Furthermore, ministers are questioning the scheme's basic design, where national governments allocate emissions permits to their industries after proposing limits, which must then be approved by the European Commission.

"An EU allocation system is preferable above a national allocation system," Dutch Environment Minister Jacqueline Cramer told Reuters, adding that multi-national companies preferred to have the EU set sectoral targets rather than having each country set individual, national ones.

"I hear more and more colleagues that talk about a European system," she said.

The scheme is the 27-nation bloc's key tool to fight climate change and meet commitments to cut greenhouse gas emissions agreed under the Kyoto Protocol.

Governments set a cap on companies' emissions of carbon dioxide (CO2) -- the main gas blamed for global warming -- and those firms buy or sell the allowances based on whether they overshoot or undershoot their targets.

Jan Dusik, the Czech Republic's vice-minister for the environment, said the scheme should be made more centralised and transparent. Allowing the Commission to set emissions limits rather than having countries submit suggested caps through so-called national allocation plans (NAPs) could achieve that aim, he said.

MORE AUCTIONING, HIGHER PRICE

The Commission is conducting a review of the scheme to be presented by the end of this year, which may include a recommendation to add more sectors and gases.

Although consensus has not been reached to scrap the method of allocating allowances, more and more governments support selling them to industry rather than giving them away.

"Allocation should no longer be free of charge; allowances should instead be auctioned," ministers said in a statement issued by Germany, which holds the bloc's rotating presidency.

German Environment Minister Sigmar Gabriel said he favoured 100 percent auctioning of permits. Currently a very low percentage are distributed in that way.

Swedish environment minister Andreas Carlgren told Reuters he supported full auctioning for the aviation sector, which is slated to enter the scheme in 2011, and the energy sector, but not necessarily for other industries in the scheme.

"There should be more auctioning in the next round, but the question is how much," said Dutch minister Cramer. "One hundred percent for all sectors is too optimistic, I think."

Governments appear to agree on at least one principle: the scheme must help the EU meet its goal of reducing greenhouse gas emissions by 20 percent by 2020 compared with 1990 levels.

To do that, the price of carbon must be sufficiently high to give companies an incentive to reduce their emissions or improve their technology.