"The emissions trading scheme is the most cost-effective way to meet the Kyoto requirements, of getting companies to change their behaviour," said Kim Keats Martinez, managing consultant at ICF Consulting in London.
The 25-member EU kicks off its pioneering trading scheme after months of political wrangling as governments and Brussels juggled the demands of industry and environmental concerns.
Companies fear the scheme would push up costs, while environmentalists want steeper reductions in emissions of CO2, the greenhouse gas blamed by many scientists for global warming.
The scheme could ensure Europe meets its Kyoto target of an eight percent cut in carbon emissions by 2012 compared with 1990.
Environmentalists say lenient CO2 reduction plans from many countries will limit the impact of the first phase of the scheme from 2005-2007 so much tougher measures will be required from 2008 onwards if the EU is to meet its Kyoto goal.
"The trading scheme is potentially a huge step forward in the race to tackle climate change, but it has been undermined by a lack of ambition countries have shown in bringing it into action," said Bryony Worthington of Friends of the Earth.
Germany, Europe's top CO2 polluter, has agreed more generous carbon emissions than many people were expecting while Britain recently watered down its allocation plan after complaints from companies that it was too tough.
Britain's revised plan has yet to be approved by Brussels so UK companies do not know how many allowances they have which make it hard for them to start trading immediately.
Other states whose plans have yet to be approved by Brussels include Italy and Poland.
Under the scheme, industrial sites are set CO2 limits and if they exceed them they either pay a fine or buy quotas from firms which undershoot their targets.
ICF's Keats Martinez agreed that companies will face more stringent CO2 limits from 2008.
"Climate change is a moving target. This is an ongoing project and the first phase (of the trading scheme) is very much a prelude to the more important second phase," he said.
The EU last month said it was on track to meet its Kyoto targets but warned that increased emissions from the transport sector could scupper progress.
Transport is not covered by the first phase of the trading scheme but EU officials have hinted that aircraft, which are big polluters, could be included in the second phase.
Forward trading in CO2 permits ahead of the scheme's launch has gathered pace recently as firms look to learn more about the way carbon prices will impact on future profits and investment decisions.
Power generators, which face some of the stiffest targets as their coal-fired plants are the biggest CO2 emitters, have been particularly active, industry sources said.
Several energy exchanges are set to launch CO2 markets, while brokers are also fighting for a chunk of the carbon business, which analysts say could balloon into one of the world's biggest commodity markets.