The Confederation of Paper Industries (CPI) said that for many energy-intensive manufacturing industries, it's not always possible to pass the increased costs of purchasing allowance into product prices without losing a significant amount of market share.

The paper industry representative said the cost to the UK paper industry, that has to purchase all required allowances, could be in excess of £100m annually.

David Morgan, CPI head of regulatory affairs, said: "This will be completely unaffordable.

"However, many member states are now recognising the huge costs to manufacturing industries of having to purchase all their allowances."

He said the government should support UK manufacturers in these difficult economic times by leading the call for free allocation.

This would help secure the future of industries such as papermaking and prevent significant job losses.

The UK paper sector's energy efficiency has improved by 38% since 1990, according to the CPI.

It also said that direct carbon dioxide emissions from the UK paper industry make up around 0.5% of total UK emissions, while 44 of the UK's 52 paper mills are in the EU ETS.