CBAM for Construction

What is CBAM?

The Carbon Border Adjustment Mechanism (CBAM) is a European Union regulation designed to put a fair price on the carbon emissions embedded in goods imported into the EU. Enacted as part of the EU's "Fit for 55" legislative package, CBAM requires importers to purchase certificates corresponding to the carbon price that would have been paid if the goods had been produced under EU carbon pricing rules. The mechanism targets carbon-intensive products — including cement, iron and steel, aluminium, fertilisers, electricity, and hydrogen — and aims to prevent "carbon leakage," where production shifts to countries with less stringent climate policies.

CBAM and the Construction Industry

The construction sector stands among the industries most directly affected by CBAM, even though construction companies themselves are not the direct importers in every case. The reason is straightforward: construction relies heavily on materials that fall squarely within CBAM's scope. Steel reinforcement bars, structural steel sections, aluminium facades and window frames, and above all cement and clinker — these are the fundamental building blocks of modern construction, and they are all covered by the regulation.

Consider a commercial building project in Germany that sources structural steel from Turkey or India. Under CBAM, the importer of that steel must declare the embedded emissions from its production and purchase CBAM certificates to cover those emissions. If the steel was produced using coal-fired blast furnaces without carbon capture, the embedded emissions — and therefore the CBAM cost — will be significantly higher than for steel produced using electric arc furnaces powered by renewable energy. This cost is ultimately passed through the supply chain to the construction company and, in turn, to the project owner.

The same logic applies to cement. The EU is the world's second-largest cement producer, but cross-border trade in clinker and cement is common, particularly in border regions. A construction firm in Poland sourcing cement from Ukraine or Belarus will see those imports subject to CBAM reporting and, from 2026 onward, financial obligations. Aluminium used in curtain walls, cladding systems, and structural glazing is another significant cost centre affected by the regulation.

The practical impact for construction companies is threefold. First, material costs will rise for carbon-intensive imports, changing the economics of procurement decisions. Second, supply chain transparency becomes a regulatory obligation rather than a corporate aspiration — firms need to know where their materials come from and how they were produced. Third, companies that proactively adapt their procurement and design strategies can gain a competitive advantage by reducing their exposure to CBAM costs while simultaneously improving their sustainability credentials.

Key Requirements

Construction companies and their suppliers should be aware of the following CBAM requirements:

• Quarterly CBAM reporting: Since October 2023, importers of CBAM-covered goods must submit quarterly reports detailing the volume of imports and the embedded emissions. The transitional reporting phase runs until the end of 2025, during which no financial payments are required, but accurate reporting is mandatory.
• Embedded emissions data: Importers must obtain verified data on the actual carbon emissions generated during the production of each covered material. This includes direct emissions from manufacturing processes and, for certain goods, indirect emissions from electricity consumption during production.
• CBAM certificates from 2026: Starting 1 January 2026, importers must purchase CBAM certificates at a price linked to the EU Emissions Trading System (EU ETS) allowance price. The number of certificates required corresponds to the embedded emissions of the imported goods, minus any carbon price already paid in the country of origin.
• Authorised declarant registration: Only registered "authorised CBAM declarants" may import CBAM-covered goods into the EU from 2026 onward. Companies must apply through their national competent authority.
• Verification of emissions data: Embedded emissions data must be verified by accredited verifiers according to EU-defined methodologies. Default values provided by the European Commission may be used during the transitional phase, but actual production data is expected to become the standard.
• Record-keeping obligations: Importers must retain all documentation related to CBAM declarations, emissions calculations, and verification reports for a minimum of five years.
• Supply chain due diligence: Construction companies that are not direct importers still need to ensure their suppliers and procurement partners comply with CBAM. Non-compliance anywhere in the chain can result in supply disruptions, cost surprises, or reputational risk.

Implementation Steps for Construction Companies

1. Audit your material supply chain. Map every source of steel, cement, clinker, aluminium, and other CBAM-covered materials used in your projects. Identify which materials are imported from outside the EU and through which intermediaries. Pay particular attention to reinforcement steel, structural sections, aluminium profiles, and pre-cast concrete elements that may contain imported clinker.
2. Assess your CBAM exposure. Quantify the volume of CBAM-covered imports across your active and planned projects. Calculate estimated embedded emissions using supplier data or, where unavailable, the European Commission's default values. Model the potential cost impact under different EU ETS carbon price scenarios — current prices hover around 60-70 EUR per tonne of CO2, but long-term projections suggest higher levels.
3. Engage your suppliers on emissions data. Contact suppliers of CBAM-covered materials and request actual production emissions data. Establish a standardised data exchange format. Suppliers from countries with mature carbon reporting frameworks (such as the UK or South Korea) may already have this data available; those from other regions may need guidance and lead time to compile it.
4. Register as an authorised CBAM declarant or ensure your import partners are registered. If your company directly imports covered materials, apply for authorised declarant status with your national authority before the 2026 deadline. If you purchase through distributors or trading companies, verify that they hold the necessary registration and are factoring CBAM costs into their pricing transparently.
5. Integrate CBAM costs into project budgeting and tendering. Update your cost estimation models to include CBAM-related surcharges on imported materials. For long-duration projects, build in escalation clauses that account for fluctuations in EU ETS carbon prices. Adjust tender pricing to reflect the true cost of carbon-intensive materials.
6. Explore low-carbon material alternatives. Evaluate substitutes that reduce CBAM exposure: electric arc furnace (EAF) steel instead of blast furnace steel, supplementary cementitious materials (SCite, fly ash, ground granulated blast furnace slag) that reduce clinker content in concrete, and recycled aluminium. These alternatives often carry lower embedded emissions and therefore lower CBAM costs, while also supporting green building certifications like BREEAM and LEED.
7. Establish internal compliance processes. Designate a CBAM compliance lead within your procurement or sustainability team. Create workflows for collecting, verifying, and reporting emissions data on a quarterly basis. Implement document retention procedures that meet the five-year requirement.
8. Monitor regulatory developments. CBAM is being phased in gradually, and the scope of covered goods may expand in future reviews. The European Commission has indicated that processed goods (such as pre-fabricated steel structures or finished aluminium products) may be added. Stay informed through industry associations, legal advisors, and official EU communications to anticipate changes that could affect your business.

Frequently Asked Questions

Does CBAM apply to construction companies that do not import materials directly?

The legal obligation to report and purchase CBAM certificates falls on the importer of record — typically the company that clears goods through EU customs. However, construction companies are affected indirectly because their material suppliers and distributors will pass CBAM costs through the supply chain. Understanding your exposure is essential for accurate project costing, even if you never file a CBAM declaration yourself. Additionally, if your company procures materials directly from non-EU manufacturers, you would need to register as an authorised CBAM declarant.

Which construction materials are covered by CBAM?

The regulation currently covers cement and clinker, iron and steel (including reinforcement bars, structural sections, tubes, and wire), aluminium (including profiles, sheets, and foil), as well as fertilisers, electricity, and hydrogen. For construction, the most significant categories are cement, steel, and aluminium. Notably, finished products made from these materials — such as prefabricated steel beams or aluminium window frames — are also covered if they fall within the specified customs codes. The EU may expand the list in future legislative reviews to include additional processed goods.

How much will CBAM add to construction material costs?

The cost impact depends on the embedded emissions of each product and the prevailing EU ETS carbon price. As an indicative example: producing one tonne of crude steel via a coal-fired blast furnace generates roughly 1.8-2.2 tonnes of CO2. At a carbon price of 65 EUR per tonne, this translates to approximately 117-143 EUR per tonne of steel in CBAM costs, assuming no carbon price was paid in the country of origin. For cement, emissions of around 0.6-0.9 tonnes of CO2 per tonne of clinker would add approximately 39-59 EUR per tonne. Actual costs will vary based on the specific production facility, the energy mix used, and any carbon pricing already applied in the exporting country.

What happens if a company fails to comply with CBAM requirements?

During the transitional period (2023-2025), failure to report or submitting incorrect reports can result in penalties of 10 to 50 EUR per tonne of unreported emissions. From 2026, when the financial mechanism takes full effect, non-compliance becomes more consequential. Importing CBAM-covered goods without holding sufficient certificates can lead to penalties equivalent to the EU ETS excess emissions penalty (currently 100 EUR per tonne of CO2, adjusted for inflation), forfeiture of goods, and potential loss of authorised declarant status. Beyond financial penalties, non-compliance creates reputational risks and can disrupt project timelines if imports are blocked at customs.

Summary

CBAM represents a structural shift in how the cost of carbon is factored into construction material procurement. For construction companies, the regulation demands greater supply chain transparency, more sophisticated cost modelling, and a proactive approach to sourcing low-carbon materials. Companies that begin preparing now — auditing their supply chains, engaging suppliers on emissions data, and integrating carbon costs into project planning — will be better positioned to manage costs, win tenders with competitive and realistic pricing, and meet the growing demand for sustainable construction.