Lord Browne, the former chief executive of BP and one of the earliest proponents of carbon trading to tackle climate change, has conceded his enthusiasm was misplaced.

Speaking to the Observer at the government's low carbon industrial strategy summit last week, he said: "My view has shifted over time. Pinning all your hopes on the European Union ETS [emissions trading scheme] and carbon trading is wrong."

Until recently, energy companies and governments all around the world - particularly Britain's - argued that carbon trading was the best way of reducing global emissions. Under the EU scheme - the first of its kind in the world - companies are awarded carbon credits. If they pollute more than their allocation allows, they have to buy extra credits on the market.

But the scheme has been dogged by controversy. In the first phase, starting in 2005, companies were given too many credits, allowing them to bank billions of pounds of credits without having to clean up their act. Now, the price of carbon is so low that it provides little incentive for companies to cut their emissions. In the next phase, companies will have to buy more of their credits, rather than receive them all for free.

In the late 1990s, Browne started BP's internal carbon trading scheme and executives helped the British government design its own experimental scheme, which predated that of the EU.

Browne said last week that carbon trading could play a part, but only alongside legislation and government targets. "It requires consensus, not least selling permits to everyone," he added. "But this is politically impossible; when you issue free permits, it undermines the system. You also have to persuade people that it won't destroy competitiveness."

The reaction to the government's low-carbon strategy was mixed. Jeremy Leggett, chief executive of Solarcentury, said: "It's thrilling to hear the government speak of a green new deal so comprehensive it will transform our economy. Ed Miliband [secretary of state for energy and climate change] says we are in a race, and he is right. But we need more running, less conferring."

It comes as wind developers warn that the plummeting pound and the drying up of project finance is threatening the viability of the major schemes needed to meet government renewable energy targets.

The British Wind Energy Association is working on a detailed package of demands, to be submitted ahead of next month's budget, calling for government loan guarantees and other measures.

The industry has already won a deeper level of subsidies to make the recently launched third round of offshore wind licensing more attractive but its representatives argue that wider action is still required to save existing round-two schemes.