Prime Minister Yasuo Fukuda's government is drafting a framework to fight global warming -- dubbed the "Fukuda Vision" -- to cover the period after the Kyoto Protocol's requirements expire in 2012, the Nikkei business daily said.

The government wants to include in the Fukuda Vision the introduction of a cap-and-trade system, which would require major businesses to reduce emissions while allowing the trade of emissions credits, the newspaper said.

The government wants to come up with an action plan on global warming before Japan hosts the July 7-9 summit of the Group of Eight rich nations, where climate change will be a key topic, it said.

The Nikkei, which did not identify its sources, said that steelmakers and power companies, seen as the harshest critics of mandatory emissions cuts, had agreed to talk about starting a cap-and-trade system.

But Nippon Steel Corp and Tokyo Electric Power Co (TEPCO) both quickly denied the report.

"The report said the company under certain conditions supported a cap-and-trade system to be stipulated in the Fukuda Vision on global warming, but that is untrue," said a statement by TEPCO, the world's largest private power company.

Carbon emissions trading has been an expanding market in the developed world, particularly in the European Union.

Tokyo's governor, Shintaro Ishihara, recently decided to launch a cap-and-trade system for the capital alone despite the lack of support from the central government.

Japan is far behind in meeting its Kyoto obligation of cutting emission by six percent by 2012 from the 1990 level as its economy steadily recovers from recession in the 1990s.

Some industry leaders and bureaucrats have argued that Japan, instead of pushing for mandatory cuts, should champion its "sectoral" approach of improving efficiency in each industry sector.

But the Nikkei said the industry ministry and the Japan Business Federation have "changed tack, raising the likelihood that such a system will be introduced."