Funding to help energy intensive companies cope with the cost of climate policies must not reward firms already making windfall profits from carbon trading, MPs have warned.
The Government's £250 million compensation scheme is designed to support cement, iron, steel and chemical industries in the face of rising electricity costs.
Power costs are set to rise as suppliers are forced to pay for the carbon pollution caused by generating electricity from fossil fuels such as coal and gas, potentially prompting big energy users to relocate to other, cheaper, countries.
A report by the cross-party Environmental Audit Committee (EAC) backs the Government's bid to support companies facing increased costs to keep jobs in the UK, but warns it should not over-compensate firms which are already profiting from the system.
There is a large surplus of carbon allowances which energy and heavy industry companies must have to cover their pollution under the EU's emissions trading scheme, because more were handed out than were needed once the recession hit.
The MPs said that as a result, companies were able to sell their excess allowances, generating 1.8 billion euro (£1.5 billion) for those firms.
But the Government's proposals to do not take the value of excess allowances into account when calculating compensation, the committee said.
It also warned that the move was a short-term measure to protect firms and did nothing to help them cut their carbon emissions. The EAC called for the scheme to be tightened up to ensure it does not over-compensate firms making windfall profits.
The Government should also set out a strategy for energy intensive industries to help them reduce their carbon emissions as much as is feasible, including energy consumption reduction measures and incentives and support for research, development and investment.
The committee's chairwoman Joan Walley said: "I welcome the Government helping energy intensive companies cope with additional carbon price rises to stop them moving jobs abroad. But it shouldn't throw good money after bad by giving compensation to those already making windfall profits from the emissions trading system when allowances were allocated free-of-charge."
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