The government wants to use the limits to help drag the UK back into line with domestic targets which have slipped out of reach in the last two years.

The UK is on track to meet softer Kyoto Protocol targets, which Europe's trading scheme was originally set up to help meet.

"When we set the (CO2 caps) for 2005-2007, we said we would strengthen them in 2008-2012," said Leigh.

"The expectation is that we will deliver against that," he told Reuters on the sidelines of a greenhouse gas trading conference.

POLICY REVAMP

Leigh said the new CO2 limits, which will cover phase two of the European trading scheme (2008-2012) would form a key part of a revised UK climate change policy designed to deliver a 20 percent cut in CO2 by 2010, from levels in 1990.

The government says existing climate policy is heading to achieve only a 10 percent reduction.

Ministers are also reviewing wider energy policy as they try to wrestle down greenhouse gas emissions while also securing the country's long-term energy supplies.

"It is for the government to decide how to try to meet the 20 percent reduction," said Leigh. Phase two of the EU emissions trade scheme (2008-2012) will be an integral part of the revised climate change policy, he said.

Britain's CO2 emissions rose in 2004, the second consecutive increase. Leigh said there was evidence that power producers, squeezed by soaring gas prices, had burned more coal - which is cheaper but dirtier - last year in a trend that would push up CO2 emissions.

"We have not got provisional figures for 2005 but the indications for the first three quarters of last year are that high gas prices have led to generators burning more coal - that would lead to a higher level of CO2," he said.