German Economics Minister Wolfgang Clement and Environmental Minister Jürgen Trittin, locked in a months-long battle over the setting of carbon emissions caps on industries, finally reached a compromise on Monday night.

Trittin said the two had agreed to allot companies carbon limits of up to 503 million tons by 2007. In a second phase, the emissions would be limited to 495 million tons by 2012.

The breakthrough came after Chancellor Gerhard Schröder called several members of his cabinet to his office on Monday to settle the long-running dispute over how much carbon dioxide (CO2) the country should be allowed to discharge into the atmosphere.

The emissions caps, introduced after adoption of the Kyoto Protocol to reduce greenhouse gases, are part of Germany's strategy to cut its CO2 emissions by 21 percent of 1990 levels by 2008-2012.

Trittin, a member of the environmentalist Green Party, which is the junior partner in the governing coalition, originally wanted Germany to cut emissions from 505 million tons (the emissions amount in 2000-2002) to 488 million tons in the first phase of the plan during 2005-2007. In the second phase, 2008-2012, Trittin wanted to cut further CO2 emissions to 480 tons.

Clement, a member of Schröder's Social Democratic party (SPD), had come down on the side of German industry and had been adamant about keeping levels at 505 million during the first phase.

He said further emissions reduction requirements would put an undue burden on industry, which is trying to shake off three years of economic stagnation. He has insisted that requiring utilities and other energy-intensive companies to invest in emissions-reducing measures at this time would incur heavy costs on them, push energy prices higher and endanger the country's nascent economic recovery.

Frank-Walter Steinmeyer, head of the Federal Chancellery, attempted to bring the two sides closer with a compromise suggestion of 499 million tons, but that figure was rejected by Clement.

Schröder had called Clement and Trittin, along with Foreign Minister Joschka Fischer and Steinmeyer to the chancellery for a meeting Monday night to settle the issue ahead of the EU's Wednesday deadline.

Emissions Trading

Carbon dioxide is the most prevalent of the greenhouse gases emitted by industry and many scientists believe it is the main culprit behind global warming. Overall, the EU wants to cut 1990 CO2 emissions by eight percent by 2012. To do that, the EU has set forth a two-pronged strategy: placing limits on the amounts of carbon dioxide industry and utilities can release into the atmosphere, and to implement an emissions trading system that would allow companies to buy and sell pollution "credits" from one another.

Companies exceeding prescribed CO2 emissions limit could buy credits from companies who have remained under their pollution caps.

At the start of 2005, utility companies and certain industries -- energy, steel, cement, glass, brick making, paper and cardboard -- will be able to buy and sell emission credits. They must first however apply for emissions certificates, which will allow them to release carbon dioxide in the first place.

According to Norwegian research firm Point Carbon, emissions trading is estimated to reach $10 billion a year by 2007.

But up to now, only eight countries are ready with their allocation plans. These are the United Kingdom, Ireland, the Netherlands, Denmark, Finland, Austria, Portugal and new member state Latvia.

Member states that miss the deadline will likely receive a "letter of formal notice" from the commission, Anthony Hobley, a senior associate in the climate change group of law firm Baker & McKenzie in London, told Bloomberg. The commission will probably negotiate with member states before starting legal action, which would take as long as two years.