(THE HAGUE) - Tax fraudsters have targeted the EU's carbon emissions trading system, pocketing about five billion euros (7.4 billion dollars), the Europol police agency said Wednesday.

"The European Union Emission Trading System has been the victim of fraudulent traders in the past 18 months," said the agency in a statement.

"This resulted in losses of approximately five billion euros for several national tax revenues."

The agency, based in The Hague, added that it estimated "in some countries, up to 90 percent of the whole market volume was caused by fraudulent activities."

France, the Netherlands, the UK and Spain had all changed their tax rules on the transactions to prevent further losses, the agency said.

"After these measures were taken, the market volume in the aforementioned countries dropped by up to 90 percent," according to the statement.

According to a Europol official, the alleged fraudulent traders set themselves up in one country and bought carbon polluting allowances from a second country, making the allowances exempt from value-added tax (VAT). They were then allegedly sold on to firms in the country where the trader was based, but with the VAT added on, the official said.

The traders are accused of pocketing the VAT instead of handing it to tax authorities, the official said.

The Emission Trading System was launched in the EU in 2005 in a bid to reduce greenhouse gas emissions, which many scientists link to global warming.

Under the system, the EU allocates carbon polluting allowances to member states to meet its obligations under the UN's Kyoto Protocol.

The states then assign quotas to those industries that belch most CO2 into the atmosphere.

Companies that emit less than their allowance can sell the difference on the market to companies that exceed their limits, thus providing a financial carrot to everyone to become greener.