The report, "State of the Voluntary Carbon Markets: 2007," was released by industry watchers Ecosystem Marketplace and New Carbon Finance

Voluntary carbon market trade occurs outside the UN's Kyoto Protocol which set mandatory emissions limits on developed countries that ratified the pact. Many companies "offset" their emissions by investing in projects elsewhere such as burning methane from landfills. But it is an unregulated market meaning the actual emissions cuts are not always verified.

Companies in the United States, which lacks mandatory limits on the gases and pulled out of the Kyoto Protocol, made up 68 percent of the unregulated carbon market's customers, it said.

The main motives for companies to trade in the market were to enhance their image of environmental stewardship and corporate social responsibility, the report said.

Fewer European customers participated in voluntary markets because companies there have mostly traded carbon on the regulated EU emissions trading market to meet their countries' mandatory Kyoto Protocol targets.

Ricardo Bayon, the managing director of Ecosystem Marketplace, said the report's survey captured about 50 to 80 percent of the world's entire voluntary market.

Some companies are reluctant to reveal their strategies ahead of what could be a billion dollar market in the United States, the world's largest emitter of greenhouse gases, once the country passes mandatory laws.

Trade in the EU's market was worth US$24 billion last year.

CARBON COWBOYS

Critics of unregulated voluntary carbon trade say it is plagued by "carbon cowboys" who offer investment plans in questionable projects that may not cut emissions of the gases scientists link to global warming.

Brokers admit there have been some growing pains as the voluntary market develops, but they expect it to keep growing rapidly as new rules develop on carbon offset quality.

"You have carbon cowboys in regulated carbon markets too," said Andrew Kruger, vice president of the carbon group at Evolution Markets brokers in New York. He said buyers should always do due diligence to avoid buying bad carbon offsets.

The carbon market's main trade body, the International Emissions Trading Association, will issue a Voluntary Carbon Standard this summer that will bring to four the number of rule sets guiding the trade.

"The key thing is the issue of quality. People realize that unless you ensure that, the market will go away," Bayon told Reuters at a meeting in London where the report was released.

Bayon expected the market to grow next year. "It could easily be doubled in 2007 based on the information we have," he said.