The EU's Emission Trading Scheme, launched in 2005 under British Prime Minister Tony Blair's drive to combat climate change, created a trade in carbon allowances. A government minister has promised the next phase will be a big improvement, but the BBC maintains it’s just “a permit to pollute.”
Under the plan, power generators received their allowances free of charge but were allowed to reflect the value of those in increased prices to customers, as if the companies had actually had to buy the allowances.
Energywatch, a consumer group, says this increased electricity bills by about 7% in 2005. According to one UK government estimate, that delivered windfall profits of up to £1.3bn to the generators. So far the carbon scheme has brought no clear payback in terms of cutting emissions.