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Driving decarbonisation of the construction industry – FIDIC launches Carbon Management Guide
19 December 2025
FIDIC has introduced the FIDIC Carbon Management Guide to help drive decarbonisation in the construction industry. The guide introduces several key mechanisms that allow parties to manage carbon emissions: a new framework for recording and reporting emissions, an incentive structure to encourage emission reduction, and changes to the tendering process which would allow contractors to compete over their ability to reduce emissions.
FIDIC has made it easy for employers to seamlessly incorporate these changes into the existing FIDIC forms. The introduction of this guide will no doubt change the construction industry as a whole for employers, contractors, and funders and other stakeholders.
On 1 December 2025, the Fédération Internationale des Ingénieurs-Conseils ("FIDIC") released its new FIDIC Carbon Management Guide ("CM Guide") at the International Contract Users' Conference in London.
The CM Guide is a contract guide that provides a framework for integrating carbon-management obligations into construction contracts. FIDIC hopes that the CM Guide will promote the widespread adoption of carbon management practices throughout the construction industry.
The framework is built around three key mechanisms:
(i) the Carbon Balance Sheet, together with the Carbon Emissions Damages and Incentives;
(ii) the Carbon Emissions Management Guidance; and
(iii) the requirement to include the Carbon Emissions Budget at the tender stage.
Chapter 1
Carbon Balance Sheet and carbon performance outcomes
The most important innovations introduced by the CM Guide are the Carbon Balance Sheet ("CB Sheet"), the Carbon Emissions Damages ("CE Damages"), and the Carbon Emissions Incentives ("CE Incentives"), which operate as an integrated mechanism.
The CM Guide centres on a financial system where the Contractor is rewarded or penalised based on carbon performance, with the CB Sheet providing the data that determines CE Damages or Incentives.
The Carbon Balance Sheet
The CB Sheet is a project document prepared and maintained by the Employer. Under the CM Guide, it must include the following:
- Actual Carbon Emissions ("Actual CE"): The cumulative emissions from all contract activities throughout the Works, including defect rectification.
- Carbon Emissions Budget ("CE Budget"): The maximum permitted emissions throughout the entire Works, proposed at tender and contractually binding on the Contractor.
- Carbon Emissions Calculation Methodology: The agreed methodology for calculating carbon emissions. The CM Guide requires a single, consistent methodology applied for all measures (e.g. Actual CE, CE Budget, etc.), to avoid inconsistencies and disputes.
Damages and incentives mechanism
The data recorded in the CB Sheet determines whether CE Damages or CE Incentives apply:
- Where the Actual CE exceeds the CE Budget, the Contractor is liable to pay CE Damages.
- Where the Actual CE is below the CE Budget, the Contractor becomes entitled to CE Incentives.
This structure creates fair and balanced incentives to encourage the Contractor to meet the agreed CE Budget.
Chapter 2
Carbon Emissions Management Guidance
FIDIC also introduced the Carbon Emissions Management Guidance ("CEM Guidance"), which is closely linked to, but distinct from, the CM Guide.
The CEM Guidance complements the CM Guide by providing pre-drafted clauses that put the CM Guide's framework into practice. Issued in multiple versions tailored to specific FIDIC contract forms (i.e. one for Red Book, one for Yellow Book, etc.), the CEM Guidance ensures carbon-management provisions align with each form's risk allocation and structure, giving parties confidence in consistent application.
Chapter 3
Including the Carbon Emissions Budget in tendering
The CB Guide requires that the CE Budget be included as an evaluation criterion at the tender stage. Tenderers must submit a CE Budget with their bids, which becomes binding if accepted. This approach is designed to foster competition on carbon performance, encouraging potential tenderers to develop innovative and lower-carbon solutions.
Chapter 4
Practical implications for employers, contractors, and funders
The CM Guide introduces a detailed and coherent framework for integrating carbon management into construction contracts, as well as a dynamic incentive structure to encourage Contractors to stay within the CE Budget.
Employers
If Employers adopt the CM Guide, they will need to integrate CE Budgets into procurement, maintain CB Sheets, and monitor reporting.
Contractors
For Contractors, the CM Guide signals a broad change in the industry. To meet these changes, Contractors will need to be wary of commercial consequences for emissions, produce reliable CE Budgets at the tender stage, and manage the supply chain to stay within CE Budgets.
Funders and other stakeholders
Funders and financial institutions will benefit from standardised carbon reporting, supporting climate-risk assessment and sustainability compliance. FIDIC anticipates CB Sheets may become a financing requirement, potentially establishing the CM Guide as industry standard.
Authored by Nata Ghibradze, Liv Jores, and Jeremy Brodeur.
AI tools have been used to support editing of this publication. All content has been reviewed and approved by Hogan Lovells lawyers.
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