AMSTERDAM - Fraudulent trading in European Union carbon emissions credits in the past 18 months has led to more than 5 billion euros in tax revenue losses for several EU nations, European police agency Europol said in a statement.

Authorities estimate that in some countries, up to 90 percent of the whole carbon market volume was caused by fraudulent activities and warned that the fraud scheme could soon migrate to the gas and electricity sectors.

The fraud occurs when goods, in this case carbon credits, are bought and imported tax-free from other EU countries, then sold to domestic buyers, charging them value-added tax (VAT). The sellers then disappear without paying the tax to governments.

For a graphic on how carbon credit carousel fraud works, see here

Intermediaries such as investment banks and brokers involved in transactions have voiced concerns over having to cover unpaid tax bills.

Europol said it had set up an investigation project to identify and target organized criminal structures behind the fraud schemes.

There are reasons to believe that fraudsters might soon migrate toward the gas and electricity branches of the energy sector, Europol said in the statement released on Wednesday.

France, the Netherlands, Britain and Spain have since changed their taxation rules.

Similar schemes existed involving mobile phones or computer chips. The carbon credit fraud was first detected by authorities in late 2008.

A European Commission working group has approved a proposal to apply a reverse charge mechanism to carbon trading to prevent fraud.

(Reporting by Reed Stevenson)

United kingdom Climate change