BP's Hayward says world needs a carbon price

DAVOS, Switzerland (Reuters) - The world must establish a price for carbon emissions as part of the drive to ensure diverse and secure energy supplies, BP Chief Executive Tony Hayward said on Thursday.

"We need the world to put a price on carbon," he told the World Economic Forum.

Carbon pricing involves penalising every tonne of planet-warming greenhouse gas emissions, whether using a carbon tax or a carbon market which allocates a fixed quota of emissions permits which countries or companies must redeem permits for every tonne of emissions.

The idea is to tilt competitiveness in favour of clean energy compared to carbon-emitting fossil fuels.

Businesses broadly favour carbon markets because they view these as more flexible than a tax.

A European Union scheme has come under mounting criticism for handing out most emissions permits for free instead of forcing businesses to pay for them, thereby actually benefiting many polluters.

European utilities are earning up to 20 billion euros (18.5 billion pounds) annually in windfall profits from the EU emissions trading scheme, analysts estimate, by passing on the cost of free permits to electricity consumers, a practice the EU will stamp out from 2013 in western Europe.

Oil refiners also benefit, where their allocation of free permits is broadly in line with their emissions.

Recession has cut industrial output and increased surpluses of free permits which some factories have started dumping on the European carbon market in the past two months to raise cash.

(Reporting by Barbara Lewis; editing by Gerard Wynn and Sue Thomas)