A burning issue

Or a disgrace?

Only when the last tree has died and the last river been poisoned and the last fish been caught will we realise that we cannot eat money. Sioux prophecy.

£1bn windfall from carbon trading

Power firms could make a £1bn windfall profit from the EU Carbon Emissions Trading Scheme, BBC News has learned. The windfall is likely because many firms have benefited from increases in electricity prices brought about by the scheme without needing to make any extra investment in return. Peter Bedson, from IPA Consulting, confirmed to the BBC that the unwarranted profit could reach £1bn.

Environmental pressure groups have called the news a scandal.

Part of the problem, Mr Bedson said, is that firms have been given, free-of-charge, the carbon emissions permits on which the scheme is based. This, he explained, is like the government giving energy firms free money. The WWF pressure group has demanded a windfall tax to re-direct the profits into energy conservation.

The Conservatives said it was an example of government incompetence. Their environment spokesman Peter Ainsworth said: "MPs warned the Department of Trade and Industry (DTI) this would happen but they took no notice."

The windfall lies in the design of the EU emissions trading scheme, which works by governments setting a limit for the total amount of carbon that can be emitted from its heavy industry and the power sectors. Instead of banning firms from exceeding the limit, governments hand the firms free pollution allowances up to a certain level. If a firm can cheaply cut its pollution by installing better technology it will have carbon permits to spare. If another firm is overshooting its pollution limit it will need to get hold of extra allowances. The firms can then trade carbon permits on the EU market.

Economists like it because it gives maximum pollution savings at least cost. But a true market scheme would see the permits auctioned, not given away by governments.

It's our children who will pay.