The government says the cuts in emissions will be real, not illusory
The UK is to pay industry incentives to encourage it to cut greenhouse gases.
The government says the emissions trading scheme it is launching could enable the UK to make 10% of its internationally agreed greenhouse cuts.
The scheme is voluntary, and the government is to provide up to £215 million ($300 m) to fund it.
It believes the scheme will give British industry a global competitive advantage.
Details of the UK emissions trading scheme were announced by the environment minister, Michael Meacher.
He said: "I expect it to be effective, yielding benefits to business and the environment, and helping to achieve the government's emission reduction targets."
The UK has made two distinct promises on climate change. Under the Kyoto Protocol, finalised last month, it has pledged a reduction (on their 1990 levels) of 12.5% in emissions of six greenhouse gases by 2010.
Big contribution
Its other commitment is domestic, and was part of the manifesto on which the Labour party successfully campaigned in the 1997 general election.
It promises to reduce emissions of the main gas thought to be intensifying climate change, carbon dioxide (CO2), by 20% from their 1990 levels by 2010.
Mr Meacher said the trading scheme could deliver 10% of the Kyoto reductions, and contribute to cutting emissions by a total of 23% over the next nine years.
It will work by setting an overall reduction target for a group of companies, then letting them decide how to achieve it.
They will be able to:
Mr Meacher said the scheme, to start in 2002, would be the world's first economy-wide greenhouse gas trading system, and would give UK business invaluable early experience.
He said: "We expect there'll be an international trading scheme after 2008. If we have something up and running, and effective, we think it could be a model for every other industrialised country.
"All we're doing is getting in at the start - it's a win-win situation for the UK."
Incentives auctioned
The government is providing up to £215 m (equivalent to £30 m annually after tax) over five years from 2003-4 to provide the incentive payments for companies to join the scheme.
It will be allocated next year by auction, with firms bidding on the basis of the level of reduction they believe they can achieve.
Penalties for those who fail to comply include clawback of the incentives, with interest, and a reduction in the following year's allowances.
The government stresses that companies taking part will have to make absolute reductions in emissions against a 1998-2000 baseline.
Asked by BBC News Online why it would be paying industry to join the scheme, Mr Meacher replied: "What company will take on caps on its emissions without incentives?
"We don't want to impose additional mandatory targets on industry at this stage.
Industry welcome
"Trading is about genuine reductions. We're just making sure they're done in the most effective way."
Mr Meacher's announcement was well received by business leaders, with Digby Jones, director-general of the Confederation of British Industry, calling it "good news for business and for the environment".
The Conservative environment spokesman, Archie Norman MP, called the scheme "an important first step".
But he said it called into question the government's climate change levy, which continued "to impose an uncompetitive burden on industry".