For decades, procurement teams have calculated landed costs using four dimensions: purchase price, tariffs, insurance, and shipping. This framework has served the industry well, helping teams compare suppliers across borders and make informed sourcing decisions.
But now, these traditional four dimensions are dangerously incomplete. A fifth dimension — carbon — has emerged. It can add hundreds of euros per ton to material costs, but most procurement teams aren’t accounting for it in their cost models.
The real cost of materials (that traditional spreadsheets don’t show)
Take steel as an example. A traditional landed cost calculation would factor in the purchase price from the supplier, applicable tariffs, insurance during transport, and shipping costs. Based on these four dimensions, a procurement team might select what appears to be the most cost-effective supplier.
But here’s what that calculation is missing: steel production emits approximately 2.6 tons of CO₂ per ton of steel produced. And carbon now has a price.
The EU’s Emissions Trading System (ETS) is driving carbon prices steadily upward, with Bloomberg NEF projecting prices will reach €149 per ton of CO₂ by 2030. The EU’s Carbon Border Adjustment Mechanism (CBAM) extends these costs to imports, meaning companies purchasing steel from outside the EU will pay carbon costs aligned with the EU’s domestic carbon price.
Once you factor in carbon pricing, a “cheap” supplier may well look much more expensive. At €149 per ton of CO₂, steel’s carbon footprint of 2.6 tons means an additional €387 per ton in carbon costs by 2030. For a manufacturing company purchasing 50,000 tons of steel annually — not uncommon for automotive, construction, or industrial equipment manufacturers — that’s nearly €20 million in additional costs that a traditional 4-dimension landed cost calculation would completely miss.
The impact extends far beyond steel. According to PwC research, CBAM is estimated to multiply hidden carbon costs by 5x or more for many imported goods. Under a net-zero scenario, the impact becomes even more dramatic: hidden carbon costs could increase by 23–50x current levels. This would mean that, for example, steel imported from Korea could see carbon costs jump from 0.54% to 12.85% of the selling price.
This isn’t theoretical. These cost changes are already beginning, and they’re fundamentally altering which suppliers actually offer the best value. A real example: an automotive company was choosing between aluminum and carbon fiber components. Traditionally, aluminum has been cheaper to produce but more carbon-intensive than carbon fiber. When the company factored carbon costs into their analysis, they discovered the carbon fiber parts were actually more profitable and offered more supplier options, mainly due to their lower carbon emissions.
The company reduced emissions and costs simultaneously. Once carbon was treated as a landed cost, the sustainable choice became the profitable choice.
Why delaying action on carbon costs is risky
Some companies are taking a “wait and see” approach, seeing how carbon costs materialize in the future before taking action. But this is a big problem because while they wait, they’re continuing to use incomplete cost models that systematically favor high-carbon suppliers.
Every sourcing decision made with a 4-dimensional framework is essentially a bet that carbon costs won’t occur or won’t increase — and that bet is looking increasingly risky.
On the other hand, companies that are already building carbon into their landed cost calculations aren’t just avoiding future costs and penalties. They’re discovering which of their current “low-cost” suppliers are actually expensive when carbon is factored in. They’re identifying which material substitutions (like the aluminum-to-carbon-fiber switch) deliver both cost and emissions benefits. And they’re building supplier relationships around carbon performance before the best partners are locked into competitor contracts.
In short, companies that continue using 4-dimensional cost models will systematically choose suppliers that look cheap today but become expensive tomorrow.
From theory to practice: why this requires more than spreadsheets
Of course, implementing 5-dimensional cost modeling isn’t as simple as adding a column to a spreadsheet. It requires accurate carbon footprint data across multi-tier supply chains, sophisticated calculation methods that account for regional variations and production processes, and seamless integration into existing procurement workflows.
This is why leading procurement teams are adopting integrated carbon management systems that embed this intelligence directly into their sourcing decisions — automatically calculating carbon costs when RFQs are sent out, enriching supplier data with emissions profiles, and providing real-time comparative analysis alongside traditional cost metrics.
Discover the full five strategies for competitive procurement advantage through decarbonization
Treating carbon as a fifth landed cost is just one of five strategies these teams are using to turn carbon management into a competitive advantage rather than a compliance burden.
The other four strategies covered in our complete guide include:
- Focusing on the 20% driving 80% of emissions — using the Pareto Principle to maximize impact and ROI
- Embedding granular carbon data into procurement workflows — moving beyond unreliable spreadsheets to AI-powered carbon intelligence
- Adjusting strategy based on supplier switching complexity — knowing when to switch versus when to develop existing suppliers
- Making suppliers compete on sustainability — driving innovation by building carbon performance into RFQ criteria
These strategies work together to help procurement teams reduce emissions and improve the bottom line simultaneously. With the right approach, sustainability transforms from a pressure point into a source of competitive advantage.
Download our complete guide, “Carbon Management: The Hidden Source of Procurement Savings,” to discover all five strategies — including real examples, practical frameworks, and how leading companies are implementing carbon intelligence in their procurement workflows.
