Insight

By Chris Middleton, general manager, Construction Fixings Association (CFA)

The European Union’s Carbon Border Adjustment Mechanism (CBAM) regulation is on the horizon, so to is the UK’s CBAM, bringing significant implications for the construction sector. While many in the industry are familiar with the regulations, there remains some uncertainty about what businesses need to do to prepare.

CBAM is part of the EU’s broader ‘Fit for 55’ package, a legislative initiative aimed at reducing the bloc’s greenhouse gas emissions by 55% by 2030 compared to 1990 levels. CBAM is already in its transitional phase of implementation and by 2026 it will have financial consequences for businesses importing certain construction materials into the EU. 

Whether UK companies are directly involved in EU trade or rely on materials sourced from within the bloc, they must understand how CBAM will impact supply chains, procurement costs and emissions reporting obligations.

Since October 2023, businesses importing CBAM goods, such as cement, iron and steel, aluminium, fertilisers, etc, into the EU have been required to report the embedded carbon emissions of those products. The key point here is that while there are no financial obligations yet, reporting requirements are already in place. This period allows companies to familiarise themselves with the data collection process and refine emissions tracking before full implementation. It also provides an early indication of how CBAM compliance could impact procurement decisions, supplier relationships, as well as internal carbon accounting practices.

CBAM’s financial obligations begin on the 1^st January 2026. This means from that point, importers will need to purchase CBAM certificates corresponding to the embedded carbon emissions in their products. These certificates will be priced in-line with the EU’s Emissions Trading System (ETS), effectively applying a carbon cost per tonne of CO₂. 

For UK businesses exporting to the EU, this doesn’t mean they’ll pay the carbon price directly. However, they will need to accurately report the embedded emissions in their goods. This reporting becomes mandatory from 2027, with the first full year payments due from May 2028 (by EU importers). Businesses that cannot provide precise emissions data will have to rely on default values, which may not accurately reflect their carbon footprint, potentially leading to higher costs.

How will CBAM impact the construction industry?

CBAM will require a new level of transparency within supply chains even for businesses that currently directly import goods. Manufacturers exporting to the EU will be required to track and report the carbon content of their material, with suppliers and subcontractors, will be expected to provide more detailed emissions data to support compliance.

In addition, the materials currently covered by CBAM are key to the construction industry. Any business importing these materials into the EU will need to factor in CBAM related costs. This will apply to materials sourced in the UK and may lead to indirect cost increases as the industry adjusts pricing to reflect CBAM compliance.

There is also the risk of financial planning and risk management. The cost of CBAM certificates will be tied to the ETS, which limits greenhouse gas emissions – this means costs could fluctuate over time. Businesses must account for these potential cost variations when pricing construction projects, negotiating supplier contracts, as well as making long-term procurement decisions. Failure to plan for these financial changes could result in unexpected cost increases for ongoing and future projects.

With CBAM’s financial phase approaching, companies should be taking steps now to ensure a smooth transition. Even if a business is not yet directly affected, it should understand CBAM’s data collection and reporting standards. The European Commission has developed a CBAM reporting template, which will be a critical tool for information exchange between non-EU producers and EU importers.

UK construction firms should also begin engaging with their EU customers and supply chain partners now, to ensure they can meet the additional emissions reporting requirements under CBAM. Providing accurate, verified emissions data will be essential for continued access to the EU market. Without it, importers may rely on default values, which could lead to higher carbon costs and risk making UK exports less competitive.

The introduction of CBAM certificates will add costs to certain imports, so companies should evaluate how this will affect their pricing strategies. Those working on long-term contracts should consider the potential impact of CBAM price fluctuations.

CBAM regulations will continue to evolve and further guidance is expected from both the EU and UK governments, however it’s a good idea to stay up to date with the latest news and developments. The CFA is monitoring these developments closely and will provide updates to help members, and the industry, navigate compliance requirements.

CBAM marks the start of a broader shift towards carbon pricing in global trade. The UK government is also preparing its own carbon border policy, with the first reporting period set for 2027. Although details remain unclear, businesses operating across both markets will need to navigate multiple frameworks. Meanwhile, the EU has already indicated that more products could be added to the CBAM list in the future, potentially extending obligations across a wider range of construction materials.