The UK can now proceed with the application, which is aimed at giving its manufacturers a break under the EU's Greenhouse Gas Emission Trading Scheme (EU ETS).

The scheme is part of the bloc's plan to reduce greenhouse gas emissions to meet international commitments under the Kyoto Protocol. The EU's "cap-and-trade" scheme, which took effect from January 2005, allows companies to buy and sell carbon dioxide (CO2) emissions rights on specially constructed Internet sites.

Earlier this month the EU's food and drink association told FoodProductionDaily.com that the scheme is being applied inconsistently across the bloc, hurts smaller companies and should not be expanded to other types of emissions. The Confederation of Food and Drink Industries in the EU (CIAA) is lobbying for changes to the agreement.

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

On 23 November, in a case brought by the UK against the Commission, the EU Court of First Instance ruled the country should have been allowed to request an increase in air-pollution permits from regulators.

Earlier this year the Commission rejected the UK's request for a 2.7 per cent rise in free carbon-dioxide permits for energy and manufacturing companies.

``The commission has failed to explain how that increase, announced seven weeks before the opening of the market, could destabilize the market,'' the judges stated in their decision to annul the regulator's decision.

The trading system covers combustion installations including some food industry plants. Companies that exceed their limits must buy permits from businesses that emit less than their allocations or face fines. They could also chose to cut emissions by taking action on cutting their energy use or by investing in anti-pollution equipment.

While the scheme means companies can spend a lot of money in reducing their emissions or by paying for allocations, those that have reduced their emissions can make monetary gains by selling their excess credits to others. The market in trading emission rights is estimated at about €35 billion (US$43bn) per year.

About 12,000 companies falls under the emission trading scheme, which includes other types of plant installations.

In the UK a total of 51 food and drink plants are covered by ETS, but 36 have opted-out of the scheme in the first trading period 2005 from 2007. The opt-out option would not be available in the second phase of the ETS scheme, which runs from 2008 to 2012, Christoph Tamandl, the CIAA's environmental affairs spokesperson, told FoodProductionDaily.com in an interview.

Exact data for the number of food and drink sites covered by ETS is not available for many member states. However he was able to give figures for France, the Czech Republic, Belgium and Finland.

In France 159 food and drink installations are covered by ETS out of 1100 total plants. The sites represent 14 per cent of the total sites covered by ETS in France and 4,76 per cent of total CO2 emissions under the French National Allocation Plan (NAP).

In the Czech Republic 33 food and drink installations are covered. In Belgium 46 food and drink sites are covered and in Finland 10 sites, he said.

The main food and drink sectors covered by the ETS include plants making sugar and starch, vegetable oils, milk and malt. Breweries are also covered. In general, food and drink sites are covered by the ETS if they are operating combustion installations exceeding 20 Megawatt rated thermal input.

"The number of food and drink sites covered in each country differs significantly not only due to the size of the food and drink sector in the specific country but also because the term 'combustion installation' has been interpreted by member states in very different manners, leading to significant differences in the scope of the ETS in the different member states," he said by e-mail. "This is one of the main concerns of CIAA concerning the ETS. We are thus calling for more harmonised interpretation of the definition of combustion installations across the EU. Comparable sites should be either in or out of the ETS across the EU."

He noted that there are no validated estimates concerning the costs of ETS compliance for small sites. The CIAA is gathering exact cost estimates, especially for small sites in its effort to exclude more food and drink sites.

The CIAA is lobbying the Commission to exclude more of its smaller members by setting a minimum emission level of about 25,000 tonnes CO2/year over which the ETS would apply to plants.

"In general, the administrative burden associated with monitoring, reporting and verification falls disproportionately hard on small sites with emissions below 25,000 tonnes CO2/year," he said.

Under the UK NAP 59 per cent of all covered sites, including the food and drink sector, produce less than 25,000 tonnes CO2 a year and together account for 2.4 per cent of total emissions.

Under the whole EU ETS, sites below 25 kt represent 55 per cent of installations included today, but only 2.5 per cent of total EU CO2 emissions, he said.

"Given the high share of small sites in the food and drink sector, it could thus be estimated that at least 55 per cent to 60 per cent of sites currently covered by the ETS would be excluded from the scope if an exclusion of sites below 25 kt would be introduced," he said. "Their contribution to total CO2 emissions would be insignificant."

The lobbying effort is being made as the European Commission has opened an independent review of the system led by analysts McKinsey & Company and Ecofys. The analysts are examining the impact of expanding the ETS to other sectors and gases, and the actual impact of the programme on competitiveness. They are expected to submit their report by June 2006.

In response, the CIAA says a more fairer definition needs to be applied across the bloc of what plants are caught under the ETS.

Under the scheme individual government make the emission allocations for each firm falling under the scheme. Companies must then surrender their allowances equal to their annual allocations at the end to the year.

The CIAA says the scheme requires a harmonised definition of “combustion installation” across the EU, as some countries have used the loose definition to exclude certain sectors of the food and drink industry. This gives competitors in those countries an advantage over other CIAA members in more restrictive states.

Under the current scheme the ETS is mandatory for many industries, including “combustion installations" with a rated thermal input exceeding 20MW.

Under the scheme EU member state governments are required to set an emission cap for all installations covered by the programme. Each plant will then be allocated allowances for the particular commitment period. The number of allowances allocated to each installation for any given period will be set down in a document called the National Allocation Plan.

However in their NAPs, member states have applied two different definitions of the term “combustion installation”. Due to differences between member states the Commission has allowed two different definitions of "combustion installation" that exceed the 20MW threshold.

One is a medium definition as advocated by the UK and others. This hich covers boilers and small-scale combined heat and power (CHP) installations that use electricity and steam heat.

The UK definition excludes fryers, dryers and ovens. However the wider definition, as applied by countries like the Netherlands, does not make such a distinction. The difference in application would presumably give companies excluded under the UK scheme a competitive advantage over those included under the Dutch method.

"Given the disproportionate costs of the ETS for many small installations, CIAA considers it vital to ensure that the necessary harmonisation of the definition of 'combustion installation' does not result in an extension of the ETS scope to additional small sites," the association said. "Therefore, the harmonisation must be consistent with the exclusion of small sites from the ETS."

The coverage of low emitters is also out of line with ETS' goal of providing operators with an incentive to reduce emissions, the CIAA stated.

"While ETS compliance causes considerable fixed costs for small installations, their emission reduction potential is usually too low to realise compensatory volumes of sales in allowances," the CIAA stated.

Until such a rule is introduced, the CIAA supports a simplification of the monitoring and reporting guidelines for low emitters. For small installations, the current guidelines are too complicated and costly and constitute the heaviest compliance burden, the association stated.

The CIAA also wants the programme to move towards a further harmonisation of allocation methodologies used by the various countries, including

rules on new entrants, site closure and allowance transfer, the sharing of free allowances, base years and the general allocation method.

The CIAA also opposes an extension of the ETS to additional activities, installations or gases during the second phase of the scheme.

The first phase of the scheme runs from 2005 to 2007, and the second phase from 2008 to 2012.

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 would typically be less than 5,000 tonnes CO2/year.

Again, the CIAA argues that the cost burden associated with monitoring, reporting and verification under the ETS would be disproportionate to the marginal level of emissions from these sites.

The CIAA also notes that the primary source of greenhouse gas emissions from the food and drink industry is CO2 from combustion processes already covered under the current ETS.

Another problem concerns the national allocation plans, which the CIAA says show great diversity in the methodologies to allocate allowances to installations. Such exclusions such as benchmarking versus grandfathering, the treatment of new entrants, auctioning, plant closure and allowance transfer and voluntary inclusions are applied inconsistently across the bloc.

"CIAA is concerned about the impact of such methodological diversity on the competitive position of food and drink companies from different member states," the association stated. "CIAA is therefore supportive of moving towards a harmonisation of allocation methodologies, including rules on new entrants, site closure and allowance transfer, share of free allowances, base years and general allocation method."

The CIAA does not support the introduction of an auctioning method for share allocation during the second phase. If auctioning were to be used, the CIAA calls for a harmonised approach throughout the EU.

All of the EU's 25-member countries ratified the Kyoto Protocol on 31 May 2002. In 1996 the EU adopted a target of a maximum 2°C rise in average global temperature.

Member states must allocate allowances to installations by 28 February each year. Member states must ensure that by 30 April each year at the latest, each installation must surrender allowances equal to the total emissions during the preceding calendar year. Installations will have to make the first surrender of allowances by 30 April 2006.

Trading in EU allowances may exceed $5 billion this year, according to the Amsterdam-based European Climate Exchange.

The UK's case against the Commission in the Court of First Instance centred on the fact that the UK was the only member state to submit a provisional plan. The UK's provisional plan was based on interim projections and gave a provisional figure for the total cap on emissions for the first three years of the scheme.

The UK argued that it made clear at the time that work on the projections was continuing, and could lead to further revision of the total cap. The UK's case was that the Commission was therefore required to consider the amendment to the plan and should not have rejected it as inadmissible.