ESRS E1-8 Internal Carbon Price
ESRS E1-8 requires companies to disclose whether they use an internal carbon price and, if so, at what level. Internal carbon pricing is a powerful tool for embedding climate costs into investment decisions — and CSRD now makes its use (or absence) a mandatory disclosure.
ESRS E1-8 requires companies to disclose whether they use an internal carbon price and, if so, at what level. ESRS E1-8 requires disclosure of: whether the company uses an internal carbon price; the type of internal carbon pricing mechanism used; the price or prices applied per tonne of CO2e; and the scope of operations covered by the price.
What ESRS E1-8 requires
ESRS E1-8 requires disclosure of: whether the company uses an internal carbon price; the type of internal carbon pricing mechanism used; the price or prices applied per tonne of CO2e; and the scope of operations covered by the price.
If you do not use an internal carbon price, you must disclose this. There is no penalty for not having one — but the absence is now public information.
For companies that do use ICP: disclose whether the price is used as a shadow price (informing investment decisions without actual fund transfers), an internal carbon tax (actual charges on business units), or a fee-and-dividend model (charges collected centrally and redistributed to fund decarbonisation).
The three types of internal carbon pricing
Shadow carbon price: Applied as a hypothetical cost in financial modelling and investment appraisal — it does not involve actual money transfers between business units. Used to stress-test capital projects against future carbon costs and identify carbon-intensive investments that would become uneconomical at higher carbon prices.
Internal carbon tax / levy: Business units are charged an actual fee per tonne of CO2e emitted. Funds collected are managed centrally and may be used to fund decarbonisation projects, offset purchases, or returned to business units as a dividend for emission reductions.
Fee-and-dividend / carbon market: Combines a levy with redistribution — business units that reduce emissions receive dividends; those that increase emissions pay more. Creates real financial incentives for operational emission reduction.
Setting the right internal carbon price
The EU ETS carbon price (approximately €60–70/tonne in early 2026) provides a market reference point. However, most ICP guidance suggests using a higher price to reflect the social cost of carbon and future regulatory trajectory.
The IEA Net Zero by 2050 scenario implies a carbon price of $130/tonne by 2030 in advanced economies. The High-Level Commission on Carbon Prices (Stern-Stiglitz) recommended $50–100/tonne by 2030 as a minimum for Paris alignment.
For investment decision-making: apply the ICP as a shadow price in discounted cash flow models for all major capital investments. Any project that becomes uneconomical at the shadow price represents a transition risk — either the project should be rejected or the emission cost should be factored into the business case.
Some companies apply a higher price for long-lived assets (infrastructure, real estate) to account for higher carbon price trajectory over the asset life.
Frequently asked questions
Is an internal carbon price mandatory under CSRD?
No — ESRS E1-8 requires disclosure of whether you have one, not that you must have one. However, given investor expectations and the role of ICP in climate risk management, companies without ICP will face increasing pressure to explain why.
What carbon price do investors expect to see?
Investor expectations vary. Many institutional investors with climate commitments expect ICP at or above the EU ETS price. The Carbon Pricing Leadership Coalition recommends $50–100/tonne as a minimum for meaningful climate integration. Prices below €30/tonne are increasingly seen as token rather than substantive.
If we have no internal carbon price, what do we disclose?
Disclose 'no internal carbon price is currently applied' and optionally explain your approach to integrating climate costs into investment decisions without a formal ICP. Describing how you screen investments for climate risk without a formal price mechanism is better than a bare negative disclosure.