As the G8 leaders continue to argue about whether economic development and reduced carbon emissions are compatible the European investment community is apparently convinced that they are after it emerged yesterday that European investment in clean energy technologies is continuing to soar.

According to a new report from The Carbon Trust clean energy investments now accounts for a tenth of all European venture capital investments with €2bn ploughed into the sector between 2003 and 2006, putting the sector on a with the European IT, biotech and semiconductor industries in terms of venture capital investment.

The study, which was carried out by Cleantech Advisers LLC, also predicted that if growth continues at the current rate investment a further €3.5bn will be invested in clean energy firms over the next three years.

The report also found that while the US clean tech investment market remains larger, Europe boasts a more balanced mix of both renewable energy and energy efficiency focused companies.

Adam Workman of The Carbon Trust said that the focus on energy efficiency, driven in part by the upcoming European directive on the energy efficiency of electrical products, was an encouraging sign and suggested Europe was developing a specialisation around power solutions and building innovations.

He added that the diversification of venture capitalists investment portfolios coupled with the emergence of clean tech hubs such as London, Oxford, Munich, Paris and Berlin suggested that the market was maturing. "We're now seeing experienced investors like 3i, Apax and Amadeus, developing clean energy themes," he said. "The market is maturing."

Peter Shortt, managing partner at CT Investment Partners LLP agreed clean tech investments had reached the mainstream. "Five years ago, clean energy was not viewed as a sector that could offer good returns for investors," he admitted. "Today, it is a multi-billion Euro market where new technologies and business models are already exploiting the opportunities presented by the low carbon economy."

The increase in investment should result in a surge of new green products over the next few years, according to Workman. "We estimate that you can get half way to the required 60 percent cuts in emissions through existing technologies, but we need a new wave of technologies to get the other half of savings," he said. "The VC money should accelerate that wave of new products. If we could cut the development timelines by 50 percent that would be great, and of course that's what the VCs want too because that is how they make their money."

However, with investment in clean technology expected to swell by 75 percent over the next three years the report will prompt further concerns that the clean tech market is overheating and could be heading for a dotcom style crash.

Some experts have argued that certain sectors, including wind power specialists and biofuel companies, are already looking over valued and recently UK alternative fuels specialist Biofuels saw its shares plummet after it attempted to hold off bankruptcy through a debt restructuring plan.

But Workman insisted that comparisons with the dotcom crash are largely unfounded. "The market drivers behind clean tech are much more solid [than they were for dotcom companies]," he argued. "There were concerns 18 months ago that things were overheating, but now we're seeing the emergence of the public sector market [for green technologies] and the regulations and policies that are going to take effect. The investors also have pretty reasonable portfolio now and are showing that they understand the market."