World leaders are working to meet a December deadline to replace or extend the Kyoto Protocol, which expires in 2012, with the aim of cutting greenhouse gas emissions and slowing global warming.

With around six weeks to go, nations are still wrangling over emissions cuts from developed countries, pledges from developing countries and funding to help poorer nations tackle climate change.

Concerns over what the carbon market will look like after 2012, particularly the U.N's carbon offset scheme the Clean Development Mechanism (CDM), echoed throughout a conference hosted by Environmental Finance in London.

"The market is obsessed by Copenhagen right now. The sooner there is an outcome the better, as such uncertainty is not exactly helping us do business," a clean energy project developer under condition of anonymity told Reuters on the fringes of the conference.

The CDM allows industrialised countries to invest in projects that reduce emissions in developing countries rather than in more expensive emission reductions at home.

The global carbon market doubled in value last year $126 billion, according to the World Bank, but the CDM market lost about $1 billion in value, dropping to $6.5 billion.

Demand for offset credits under the CDM has fallen due to the lack of clear policy and price signals which would stimulate a pipeline of new investment in developing countries for delivery after 2012.

"Is there a future for offsets going forward? The EU would like to see (CDM) reform but we don't know how that will happen. There is a somewhat gloomy picture," Michael Wilkins, head of global carbon markets at Standard & Poor's, told delegates.

FRAGILE HOPE Conference delegates did not widely expect the Copenhagen talks to result in a new, complete Kyoto Protocol, despite British Prime Minister Gordon Brown's assertion this week that there was no "Plan B", for example to delay Copenhagen into 2010.

The United States could help fuel the momentum of the talks if it were to agree to binding emissions reductions but many also thought that was unlikely.

"That's a fragile hope. There is a suspicion out there that they will only do things on their own terms. That suspicion is probably accurate," said Henry Derwent, president of the International Emissions Trading Association.

Others were more positive about the market's prospects whatever the outcome of Copenhagen talks.

"If there is a continuation of (carbon) markets it will be a patchwork quilt, but it need not be disastrous. There is enough glue to hold these markets together," said Abyd Karmali, global head of carbon emissions at Merrill Lynch.