April 29 (Bloomberg) -- The European Union proposed a new carbon-trading market for developing countries such as China and India to give them financial incentives to reduce greenhouse-gas emissions that add to global warming.

Less-developed nations would set limits for industries, such as steel-making or power generation, and try to undershoot their targets. If successful, they may sell credits for avoided emissions to industrialized countries that need them to meet their own binding limits in a new climate treaty, the EU said.

“Beating the threshold would provide revenues to the developing country through the sale of credits,” the 27-nation bloc said today on the United Nations Framework Convention on Climate Change Web site. “No penalty would accrue in the case the threshold is not reached.”

The EU, home to the world’s biggest carbon-trading system, proposed the “no-lose” plan for poorer nations to expand emissions markets as part of a global warming treaty 192 nations aim to hammer out in Copenhagen in December.

Key to a new deal is bridging divisions among industrialized countries that fear losing competitiveness to developing nations that have no emissions targets and are proposing to keep it that way in the new treaty.

To limit global warming to 2 degrees Celsius (3.6 degrees Fahrenheit) since the start of industrialization, richer countries should agree to cut their output to 30 percent below 1990 levels by 2020, and developing nations should aim for 15 percent to 30 percent below a business-as-usual trajectory by 2020, the EU said.

Under the first system proposed by the EU, called “sectoral crediting,” developing countries would receive credits once they have been measured as having undershot their targets, the EU said.

Under a variation, called “sectoral trading,” nations would be permitted to sell credits from the start. If they then exceeded their emissions limits, they would have to buy credits back to account for the extra emissions.

The bloc didn’t identify which countries would be eligible.

To contact the reporters on this story: Alex Morales in London at amorales2@bloomberg.net;

Last Updated: April 29, 2009 05:59 EDT