How is giving away permits based on prior polluting levels a "massive corporate windfall"? Unless I'm missing something, businesses wouldn't profit from receiving free permits (at least, any more than they do now, from pushing negative externalities onto the public). If they had any permits to sell, it could only be from reducing their pollution through some process (which ostensibly cost money). So they would be rewarded for undertaking this renovation. It would all depend on the price of the permits, which would basically be set by the cost of avoiding pollution. There'd be no tax revenue of course, nor "internalizing" of the negative externality, so it's a second best scenario, but how is it a windfall?