Dominated by steel and cement makers, the same "carbon fat cats" stand to collect surplus CO2 permits that -- at current market rates -- could be worth 3.2 billion euros (4.3 billion dollars) by 2012, it said.

This is roughly equivalent to the entire EU investment in renewable energy and clean technology under its economic recovery plan, according to Sandbag, a non-profit group in Britain that analyses carbon market policy.

"Emissions trading is meant to be the central policy for cutting CO2 levels," said Anna Pearson, Sandbag's top policy analyst.

"The fact that companies are able to make large sums of money for doing nothing highlights that the trading scheme must be reformed and EU climate change target strengthened."

Under the Emissions Trading Scheme (ETS), the European Union allocates carbon polluting allowances to member states to meet obligations laid out in the UN's Kyoto Protocol, for which the first commitment period runs through 2012.

The states then assign quotas to the industries that belch the most CO2 into the atmosphere.

Companies that emit less than their allowance can sell the difference on the market to companies that exceed their limits, thus providing -- in theory -- a financial carrot to everyone to become greener.

But the energy, steel and cement sectors that dominate the system, hit by the global crunch, are emitting less CO2 than forecast, which means surplus carbon permits are flooding the market.

Among the top ten beneficiaries, steelmaker ArcelorMittal collected more than 40 percent of the 2008 excess permits, reported Sandbag.

French cement giant Lafarge got about 12 percent, with Tata steel group subsidiary Corus and Swedish steel maker SSAB-Svenskt Stal each claiming about 10 percent.

Even if the permits are not directly resold for profit, the value will still remain on the companies' books, rising or falling with the market.

Most of the permits were generated simply because the companies were allocated more free permits than they wound up using, according to the report.

"Little or no actual 'effort' toward emissions reductions need have taken place, yet these companies will be able to literally bank the profits," it said.

The price of a tonne of carbon dioxide (CO2) or its equivalent has fallen sharply over the last 18 months.

After peaking at nearly 30 euros (38 dollars) in mid-2008, CO2 is currently trading at about 13 euros, according to BlueNext, one of several European carbon exchanges.

Viewed narrowly, the recession-driven drop in CO2 emissions helps the environment.

But low carbon prices give businesses little incentive to develop and install new technologies to slash future emissions.

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