By Julian O' Halloran
BBC File On 4
The EU's carbon trading scheme has increased electricity bills, given a windfall to power companies and failed to cut greenhouse gases, it is claimed.
The government's own figures show an increase in greenhouse gases
An investigation by BBC Radio 4's File on 4 programme has found that after two and half years the scheme has yet to cut in carbon dioxide emissions.
The consumer body Energywatch said customers are getting a raw deal.
But a government minister has promised that the scheme's next phase will be a big improvement.
The EU's Emission Trading Scheme - a key part of the UK Government's drive to combat climate change - began in 2005 and created a trade in carbon allowances.
It is essentially a permit to pollute.
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 believes this increased electricity bills by about 7% in 2005.
And according to one government estimate, that delivered windfall profits of up to £1.3bn to the generators in that year - higher than environmental campaigners had claimed last year.
However, so far the carbon scheme has brought no clear payback in terms of cutting emissions.
Provisional government figures from the Department for Environment Food and Rural Affairs (DEFRA) suggest CO2 output in Britain actually went up, by 1.25% last year wiping out a slight drop of 0.01% in 2005.
It is also reckoned that CO2 emissions across the EU also rose by between 1 and 1.5% over the last two years.
The chief executive of Energywatch, Allan Asher, said , "Consumers increasingly accept the need for reductions in carbon.
"However they are paying the price and not seeing the benefits. The big generators are banking huge amounts of money and consumers aren't benefiting."
But the Minister for Climate Change, Ian Pearson, told File on 4 that the carbon trading scheme has been an administrative success yet concedes there have been problems in the first three year phase to the end of 2007.
"If you are saying to me it hasn't achieved a massive amount so far when it comes to CO2 reductions, well I agree with you and I think Phase Two will be a big, big improvement...and a key instrument in helping us all to achieve our carbon reduction targets across Europe."
File On 4 is broadcast Tuesday 5 June 2007 at 2000 BST and repeated on Sunday 10 June 2007.