Hidden Carbon Costs Threaten Margins: How Smart Product Design Can Reduce Financial Risk and Strengthen Competitiveness
Rising CO₂ prices could significantly reduce margins in energy-intensive value chains. This article explains how hidden carbon costs accumulate across Scope 3.1 emissions, and how companies can redesign products and supply relationships to reduce financial exposure and secure competitiveness.
If the CO₂ price rises from today’s ~€55 per ton to €300 in the coming years, it could become a serious threat to many companies. Even an increase to €150 per ton could already reduce margins by double-digit percentage points in some industries. The more energy-intensive the production of raw materials and intermediate goods, and the longer the transportation routes, the higher the financial risk.
“Hidden carbon costs are margin risks waiting to surface. The companies that map them early will protect profitability, and take market share from those who react too late.”
Karel J Golta, CEO INDEED Innovation
The EU is driving these changes through two key instruments: the Emissions Trading System (EU ETS) and the Carbon Border Adjustment Mechanism (CBAM). From 2026 onward, free allocation of emission certificates will be phased out. Large industrial players such as ThyssenKrupp and BASF warn of multi-billion-euro impacts; BASF already paid several million euros for certificates in 2025 and sees its competitiveness under pressure.
This development affects not only global corporations but the entire manufacturing sector, especially companies with high Scope 3.1 emissions (purchased goods), which often account for around 80% of total Scope 3 emissions. A sample calculation for the mid-sized building components manufacturer Schüco shows that a CO₂ price of €300/t could lead to additional costs of up to €259 million — equivalent to 12.27% of revenue. Similar pressure would affect companies like Trumpf and Festo.
Carbon costs accumulate along the entire value chain — from crude oil to plastic pellets to finished products. According to PwC, the average carbon cost share is already around 8.26% of production value. Depending on market dynamics, suppliers may pass through up to 80% of these costs.
The cost impact varies significantly by material. For example, CO₂ emissions per kilogram amount to approximately 0.76 kg CO₂e for organic cotton (USA), 1.45 kg CO₂e for window glass, and 4.81 kg CO₂e for European aluminum (IDEMAT data). Material selection, therefore, plays a decisive role in cost exposure.
Strategies to Reduce Financial Risk
To manage rising CO₂ price exposure, companies should adjust their planning and decision-making tools:
1. Integrate CO₂ Margin Risk into Business Model and Cost Calculations
Simulating different CO₂ price scenarios helps anticipate margin risks and avoid unforeseen cost shocks.
2. Prioritize Low-Carbon and Circular Materials
Although low-carbon materials may still be more expensive today, their prices are expected to fall. Salzgitter CEO Gunnar Groebler forecasts that green steel will be cheaper than coal-based steel between 2030 and 2033. Switching early can secure long-term competitive advantages – CO₂ costs accrue every year.
3. Rethink R&D Priorities
Investments in low-emission materials, alternative supply chains, and new technologies should be evaluated not only as innovation steps, but as risk mitigation strategies.
4. Form Strategic Supplier Partnerships
Coordinating CO₂ reduction efforts with suppliers, for example, aligned with Science Based Targets initiative (SBTi) requirements, can significantly lower Scope 3 emissions.
5. Support the scale up of a new circular infrastructure
New materials, regenerative energy ecosystems and climate technology have to scale up to be competitive. The only way to achieve this is: creating demand.
The design brand Vitra demonstrates the effect of such measures: by replacing conventional materials with recycled plastics, aluminum with higher secondary content, and bio-based textiles, the company reduced its modeled margin risk by three percentage points within one year.
Conclusion
When used as a strategic metric, the CO₂ price becomes a powerful tool for managing business risks and evaluating product decisions. Companies need to act now, by increasing transparency, choosing strategic materials, and developing circular business models. The hidden costs of carbon are already real, and they will continue to rise.
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Frequently Asked Questions – Hidden Carbon Costs & CO₂-Price Risk
Hidden carbon costs are the indirect costs embedded in a product’s supply chain due to CO₂ emissions — for example, emissions from manufacturing raw materials, transport, energy use. These may not appear explicitly in financial statements today, but as CO₂ pricing (e.g., via emissions trading or carbon border tax) rises, they can significantly impact margins.
If CO₂ pricing increases to such levels, companies with energy-intensive production or long transport routes may face steep additional costs. For example, a mid-sized manufacturer might see >10% of revenue added in cost under certain assumptions — squeezing margins severely.
Companies that:
produce or use high volumes of raw/intermediate materials with large CO₂ footprints (e.g., aluminium, glass, heavy metals)
rely on long transport chains
have high Scope 3.1 emissions (purchased goods)
operate in jurisdictions phasing out free emissions certificates
Those sectors are more vulnerable.
Smart product design can reduce embodied emissions by:
selecting low-carbon materials (recycled, bio-based)
shortening transport and optimizing logistics
using circular design concepts (reuse, remanufacture)
These reduce the CO₂ base which will face higher future pricing.
Companies should run scenario analyses for different CO₂ price trajectories (e.g., €150, €300/t), assess margin risk, embed CO₂ cost into product costing/decision making, and invest where ROI is strengthened by avoiding future CO₂ cost burdens.
Michael Leitl
Circular Strategies
Business Model Development
AI Concepting
