At first sight, emissions trading looks like a cop-out. It appears to be a way of allowing rich polluters to avoid their responsibilities by buying pollution permits from poorer, cleaner countries or companies.

In fact, it enables companies with a relatively high cost of reducing emissions to subsidise companies with lower clean-up costs. It therefore achieves more clean-up at less cost.

It is also uniquely well suited to tackling global warming from carbon gases.

This is why the US, which pioneered the technique in the early 1990s to deal with local nitrogen dioxide or national sulphur dioxide pollution problems, had early on insisted that the Kyoto protocol on climate change allow emissions trading.

Subsequently, of course, Washington has pulled out of Kyoto, deciding that even with the flexibility of emissions trading, Kyoto was too constraining. However, unlike nitrogen or sulphur pollution, carbon gases affect the entire planet, and therefore their reduction, through an international emissions trading system, would benefit everyone.

The Kyoto protocol would require developed countries to cut their greenhouse gas emissions by 5 per cent from 1990 levels during the 2008-2012 period. To enter into force, it needs ratification by 55 countries, accounting for 55 per cent of all industrialised countries' carbon emissions. This may happen later this year.

The 15 European Union states are busy bullying and cajoling all their European neighbours which want to join their Union, as well as Japan and Russia, into ratifying the treaty. Even before Kyoto has entered into force, emissions trading has started in what has been called the "pre-compliance market".

This consists largely of companies which feel they are eventually going to be hit by government-imposed ceilings and want to begin hedging against that risk, or companies which want to show themselves to be environmentally responsible.

They are taking part in schemes, usually based on a specific pollution-cutting project often in a developing country, organised by bodies on both sides of the Atlantic.

Such bodies include the World Bank, the Dutch government and - even though the US federal government has opted out of Kyoto - Oregon's Climate Trust and the Chicago Climate Exchange.

Supplying the element of compulsion missing in these schemes, the state of Massachusetts will require power plants to cut emissions and to allow trading as a means of compliance.

In Europe, Denmark has had a small national scheme since 1999, imposing emissions cuts on a few generators. The scheme allows trading, although the different generators' fuel mixes are largely the same, and therefore so are the costs so this does not encourage much buying and selling.

The European Commission has proposed that from 2005 mandatory limits are placed on emissions on all big industrial and energy intensive businesses on a continent-wide scale, which would be able to trade permits.

This month has seen the start of emissions trading in the UK. Keen to give London a head-start in pollution permit trading, but unwilling (in advance of Kyoto ratification) to introduce compulsory emission reductions, the UK government hit upon the novel idea of bribing companies to take part.

It put up a £215m pot of "incentive" money for auction to pollution-cutters. As the result of last month's auction, some 34 companies and organisations agreed to make emission reductions totalling 4m tonnes of carbon dioxide at a price of £53 per tonne.

One of these organisations is, bizarrely, London's Natural History Museum. More predictably, they include BP and Shell which have pioneered internal emissions trading.

By this means BP has reduced emissions from its worldwide operations by 9 to 10m tonnes a year from their 1990 level, and has now committed itself to maintaining this level until 2012. Its commitment to the new UK scheme is to cut emissions from gas flaring in the North Sea by 353,000 tonnes.

Companies in the UK scheme receive emission allowances corresponding to the "cap" on their emissions (which must be met to avoid incurring a penalty) and they can now trade these allowances.

Under-achievers in pollution reduction can buy extra pollution permits, while over-achievers will have permits to sell. In addition, a much larger group of companies which have negotiated emission reductions in order to get a rebate from the UK climate change levy, can trade pollution allowances.

It is too early to gauge whether the scheme will succeed. However, if it makes London the hub for emissions trading, the UK government will judge its £215m well spent.

Eventually these various schemes will have to be brought together, if there is to be maximum liquidity in a world system of emissions trading. The task will not be easy, and it is the price of delays in ratifying Kyoto.