Without final allocations, firms do not know whether they need to buy more quotas or will have excess credits to sell.

Italy, one of four EU member states whose plans will not be approved by Brussels by the end of the year, will be left out of the EU emission trading scheme which begins on January 1, 2005.

While Italy's top power companies have said they are more than prepared for eventual cuts -- often investing in plants abroad to gain polluting credits in Italy -- other big producers of carbon dioxide (CO2) are less positive.

"We thought that we were close to solving this, but now we are back on uncertain ground," said Salvatore Salerno, director general of Italian steel producers' organisation Federacciai.

"It is a burden for us, added on to others, including the highest energy prices in Europe."

In Italy's chemicals industry, producers say they fear energy prices could rise further as a result of the delay and further eat away at their competitiveness.

"Italy will also have to negotiate the overall plan and come to some kind of agreement," said Atle Christiansen, research director of greenhouse gas analysis group Point Carbon.

"For all industries, not knowing what the future will hold is not a good thing."

RIGHT TO POLLUTE

Italy's allocation plan is expected to be approved by the European Union in the first months of 2005, experts said, though appeals over specific plant allocations could delay it to the middle of next year.

The emissions trading scheme is a linchpin in the EU's plan to fight climate change and meet its obligations under the Kyoto Protocol, an international agreement that aims to reduce heat-trapping greenhouse gases.

Under the scheme, companies that exceed their CO2 caps can buy emission credits -- essentially the right to pollute -- from firms which end up within their targets. It is designed to help cut the cost of reducing emissions.

Not being on board on January 1 does not mean Italian plants cannot meet their targets -- the deadline for allowances to cover 2005 emissions is April 2006 -- but it does mean they are unlikely to be able to reap prices at their lowest levels.

"What companies are afraid of is that they will not be able to meet their targets because prices are too high," said Ombretta Faggiano, an associate at legal practice Baker & McKenzie in Milan.

"Because if they have to do things just before April 2006, the prices are bound to soar."

Italy earlier this week called for an end to the Kyoto Protocol after 2012, preferring voluntary agreements that would entice the world's largest polluter, the United States, to tackle climate change.

Davide Tabarelli, director of Italian research group RIE, said Italy may have been firing a warning shot for Brussels.

"The Environment Minister is saying that if the (Italian) allocation plan is not approved, they could pull out altogether at a later date," he said.

Italy's Kyoto target is to reduce 6.5 percent of 1990 emission levels. Tabarelli says that since then, emissions have increased by 6 percent.

"So we are 12 percent away from the target," he said. "We are already among those who have lowest emissions, we have the highest prices in Europe -- and price is an effective tool in controlling emission."