Both companies source Certified Emission Reductions (CERs) from abroad on behalf of carbon polluters that must comply with legislation on covering their production with emission permits, and for carbon funds.

Under the Kyoto Protocol on global warming, companies in rich countries can meet domestic emission goals by buying carbon offsets from developing nations, investing in emission-cutting projects there.

The two firms are independent of the carbon trading arms of utilities and other heavy industry operating under the mandatory European Union carbon trading scheme.

They have signed a letter of intent to carry out a "merger of equals as of Jan. 1, 2008", they said. Factor is meant to work more closely with the project companies while 3C will focus more on its business relationships with banks.

"Consolidation is logical in a market in which a constant presence in countries hosting environmental projects is essential," said Markus Huewener, chairman of 3C.

3C is based near Frankfurt with offices in Chile and the United States. It employs 50 specialists in risk management, trading strategy and finance consultancy, in partnership with project developers in Latin America, India, China, Thailand and Vietnam.

Huewener said that, in addition to one existing 60 million euros fund, 3C planned two more with a total issuance volume of 150 million euros ($212 million) for a launch at the end of 2007.

Zurich-based Factor has marketed 25 projects under the clean development mechanism of the Kyoto protocol, with a market value of over $120 million since 1999, and has 100 projects in the pipeline. It employs 40 people and has offices in China and Brazil