Business leaders have called for Europe to agree targets for cutting carbon emissions by 2030 to secure economic growth.
The CBI said the EU emissions trading scheme, which requires the power sector and heavy industry to buy permits for their pollution to encourage them to cut emissions, was not incentivising investment in low-carbon technology.
The recession has caused the price of the carbon permits to drop to low levels, but the CBI argues that the real reason the trading scheme is not delivering needed investment is because it is too short-term, with an emissions limit only set for 2020.
Rhian Kelly, CBI director for business environment policy, said: "Investors are ready for the low-carbon race, but right now they can't see the finishing line.
"Europe urgently needs a 2030 carbon target to give investors the confidence to get going.
"Emissions trading is key to unlocking business investment in low-carbon technology to help get the economy growing. But at the moment the carbon market is not delivering for Europe because of its short-term focus."
The EU is looking at delaying the auctioning of some of the carbon permits, as there is a surplus following lower industrial activity in the recession so the price for them is currently too low to stimulate investment in clean alternatives.
But Ms Kelly warned that without a long-term plan, the changes to the emissions trading system is just "tinkering" with the market and will not boost investor confidence.
The CBI wants to see a 2030 emissions cap for the trading scheme set in line with an EU-wide emissions reduction target for the same year, to give businesses the confidence to ramp up investment.