Emissions allowances should be allocated to a greater extent on the basis of uniform calculation methods, said Germany's federal environment minister Sigmar Gabriel.

"Allocation should no longer be free of charge," Gabriel said. "Allowances should instead be auctioned. The specification of the emissions caps also has to become more transparent."

He made the statement during a three-day meeting of EU environment ministers, which ended 3 June in Essen. Germany currently holds the presidency of the EU and is responsible for bringing initiatives to the table on matters of policy.

Currently, the EU's ETS system only allows 10 per cent of permits to be auctioned on the market. The rest of the allocations are made by country, then by sector, and finally by individual company.

"Not only do we want to make the European Union the most competitive economy in the world, we also want to be pioneers in resource efficiency and ecological innovation," said Germany's federal environment minister Sigmar Gabriel.

Gabriel called for more efficient calculation methods across the EU when establishing emissions caps for the individual countries. Under the current system member states calculate and propose specific CO2 emissions caps on their national industries.

The European Commission then reviews the allocation and has the right to reject member state proposals and suggest a different figure.

The system has led to problems in its initial stages, with countries over allocating limits to themselves, lessening the need for companies to make major changes in the manufacturing plants.

Countries have also disputed the Commission's allocations when it has made adjustments. Poland and Czech Republic this month said they would sue the Commission over their allocations.

The Commission is currently reviewing the ETS system and plans to make new proposals to improve its functioning after 2012. Germany is the largest participant in ETS.

The EU's ETS is part of the bloc's plan to reduce greenhouse gas emissions to meet international commitments under the Kyoto Protocol.

The "cap-and-trade" scheme, which took effect from January 2005, sets limits on each manufacturer's CO2 outputs. Companies can then to buy and sell CO2 emissions rights according to need on specially constructed Internet sites.

Plants that emit more CO2 than their allocation need to buy allowances to cover the extra emissions. Companies that emit less than their allocation are able to sell the allowances to companies that need them.

Under the system the Commission first set country limits. Then each country allocates emission rights to particular plants and companies.

The food processing industry is an energy consumer and discharger of greenhouse gas through its reliance on cooking, refrigeration, freezing and air compressor systems.

ETS is mandatory for food and drink companies operating combustion installations with a rated thermal input exceeding 20 MW.

The importance of the scheme for the food and drink sector is reflected in the fact that, for instance, in France 13.6 per cent of all ETS installations are food and drink sites.

In the UK the food and drink industry make up 3.1 per cent of the estimated allocations.

Preliminary data from the first year of the EU's greenhouse gas trading scheme served to highlight problems in the allocation of plant outputs and in the tracking of CO2 emissions.

The data indicated that the Commission had set allocation limits at too high a level. Figures published in May 2006 showed that CO2 emissions were 44 million tonnes under the level permitted in 2005. The result was that carbon prices under the trading scheme fell dramatically, reducing the incentive for companies to cut emissions.

This year the Commission proposed to cut greenhouse gases by 20 per cent by 2020 compared with 1990 levels. Germany supports a 30 per cent reduction, according to Eupolitix.com, an online newssource.

Under the scheme companies can be fined about €40 per excess tonne of CO2 emitted, a price above allocations being traded on the market.

During the second phase the Commission plans to include additional, smaller sites below the current capacity threshold. Below a rated thermal input of 20 MW, actual direct emissions wouldtypically be less than 5,000 tonnes CO2/year.

The second phase of the EU ETS will be expanded to cover additional activities at 160 installations, estimated to be responsible for collectively outputting 9.5 million tonnes of carbon dioxide. The plants are currently not covered in the current phase of the scheme.