In the lead up to Copenhagen, the International Monetary Fund has produced a report warns about the dangers of over compensating carbon producers by handing out too many free permits.

First, there is the problem of foregone revenue. Governments are actually losing money when they hand free permits and, according to the report, US climate legislation would cost US taxpayers $700 billion in revenues. But secondly, and most importantly, the IMF warns it reduces incentives to adopt clean technologies.

And in the end, the IMF, all it does is screw consumers. The IMF says: "Free allocation of rights in itself does nothing, on the other hand, to shield consumers from increased prices of energy-intensive products. Profit-maximizing firms have an incentive to raise prices to cover the opportunity cost of the permits even if they received them free of charge."

By handing out free permits, governments are essentially just sucking up to big corporations in the hope of them returning the favor.

Significantly, the IMF seems to be strengthening its support for a carbon tax, pointing out that "had a carbon tax rather than the ETS been in place in the EU, for instance, the recent reduction in abatement costs would not have brought about a fall in carbon prices but instead have led to a larger reduction in emissions." And of course, the added benefit for government of a tax is that they don't lose revenue.

Still, we are not likely to see the introduction of carbon tax. No politician wanting to survive in office would introduce them.