The trading system, under which industrial polluters can buy and sell emissions quotas, is supposed to be the cornerstone of European Union efforts to cut greenhouse gas emissions under the Kyoto Protocol.

But the credibility of the scheme, which got off the ground in 2005 and is still in its infancy, has taken a beating recently because member states have allotted more permits to pollute than industrial plants need.

After reviewing their emission quota plans, the commission said the 10 countries needed to reduce the amount of pollution permits they expect to issue for the 2008-2012 trading period by seven percent overall, a combined decrease of 860.1 million tonnes of carbon dioxide emissions.

The commission told Germany, Europe's industrial powerhouse, to cut carbon dioxide emissions quotas to 453.1 million tonnes instead of the 482 million it had notified Brussels of in its allocation plan.

Britain was the only country of the 10 under consideration that won the commission's approval for its plans to issue quotas for 246.2 million tonnes of emissions. It asked London to to make a minor change in the list of plants subject to the emissions quotas.

The commission was also due to pronounce on France's plans but agreed to give Paris two more weeks to draw up a new version closer to EU demands.

Emissions trading expert Henrik Hasselknippe at Oslo-based consultancy Point Carbon welcomed the commission's tough stance against member states, which he said would "show the world that Europe is leading by example in the global climate challenge".

"The European Commission decision goes way beyond what we had anticipated," he said. "I am surprised by how strict the European Commission has been".

Economists, environmentalists and the commission have warned that EU governments risk undermining the basic economics of the trading scheme, which requires the permits to emit a tonne of carbon dioxide to be relatively scarce in order to have a value on the market.

"In order to have the emissions trading system operating effectively, we need to have scarcity in the market and this is what we are going to secure," Dimas said.

The commission aims to rule on the national emissions quota plans of the remaining 15 EU countries not considered on Wednesday by the beginning of January.

However, Austria, the Czech Republic, Denmark, Hungary, Italy and Spain have not even presented their plans yet to the commission, which has in turn opened legal action against them for flouting an end June deadline.

Climate change has recently climbed high on the international political agenda in the wake of a report from former World Bank chief economist Nicholas Stern warning of looming environmental catastrophe and a key UN climate conference in Nairobi.

Even before that, the EU's trading system was under close scrutiny abroad. California Governor Arnold Schwarzenegger for one is interested in setting up a similar market in the United States, along with a handful of east-coast states.

The United States has refused to ratify the Kyoto Protocol, a United Nations treaty that requires industrialised nations to curb their emissions of six gases blamed for global warming. The target is to bring national emissions down to around five percent below their 1990 levels by a deadline of 2008-2012.

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