Denmark latest to launch carbon fraud crackdown

Denmark yesterday became the third country state to impose new rules to tackle fraud involving carbon credits traded through the EU emissions trading scheme (ETS).

In a move that is bound to cause some embarrassment ahead of next week's Copenhagen Summit, the Danish government passed an emergency law to address so-called "carousel fraud", which has dogged the cap-and-trade scheme in recent months.

According to reports, Danish police are investigating VAT frauds believed to be worth hundreds of millions of Euros. The frauds involve criminals selling EU Allowances (EUAs) on to businesses, charging VAT in the process, before disappearing without passing the revenue on to the government. The process can be repeated a number of times with the same credits - hence the name "carousel fraud".

The fraud first came to light in the summer and prompted the British, French and Dutch governments to quickly impose new rules designed to ensure that VAT is paid by the purchaser rather than the seller. The Danish government has now imposed similar rules, although it is facing criticism for taking so long to address the issue given that other governments acted several months ago.

The European Commission is also considering imposing Europe-wide rules to tackle the problem, although it is likely to take longer for it to secure the agreement it requires to roll out new legislation.