The government announced last week that carbon emissions credits will now be exempt from VAT, as part of plans to clamp down on fraudulent trading in the carbon sector.
In a statement, the UK Treasury explained: "The new law, which takes effect from midnight tonight, follows evidence that commodity trading in emissions allowances is being used by fraudsters to steal VAT revenues from the UK."
According to Reuters, so-called carousel fraud sees traders import goods VAT-free from overseas and sell them to domestic buyers with VAT. The perpetrators than disappear before paying any tax.
The Netherlands and France have also made changes to their VAT rules and Spain is expected to follow in the near future.
Andy Ager, head of emissions trading at Bache Commodities, told Reuters that he welcomed the news, adding that it is essential for the government to take decisive action where matters such as VAT fraud is concerned.
The European Union Greenhouse Gas Emission Trading System commenced operations in 2005.
