Drastic action to stop a potential multi-billion fraud was taken by the Treasury yesterday when it imposed a zero rate of value added tax on carbon credits, the allowances issued as part of a scheme to help curb greenhouse gas emissions.

Losses to the exchequer so far are unlikely to have exceeded a few hundred millions pounds but the Treasury said in a statement that "there now exists a substantiated and increasing risk of the UK becoming a major target for the fraudsters during the next few months".