The group criticised the second phase of the EU's Emissions Trading Scheme (ETS), designed to reduce the EU's greenhouse gas emissions, for allowing companies to "buy massive amounts of credits from projects outside the EU," under a system set up by the Kyoto Protocol.

In its report titled "Emission Impossible", the WWF argues that "this reliance on cheap imported credits means that European industry may not have to reduce its own emissions at all" during the second phase of the carbon-trading mechanism, which is set to run from 2008 to 2012.

Under the ETS, companies are issued carbon credits which effectively set a cap on how much they are allowed to pollute. Companies may then either reduce their own emissions and sell any extra credits to other, bigger polluters, or purchase extra credits, thereby raising their cap.

The first phase, which has been running since 2005, was widely criticised because it has been argued that governments handed out too many carbon credits, allowing industry to pollute more freely than it should have been allowed to.

The WWF report studied nine EU member states -- Britain, Germany, Poland, Ireland, France, Spain, the Netherlands, Portugal and Italy -- and estimated that during the second phase of the ETS, between 88 and 100 percent of those countries' carbon emissions could be effectively offset by purchasing additional credits from outside the EU.

"The European Commission's decision to allow companies to buy huge volumes of project credits means that heavy industry -- including the power sector -- could potentially buy its way out of cutting its own emissions," said Dr. Keith Allot, the head of WWF-UK's Climate Change Programme.

"There is a real danger that this will lock the EU in to high carbon investments and soaring emissions for many years to come -- wrecking the EU's emission reduction targets for 2020 and 2030 and making a mockery of Europe's standing as a world leader in tackling climate change.

"If the ETS is to fulfil its potential, we must ensure it leads to real carbon emission reductions within Europe."

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