The environmental group, which released the findings of a sector study, said the EU Emissions Trading Scheme (ETS) gives no incentive to move away from the most polluting coal-fired power stations and warned that Poland and other eastern European members were lobbying against a planned overhaul of the system after 2012.

At the root of WWF's gripe is the free distribution of polluting permits to the 27 EU nations.

These can be sold on to other companies who need more than their allocation of carbon dioxide emissions.

"The way in which the national allocation plans are set up is a disaster," said Sanjeev Kumar, Emissions Trading Scheme Coordinator at WWF.

"Handing free pollution permits to power companies is like handing them a cash bonus," he said, adding "cheap profits for doing nothing is scandalous."

The power companies "are simply returning the financial gains to their investors" instead of investing in cleaner technology, he told AFP.

"The revenues from the sales and auctioning of the pollution permits need to be fully re-invested in climate change policies both in Europe and developing countries," he said.

The national carbon emission levels have been set from 2008-2012 with the vast majority of the allocations given out for free.

If emissions produced by a company involved in the scheme exceed agreed levels, that company will face heavy fines, unless it purchases pollution permits as a way of offsetting the excess.

As a result, the allowances have both a carbon value -- every tonne of CO2 is equal to one pollution allowance -- and a monetary value.

That system is set to change in 2013 with the power companies forced to buy their pollution permits, but the WWF fears those plans may be altered, with companies in several countries already lobbying against them.

"We've already started to see a lot of people backing away from it... for example Poland and a lot of the new member states are lobbying very intensively to have less exposure to auctions in the power generation sector," said Kumar.

The WWF commissioned Point Carbon, a provider of information and analysis on carbon markets, to do a study assessing the potential and scale of windfall profits to the power sector in Britain, Germany, Spain, Italy and Poland.

Over the 2008-2012 period the report estimated that profits in the power sector in these countries attributable to the permits could be as high as 71 billion euros.

The ETS is part of a broader energy and climate change package to help achieve the EU's aim is of limiting average global temperatures to two degrees Celsius above pre-industrial levels.

European Union nations have thus committed to cut greenhouse gas emissions by 20 percent by 2020, from 1990 levels.

Under the plans, the use of renewable energies like biomass, wind and solar power will rise to 20 percent of all energy forms. Biofuels will also have to make up 10 percent of fuels used for transport.

They have also offered to slash greenhouse gas emissions by 30 percent if other developed countries agree to deep cuts.

WWF also voiced concern that some European nations are boosting the role of heavily polluting coal-burning power plants.

"There are currently plans to build 40 major new coal fired power stations in Europe in the next five years," said Kumar.

"These are expected to run for 50 years or more and could lock us into decades of soaring emissions," he added.

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