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By Michael Szabo

LONDON, Nov 19 (Reuters) - The British government sold 4 million permits in the country's first auction of European Union carbon emissions allowances but held that revenues would not necessarily be used to fight climate change.

The permits, called EU Allowances (EUAs), were sold on Wednesday to industry at 16.15 euros a tonne, raising 64.6 million euros ($81.55 million) for the British Treasury.

Under the EU's Emissions Trading Scheme, companies receive a set quota of permits to emit greenhouse gases which they can trade with other participants, thus putting a price on polluting.

This is the first EUA auction in the scheme's second phase, which runs from 2008-2012, and was open to participants globally.

"Today's first Phase 2 auction demonstrates continued UK leadership in reducing carbon emissions as part of the fight against dangerous climate change," the UK's Energy and Climate Change Minister of State Mike O'Brien said in a statement.

Britain's Department of Energy and Climate Change plans to auction a further 25 million EUAs next year.

It has said that revenues will not be earmarked specifically to develop renewable energy or fight climate change, as some environmentalists demand.

The Austrian government will auction some 400,000 EUAs next month, while the Netherlands told Reuters it will hold a similar auction next year.

The UK Debt Management Office, which oversaw Wednesday's sale, would not confirm the identity of the winning bidders but said the auction was more than four times oversubscribed.

Benchmark EUAs were trading 10 cents higher at 16.65 euros a tonne at midday on Wednesday, recovering from a fresh 20-month low hit earlier in the day.

MORE AUCTIONING

The European Commission allows governments to auction up to 10 percent of the allowances issued in the second phase, to allow industry to prepare for Phase 3 (2013-2020) when EUAs will no longer be issued for free to many participants.

"We want more auctioning in the future - and are already planning to auction 100 percent of the allowances needed by the power sector from 2013," O'Brien added.

Consumers have been paying more as utilities have added to power prices the cost of the carbon permits many of them get for free, resulting in windfall profits.

"Auctioning is seen as a way of killing windfall profits, particularly in the electricity sector," said Andreas Arvanitakis of carbon market analysts Point Carbon.

Others, however, argue that full auctioning gives money to the wrong people, thereby curbing corporate investment in cutting emissions.

"A company that is unable to reduce emissions will now purchase additional EUAs from the Government and that money will no longer find its way to the companies with low cost emission abatement opportunities, but instead be siphoned out of the system by the Treasury," said James Emanuel of CantorCO2e.

"Auctioning undermines (the system) as it takes money away from those who can do something about climate change, the emitters, and gives it to those who can't, the politicians."

European Commission proposals to see full auctioning introduced from 2013 are currently being weighed in the EU parliament, with a vote expected in December. (Additional reporting by Nina Chestney; Editing by Anthony Barker)