The World Federation of Exchanges calls on UK to remove VAT on carbon credits and classify them as financial instruments

The World Federation of Exchanges calls on UK to remove VAT on carbon credits and classify them as financial instruments

London, 9th July – The World Federation of Exchanges (WFE), the global industry association for exchanges and clearing houses, has published its response to the UK Government’s consultation on Voluntary Carbon and Nature Markets, welcoming the ambition to raise standards and foster market integrity.

Exchanges will play a critical role in enabling fair, transparent, and effective carbon and nature markets by providing secure infrastructure for trading, better price discovery, and greater investor protection. The WFE supports the Government’s principles-based approach to developing these markets and efforts to align with international standards and best practice.

The key recommendations the WFE set out in the response are as follows:

• Adopt a “climate-first” approach due to greater maturity and standardisation in the carbon credit space compared to nature credits.
• Define legal rights for carbon and nature credits
• Zero-rate VAT on carbon credit transactions to encourage market participation.
• Pursue a whole-of-Government approach is to align legal, tax, accounting, and prudential systems with the goal of supporting carbon and nature markets.
• Maintain flexibility on international standards to accommodate a rapidly evolving market landscape and allow room for innovation.
• Require all firms in scope of the UK’s TCFD and prospective SDR regimes to publish transition plans, incentivising companies to take responsibility for their emissions and sustainability impacts. Facilitate participation in Article 6 carbon credit mechanisms under the Paris Agreement to enhance liquidity and scalability.

Throughout, the WFE’s response underscores the importance of global interoperability through homogenous product specification, especially around emerging nature-related regulations and standards.

Nandini Sukumar, CEO of the WFE, said, “Carbon and nature markets hold enormous potential to accelerate the transition to a sustainable economy when coupled with other measures to decarbonise such as robust net zero targets and transition plans. But to succeed, they need the same legal clarity, tax neutrality and investor protections we expect from any mature financial market. To further support the development of these markets, we urge policymakers to remove VAT on carbon credits and recognise them as financial instruments.”

Read the full response here.

For more information, please contact:

Cally Billimore      

Communications Manager                                       

+44 7391 204 007                      

[email protected]

 

About the World Federation of Exchanges (WFE):

Established in 1961, the WFE is the global industry association for exchanges and clearing houses. Headquartered in London, it represents over 250 market infrastructure providers, including standalone CCPs that are not part of exchange groups. Of our members, 37% are in Asia-Pacific, 43% in EMEA and 20% in the Americas. WFE’s 87 member CCPs and clearing services collectively ensure that risk takers post some $1.1 trillion (equivalent) of resources to back their positions, in the form of initial margin and default fund requirements. WFE exchanges, together with other exchanges feeding into our database, are home to over 49,054 listed companies, and the market capitalisation of these entities is $116.58 trillion; around $155 trillion (EOB) in trading annually passes through WFE members (at end 2024).

The WFE is the definitive source for exchange-traded statistics and publishes over 350 market data indicators. Its free statistics database stretches back more than 40 years and provides information and insight into developments on global exchanges. The WFE works with standard-setters, policy makers, regulators and government organisations around the world to support and promote the development of fair, transparent, stable and efficient markets. The WFE shares regulatory authorities’ goals of ensuring the safety and soundness of the global financial system.

With extensive experience of developing and enforcing high standards of conduct, the WFE and its members support an orderly, secure, fair and transparent environment for investors; for companies that raise capital; and for all who deal with financial risk. We seek outcomes that maximise the common good, consumer confidence and economic growth. And we engage with policy makers and regulators in an open, collaborative way, reflecting the central, public role that exchanges and CCPs play in a globally integrated financial system.

Website: www.world-exchanges.org

X: @TheWFE

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