Buildings supplied with renewable electricity can still carry substantial construction-related emissions when cement, steel and aluminium are produced using carbon-intensive processes. As attention extends beyond operational energy use, the emissions embedded in construction materials are becoming a commercial consideration for developers, contractors, suppliers and financiers.
Exposure level: High — embodied carbon. Concrete, reinforcing steel, structural steel, aluminium façades and heating, ventilation and air-conditioning systems can lock in emissions before a building opens. Renewable power and operational efficiency address emissions during use, but they do not eliminate the carbon footprint associated with materials already incorporated into the structure.
Carbon exposure extends across the construction supply chain
The relevant value chain connects cement and metal producers with material suppliers, designers and contractors before reaching the completed building. Carbon-intensive inputs can retain economic significance through several transactions, particularly when downstream manufacturers have limited opportunities to replace specified materials or renegotiate fixed-price contracts with customers.
The EU Carbon Border Adjustment Mechanism (CBAM) began as a border measure focused on basic materials. Its implications for competitiveness increasingly extend to wider industrial value chains, where the carbon characteristics of upstream products can affect downstream costs and commercial positioning. The existing CBAM framework must be distinguished from proposed downstream measures for 2028, which remain proposals rather than rules already in force.
The financial implications extend beyond the direct cost of materials. Green-finance claims may be undermined when a building combines low operational emissions with high embodied carbon. Meanwhile, premiums for lower-carbon materials can vary considerably by supplier and region, making project-level assessment more complex.
Material selection requires verifiable emissions data
Reducing construction-related emissions requires a combination of engineering decisions and material procurement choices. Measures include leaner structural design, lower-clinker cement, recycled steel, electric arc furnace (EAF) production routes and lower-carbon aluminium. Renewable electricity certificates alone cannot establish the carbon performance of all materials used in a project.
Buyers and importers therefore need information at product and installation level, rather than relying exclusively on a company-wide carbon footprint. Reported emissions and carbon-adjusted costs must be reconcilable with actual traded quantities, physical production records, energy consumption and material flows.
A credible project file should contain project-specific quantities, supplier product data, relevant CBAM installation information and records showing which materials were ultimately installed. Where verified actual values support a lower carbon-adjusted cost, the documentation can provide a commercial advantage. Incomplete or unreliable evidence, by contrast, can cause buyers to account for uncertainty in transaction pricing.
Financing and contracts determine who bears the carbon cost
Lenders need to verify the embodied-carbon information used to support green-loan criteria and assess future capital expenditure risks associated with carbon-intensive material specifications. Banks should also establish whether contractual provisions genuinely permit carbon costs to be passed through to customers or whether recovery is simply assumed.
Where a supplier or contractor has limited pricing power, an additional regulatory cost can become a margin shock rather than a manageable expense. The party with the legal CBAM obligation may face costs generated several tiers upstream without having sufficient contractual rights to recover them.
Purchase and sales agreements should set out requirements for emissions-data delivery, verification status, supplier substitutions, carbon-cost pass-through and remedies when documentation arrives late or cannot be used. These provisions become particularly important where fixed-price commitments limit the ability to adjust for changing material costs or regulatory requirements.
Long project timelines increase exposure to regulatory change
Construction and infrastructure projects face a timing mismatch between investment decisions and carbon regulation. Designs and budgets may be fixed years before materials are purchased, leaving projects exposed if carbon assumptions or applicable requirements change during that interval.
Early carbon-sensitivity analysis can help identify this exposure before procurement begins. Material specifications, engineering choices, engineering, procurement and construction (EPC) risk allocation, and lender contingencies can all influence whether eventual carbon costs lead to contractual claims, lost margins or manageable project expenses.
The commercial significance of embodied carbon therefore extends beyond customs compliance. As CBAM and related policy developments shape the economics of carbon-intensive inputs, the verified emissions performance of cement, steel and aluminium can influence which suppliers remain attractive to European construction customers. Green-building competitiveness increasingly depends on both operational energy performance and the carbon profile of the materials incorporated into the building.
