OTTAWA — A spokesman for Environment Minister Rona Ambrose denies reports that she has promised to establish a carbon-trading exchange in Montreal.

The possibility of using emissions trading to cut greenhouse emissions is under study and no decisions have been made, Rob Klager said in an interview Monday.

"The media reports suggesting that our government has confirmed a climate exchange system or where it might be located, are speculation,'' said Klager.

The speculation came straight from the mouth of the minister.

In an interview published in Montreal's Le Devoir on Monday, Ambrose spoke very favourably about the idea of emissions trading, suggesting that the government was actively working to set up an exchange.

"We need regulation to put in place a market, and that's what we're going to do,'' she told the newspaper. "We are moving in that direction rapidly.''

Ambrose told Le Devoir that federal officials have had several discussions with the Montreal Exchange, but none with the Toronto Exchange, which is also interested in hosting a carbon market.

"Let's say that they (Montreal) have very good chances,'' she told Le Devoir.

Klager said this comment should not be construed as confirmation an exchange will be established in Montreal.

"This remains in the consultative stage, and minister Ambrose has merely acknowledged the interest of the Montreal Exchange and confirmed discussions are ongoing.''

In the past, Conservatives were highly critical of emissions trading, especially at the international level, suggesting it would lead to a large outflow of money for foreign "hot air.''

Advocates of emissions trading say it is the most effective method to cut greenhouse emissions, but it requires strict regulations to ensure that companies have strong incentives to participate.

Under such a system, companies able to cut emissions easily can sell surplus emissions room to others for whom it would be more difficult, thereby reducing the overall cost burden for society.

Emissions trading was used successfully to bring down U.S. acid rain emissions during the 1980s. The European Union already has a large carbon trading market.

Doug Russell of Natsource Asset Management, a major player in the international carbon market, welcomed Ambrose's positive comments on emissions trading.

"It is the most proven, effective way of reducing emissions as long as there is a firm regulatory requirement to reduce,'' he said.

The big question is whether promised federal emissions cutting targets will be strict enough to provide for a broad and deep market, he said.

"A market will work if there is a regulation there that forces industry to reduce.''

The Conservative government has promised emissions-cutting targets for industry next year.