The Confederation of European Paper Industries (CEPI) said the trading scheme will take £750m out of the European paper industry, effectively wiping out its annual profits. 

It described it as the "first direct EU tax in history", as it even stipulates how the monies raised should be spent by member states. 

"[The draft legislation] will generate up to £55bn per year in 2020, as the impact assessment shows. This will see the largest amount of money being taken out of the EU economy ever, unprecedented in scale and impact," it said in a statement. 

According to Finland's Pellervo Economic Research Institute, the European Commission's draft CO2 emission quota trading legislation will cause price hikes of between 6% and 12% when it comes into effect in 2013. 

It said the trading scheme would drive energy costs up by as much as 45%.

"The sector can not pass these extra costs on to final consumers, as it does not set world market prices. Manufacturing costs are already high. The profits and success of European companies is therefore very dependent on their local, European, manufacturing," said CEPI managing director Teresa Presas. "Any additional costs from ETS will further weaken the profitability of the EU industry, especially as global competitors do not face these extra costs." 

The rising cost of energy and raw materials is also having an impact in the shorter term, with reports that paper company M-Real has told customers it will be raising prices by between 5% and 8%. 

UPM declined to comment on the market outlook.