Iran plans to set up a carbon trading market to reduce industrial emissions of climate-warming gas, an official from Iran's Fuel Conservation Organization (IFCO) told oil ministry news service Shana.

The country has some of the world's largest gas reserves and is a major crude oil exporter. But rapidly rising domestic demand has created a gas supply and vehicle pollution crisis in some cities.

Although Iran has some large hydro-power plants, heavy subsidization of fossil fuels means there is little incentive for private investments in wind or solar power projects.

The European Union set up the world's first carbon emissions trading scheme in 2005 in the hope that forcing industry to buy permits to emit carbon would spur them to reduce pollution.

The EU's success has been limited because too many emissions allowances were issued, driving down the price of permits to levels that give little incentive to cut.

A short but growing list of other countries - including China and India - are also developing their own emissions trading schemes.

"Reducing energy consumption and capping carbon emission are two sides of the coin. When energy consumption declines, carbon emission will also fall," Mehdi Sharif, director of energy efficiency at IFCO, a subsidiary of the National Iranian Oil Company, is quoted as saying.

Under the planned scheme, some industrial facilities will be allocated credits to emit a limited amount of carbon and will have to buy permits on the carbon market to cover any further emissions, Sharif said.

He gave no further details and did not specify which industrial facilities would be included in the scheme.

In January, the EU opened its doors to trading with Iran for a six-month trial period under the Joint Plan of Action between Iran and the "E3/EU+3" (France, Germany, the UK, China, Russia and the U.S.