Finance, Procurement, and ESG Teams
How do carbon taxes and environmental levies affect invoice compliance?
Carbon pricing mechanisms including carbon taxes, emissions trading systems, and border carbon adjustments create new charges that must appear on invoices and be correctly classified for VAT purposes. A carbon tax added to energy bills is typically subject to VAT as part of the total consideration. Carbon border adjustment mechanism charges (CBAM in the EU) require importers to declare embedded carbon and surrender certificates, creating new documentation alongside commercial invoices.
How does the EU Carbon Border Adjustment Mechanism affect import invoicing?
The EU CBAM (fully operational from 2026) affects importers of certain goods from non-EU countries:
- CBAM goods: Cement, iron and steel, aluminium, fertilizers, electricity, and hydrogen
- Declarant obligation: EU importer must register as CBAM declarant and submit annual CBAM declaration
- Embedded carbon: Must declare embedded greenhouse gas emissions in imported goods
- Certificate purchase: Must surrender CBAM certificates equal to the carbon price that would have applied in the EU
- Supplier documentation: Suppliers outside EU must provide embedded carbon data; this information must accompany invoices
- Invoice amendment: Commercial invoices for CBAM goods may need to include embedded carbon data or supplementary documentation
Frequently Asked Questions
- Is VAT charged on carbon tax amounts added to energy invoices?
- Yes, in most jurisdictions, carbon taxes and environmental levies added to energy bills form part of the total consideration for the energy supply and are therefore subject to VAT. The VAT is calculated on the total invoice amount including the carbon tax component. Businesses that receive energy invoices with carbon tax components can recover input VAT on the full invoice amount including the environmental levy, subject to their usual VAT recovery entitlement.
- How should businesses disclose carbon costs on B2B invoices?
- While most jurisdictions do not yet require mandatory carbon cost disclosure on commercial invoices, many businesses voluntarily disclose embedded carbon or carbon cost components for their customers' Scope 3 emissions reporting. Some sectors (heavy industry, energy) are beginning to provide carbon footprint data alongside commercial invoices. As mandatory supply chain carbon reporting regulations develop, invoice-level carbon data is likely to become a compliance requirement for larger businesses.