will offer emission rights trading, the energy industry sources said.

The UK's London Stock exchange (LSE.L), German rival Deutsche Boerse (DB1Gn.DE) as well as the country's EEX power bourse are all said to be examining the issue.

But the launch of the EU's trading scheme still faces major hurdles before its launch and some players in the industry doubt that it will start in 2005.

"I believe that January 1 2005 is a very optimistic date, as there are still a lot of bureaucratic and practical hurdles to overcome," said Henning Rentz, head of German utility RWE's (RWEG.DE) environmental policy division.

Following the EU parliament's approval, which is expected as late as autumn 2003, each country in the 15-nation bloc will be under pressure to present plans on how to allocate emission rights in their industries, Schafhausen said.

"Countries by March 31 2004 need to submit a national allocation plan that puts caps on amounts of CO2 their industries, traffic and private households can emit - that leaves little time," he said.