Fortis Bank estimates its share of the market, launched on Jan. 1, at between a quarter to a third of daily volumes and forecasts climbing liquidity and prices as the market matures, Seb Walhain, director environmental products told Reuters.
Companies can trade CO2 allowances under an EU emissions trading scheme which is the centrepiece of the EU's strategy to meet its Kyoto Protocol targets on reducing global warning.
The market is dominated by big utilities and financial institutions, the most active of which include Fortis, Barclays , Dresdner Kleinwort Wasserstein and Sampo Bank.
"We aim to be a market leader in the European CO2 market. We want to be there before anyone else," Walhain said.
"We do just forward trading at the moment. There is no spot market yet, there are no exchanges yet, there is no clearing yet but the market is growing incredibly fast -- the liquidity is increasing, it is becoming a very booming market," he said.
Daily volumes have jumped to an average of 300,000-500,000 tonnes of CO2 permits since the start of the EU market, compared with only about 350,000 tonnes a month half a year ago, Walhain said.
Fortis Bank has so far traded some 5 million tonnes of EU allowances and made around 300 transactions, two-thirds of which was mainly speculative forward trading and the rest was on behalf of clients, he said.
The bank's main clients so far include several European energy companies and pulp and paper producers. It is also in talks with ferrous metals plants, glass and ceramic makers.
Walhain expects the market to pick up and a spot trading to develop once permits are delivered to firms and national registries for the allowances are established in March. The kick off of exchanges will also add liquidity, he said.
Four European power exchanges are competing to be the main marketplace for EU CO2 trading -- Nordic's Nord Pool, Germany's EEX, Austria's EXAA and Britain's International Petroleum Exchange which has set up an emissions trading venture, the European Climate Exchange, with Chicago's Climate Exchange.
But Walhain said what the EU CO2 market needed was one pan-European exchange and the bourses would have to consolidate if they wanted to survive.
He also forecast increasing prices as the market matures and more players get involved.
"We feel that the CO2 credits are undervalued. We also think that there is big future in carbon funds, that's why we set up a fund to buy carbon while they are cheap and sell them later when they are more expensive".
Fortis put 50 million euros in the establishment a 100-million euro European Carbon Fund late last year, which aims to attract financial institutions and fund managers willing to invest in a portfolio of between 15 to 20 CO2 projects by 2012.
The fund was set up by a consortium of financial institutions, led by Fortis and French bank Caisse des Depots et Consignations (CDC).
The EU trading scheme forces about 12,000 factories and power plants to lower the amount of CO2 they pump out and hold permits for every tonne of carbon they produce.
Firms which exceed their limits must pay for the right to do so by buying extra allowances from companies which undershoot their limits. Companies without enough allowances to cover their annual CO2 output face hefty penalties.