The report by UK-based climate action group Sandbag says the EU Emissions Trading Scheme (ETS), which creates tradable permits for pollution, “is currently a blunt tool, not delivering to its full potential”.

Report co-author Bryony Worthington said: “”With too many rights to pollute in circulation, the scheme is in danger of being rendered irrelevant.

“At a time when other countries are looking to set up their own trading schemes and the world is set to debate a global deal on how to tackle climate change, this flagship policy urgently needs rescuing – starting with much tougher caps.”

Allocations of permits to industrial companies in the ETS have been “consistently too high”, it says.

The recession too is helping create a permit surplus as it forces plants to lower or stop production, Sandbag says.

The group argues the EU needs to set tighter caps to tackle the problem.

The surplus permits are described as “hot air” in the systems as they can be bought and sold without any effort towards real emissions reduction.

Under the ETS power plants and heavy industry must observe emissions limits or buy extra pollution permits to release more.

They can profit by selling them if they emit less.

But Sandbag says many more permit sellers than buyers is cutting the carbon price and giving fewer incentives for low carbon technologies and cleaner energy.

The report estimates more than 700m surplus permits could be available in Phase 2 of the scheme, which runs from 2008-2012.

Industry could make as much as €5.4bn (£4.7bn) from their sale.

It wants the EU target of a 20% cut in greenhouse gas emissions by 2020 raised to at least 30% or to 40% if a deal is reached at the global climate summit in Copenhagen in December.

But Barbara Helfferich, European Commission spokesman for the environment, urged caution pointing to a “relatively stable” carbon price of around €14 per tonne of CO2 in recent months.

She said: “The best measure is the market. If there were an over-allocation of permits you would see the price radically drop.”

Sandbag unveiled a new interactive map last week showing the amount of pollution from each of 12,000 commercial installations across the EU as against the number of free pollution permits granted.

Below are the top five installations with the most surplus permits and the top ten polluters in Europe. Germany features heavily in both.

To read the Sandbag report click here.

Surplus permits in 2008

1. Integriertes Huettenwerk (Duisburg, Germany) – 10,810,776

2. Glocke Salzgitter (Salzgitter, Germany) – 5,100,330

3. ArcelorMittal Gent (Gent, Belgium) – 4,362,231

4. Corus Staal BV (Ijmuiden, Netherlands) – 4,179,278

5. Hüttenwerke Krupp Mannesmann (Duisburg, Germany) – 4,108,262

One permit equals one tonne of CO2.

Top ten polluters (million tonnes of CO2 emitted in 2008)

1. Elektrownia Belchatow (Rogowiec, Poland) – 30,862,792

2. Kraftwerk Niederaußem, RWE (Bergheim, Germany) – 24,866,476

3. Vattenfall Europe Generation (Peitz, Germany) – 23,457,273

4. Drax Power Station (North Yorkshire, UK) 22,299,778

5. Kraftwerk Weisweiler, RWE (Eschweiler, Germany) – 21,440,879

6. Kraftwer Frimmersdorf, RWE (Grevenbroich, Germany – 18,550,352

7. Kraftwerk Neurath, RWE (Grevenbroich, Germany) – 17,950,484

8. Centrale Termoelettrica di Brindisi Sud (Brindisi, Italy) – 14,914,745

9. Elektrownia Turow (Bogatynia, Poland) – 12,879,526

10. Vattenfall Europe Generation (Spremberg, Germany) – 12,461,307

David Gibbs

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