Cement, Carbon, and CBAM: Why Our Renovations Will Cost More and Why That's Fair

EU legislation is boring.

But while another blowout in the US politics grabs the headlines, it's the tireless technocrats of the European Union that influence what we eat, wear, and how much we pay for it.

Every month, I analyze one systemic way in which the true cost of what we consume remains hidden...

...and what the European Union is doing to reveal it.

Footing the environmental bill

Cement is one of the largest sources of greenhouse gas emissions. During the cement manufacturing process, carbon dioxide is emitted as a byproduct, leaking into the atmosphere and causing a cascade of adverse effects.

The cement factory profits from selling its product but doesn't bear the cost and consequences of pollution—the society does, through higher taxes, insurance, and healthcare costs. This is what economists refer to as a "negative externality”: an economic transaction that is beneficial to two parties but produces adverse effects borne by an uninvolved third party.

The thinking on who that uninvolved third party is has evolved: it's no longer just society—it's the planet. Now the EU is taking another stab at making that environmental bill visible.

Starting in January 2026, the EU will charge importers a fee for the carbon emitted during the production of materials such as cement and steel from outside the region. This may increase the cost of your home renovation. While part of a larger climate policy, it's also an important step toward revealing the true cost of what we buy.

For decades, we've bought absurdly cheap goods—€5 t-shirts, €20 flights, €200 TVs. If all hidden costs were included, prices would be much higher. Now one cost is impossible to ignore: the environmental one.

IN PRACTICE
Buying cement and steel to renovate your 100 m² apartment could cost some €6,000, but if their carbon costs were considered, it would be closer to €8,000.

Note: Costs and prices indicated in the article are not precise forecasts but rather illustrative to show the order of magnitude.

How the EU's ETS works (and why it actually doesn’t work)

In 2005, the EU created the ETS (Emissions Trading System) to incentivize companies to reduce emissions. It sets a limit on total regional greenhouse gas emissions (measured in tonnes of CO₂ equivalent) and distributes those allowances to European companies. If you pollute less than your allowance, you can sell the extra. If you pollute more, you buy from others. Simple.

But it carried an inherent risk: carbon leakage. If EU industries had to pay for emissions while competitors outside the EU didn't, production would simply move abroad.

IN PRACTICE
A Bangladeshi cement factory produces at zero carbon cost. A Polish factory has to pay a €50/tonne surcharge, making it more appealing to produce outside of the EU.

What’s worse, some companies received more free allowances than they needed, creating a surplus that they sold on the market for a profit. They didn’t only pollute as before, they actually made money on it. Between 2008 and 2019, the cement sector alone earned approximately €4 billion in these so-called 'windfall profits.

We ended up in a situation where European factories were not at risk of relocation - great. Neither European nor foreign factories face carbon surcharges - not so great. Neither had a strong incentive to decarbonize - quite bad, effectively making the ETS moot - just bad.

"Some companies didn’t only pollute as before, they actually made money on it."

To "solve" this, the EU gave free allowances to industries at high risk of relocation: steel, cement, aluminum, fertilizers, electricity, and hydrogen. Notably, these were also industries with the highest greenhouse gas emissions. While the EU had always planned to phase out free allowances, these carbon-intensive sectors were repeatedly re-protected as at risk of ‘carbon leakage’ and thus were not charged for emissions for nearly two decades.

Introducing CBAM

To address this, in 2023, the EU adopted CBAM (Carbon Border Adjustment Mechanism).

Starting January 1, 2026, importing, among others, cement and steel into Europe will carry a carbon surcharge. Simultaneously, EU producers lose free ETS allowances. By 2034, both will face equivalent carbon costs (see the end of the text for a full list of products covered by CBAM and the allowances phase-out).

This eliminates the incentive to produce outside the EU while making the carbon cost visible for high emitters.

IN PRACTICE
By 2034, to sell to Europe, the Bangladeshi cement factory has to pay a €50/tonne surcharge under CBAM. At the same time, a Polish factory also faces a €50/tonne surcharge because it loses its free allowances under the ETS.

Both factories now bear the same carbon cost.

How CBAM affects your wallet (and the industry’s footprint)

For an average Joe (or Lars, or Pierre, or Sofia), CBAM remains obscure. It's a policy that affects raw material producers, importers, and manufacturers far more than consumers. We will feel it in our kitchen renovations—an extra €500-1,000 by 2034 for projects with higher cement and steel content. Noticeable, but not dramatic.

But this raises a bigger question: who should pay for decarbonization?

Often, the cost of new regulation is passed on to consumers—especially when producers can simply raise prices without losing sales. This can happen in markets with so-called 'inelastic demand', where consumers' demand is less responsive to price changes—a fascinating topic in economics that I invite you to explore further, e.g., here.

But in markets where consumers have cheaper alternatives, producers face more pressure to absorb costs rather than pass them on. With ETS and CBAM, that pressure should incentivize investment in cleaner manufacturing and energy. Whether that actually happens, or whether producers and customers simply accept higher prices, depends on factors CBAM can't control: investment capital, technology availability, and market competition.

What do CBAM's critics have against it?

Many complain about structural unfairness: EU producers spend millions complying with environmental regulations, worker protections, and safety standards that non-EU competitors skip. Labor costs differ dramatically: EU industry workers earn an average of €33.90/hour; their Bangladesh counterparts earn €0.60–€0.80/hour. Energy prices vary wildly across regions.

So, even with free ETS allowances (zero carbon costs), EU producers already had higher costs. Poland's cement industry faced a 3,000% surge in Ukrainian imports between 2019 and 2024. The real competition driver was never carbon—it was labor, energy, and regulatory costs.

The biggest critique, though, is that EU goods are no longer competitive in global markets.

IN PRACTICE
A Bangladeshi cement costs €50/tonne to produce, vs. Polish costs €100/tonne

+ €50/tonne carbon surcharge to both (due to CBAM and full ETS cost)

= In EU, Bangladeshi €100 cement can still undercut €150 Polish one

= Outside of EU, Bangladeshi €50 cement is cheaper than €150 Polish one

Still, part of the revenue from carbon pricing and CBAM is intended to flow back into climate investments and transition support, which, if well-designed, can soften the blow for the most exposed households and regions.

Despite these criticisms, CBAM accomplishes its specific goal: it makes carbon leakage economically irrational. Early OECD modeling (as no real-life data yet exists) shows that carbon leakage drops from ~19% to negative leakage (meaning non-EU countries also reduce emissions), and that global CO₂ savings increase by 36% compared to ETS reform alone.

Conclusion

CBAM forces visibility in a way markets never will. For decades, we paid for environmental damage later—through health, societal, and climate collapse. Part of that cost now appears in your renovation budget. That transparency is a crucial step toward more informed choices.

But here's the uncomfortable part: making carbon visible doesn't solve the problem if we keep consuming the same way. So, who bears responsibility—only the emitting producers, or also (over)consumers? A €5 t-shirt with visible carbon costs is still a €5 t-shirt. And if planned obsolescence means it falls apart in a year, we'll buy another one much faster.

More on the topic of planned obsolescence, and EU policies that address it, in next month’s article.

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REFERENCE LISTS

ETS Free Allowance Sectors (Current):
Steel and iron, Cement, Aluminum, Fertilizers, Electricity generation, Hydrogen production, Paper and pulp, Chemicals, Refining, Glass

ETS Free Allowance Phase-Out Timeline:
2026-2029: 90% of allowances free
2030-2034: 30% of allowances free
2035+: 0% (full phase-out complete)

CBAM Phase 1 (Starting January 2026):
Cement, Steel, Aluminum, Fertilizers, Electricity, Hydrogen

CBAM Phase 2 (Planned 2030+ but final scope and timing still under debate):
Organic chemicals, Plastics, Textiles, Ceramics, Iron ore, Scrap metal