The Government provoked protests from campaign groups yesterday as it began Europe's first auction of carbon emissions permits but admitted that the proceeds would not necessarily be used to tackle climate change.

The Treasury said that it had raised £54 million through the sale of four million permits for £13.60 per tonne under the next stage of the European Union's Emissions Trading Scheme (ETS). Yesterday's auction marked a departure from the policy of handing out the permits to industry for free. By 2012, in the second phase of the scheme, 85 million permits will be auctioned, possibly raising more than £1 billion for the Treasury. From 2013, this figure is expected to rise to about £2.5 billion a year, according to WSP, the environmental consultancy.

Campaigners said that the Treasury's decision to put the proceeds into its coffers rather than ringfencing them for use in environmental projects plays into the hands of critics, who fear that the ETS will be treated as little more than a green tax.

Robin Oakley, the head of Greenpeace's climate change team, said: “Investing in new low-carbon technology while making our homes and businesses more efficient is good news for our country and for the wider fight against climate change, but by hoarding revenues from the emissions trading scheme this Government is eroding trust in the concept of green taxes.”

Lisa Harker, the co-director of the Institute of Public Policy and Research, agreed that Britain should follow the lead of the Netherlands and Germany, which have pledged to spend the cash on measures such as improved energy efficiency and alternative energy projects. She said: “This is a great opportunity to help poorer households make their homes cheaper to heat and warmer, and create jobs through investment in new green technologies.”

Mike O'Brien, the Energy Minister, brushed aside any criticisms. “Today's first auction demonstrates continued UK leadership in reducing carbon emissions as part of the fight against dangerous climate change,” he said.

“The EU ETS is central to keeping the price of tackling climate change as low as possible to industry and the economy. We want more auctioning in the future and are planning to auction 100 per cent of the allowances needed by the power sector from 2013.”

The scheme puts a cap on the emissions from about 12,000 factories and power plants across the EU responsible for about half of the region's emissions. Companies receive a set quota of allowances that they can then trade, thereby creating a price for polluting.

The European rules governing the scheme allow member governments to auction up to 10 per cent of the allowances that allocated from 2008 to 2012. From 2013, the EU, which has committed to cutting its carbon emissions by 20 per cent by 2020, is expected to move towards 100 per cent auctioning of the permits, which will raise tens of billions of pounds a year for member states. Next year, the British Government plans to auction 25 million permits - a process that would raise £335 million at yesterday's prices.

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