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Making cement is one of the most polluting activities on the planet when it comes to greenhouse gases and if companies do not reduce their emissions much more effectively in coming years, they are likely to face much tougher regulation, a new report says.
The first reason the sector is so polluting is that so much is produced. Cement is the key ingredient in concrete, the second-most consumed substance on earth after water.
One of the key constituents is limestone, which is full of the greenhouse gas carbon dioxide, and the process uses a huge amount of energy – often from fossil fuels – to heat the limestone to 1,400C and drive out the CO2, forming a material called clinker that is then combined with gypsum to form cement.
As a result, the cement industry is the third largest consumer of energy and the second largest industrial emitter after the steel industry with 6% of global emissions, according to CDP, the climate change research group. It is no surprise, then, that the industry is in the spotlight over its efforts to tackle its emissions, not least because the energy sector is starting to make real progress in decarbonizing thanks to the advent of low-cost renewable energy technologies such as solar and wind, coupled with energy storage.
The Paris Agreement on climate change set out the ambition to keep average temperature rises “well below” 2C of pre-industrial levels and scientists have determined what that means in terms of the emissions each country, industry and ultimately, individual company can produce.
Cement companies need to more than double their reduction efforts or miss their climate goals, CDP says . This will take a combination of tighter regulation and significant technological advances, it adds in a new report, Building Pressure, which looks at 13 of the biggest listed cement groups, which have a combined market capitalization of $150 million and represent 16% of global production.
“Cement is a heavy and largely invisible polluter, yet taken for granted as a necessary building block of basic civilization,” said Paul Simpson, CEO of CDP. The sector has so far been lightly regulated, but that may change as ambitions for low-carbon cities increase and lead to stricter building rules in urban areas around the world.
“With potential pressure coming from multiple sources, including down the value chain in the form of building and city regulation, cement companies need to invest and innovate in order to avoid impending risks to their operations and the wider world. This may seem challenging at first, but every year it is delayed, the cost becomes greater, so management teams, regulators and investors need to think long term. There is a solution – cement companies just need to invest properly in finding it.”
The best-performing cement groups on climate metrics are Indian groups Dalmia Bharat and Ambuja Cement. Indian companies have better access to alternative materials from other carbon-intensive sectors such as coal and steel, and also have newer, more efficient plants thanks to strong growth than their peers in Europe, which is a mature market relying on older plants.
However, CDP says that there are significant opportunities for companies that act early to cut their emissions. “ Companies can reduce costs by making their cement plants more energy efficient and secure their position in future sustainable cement markets by investing in low-carbon products ,” CDP says. “Governments can facilitate the development of these markets through regulation and incentives.”
As in so many other high-carbon sectors, carbon capture and storage (CCS) technology could help to create low-carbon cement, but despite the long history of CCS being hailed as a solution to the emissions challenge, very little has actually happened, especially in industrial facilities.
In Europe, companies may be able to cut emissions by using alternative fuels from waste collection, but in emerging markets the infrastructure to do this remains lacking.
The report highlighted that five of the 13 companies do not use an internal carbon price, a significant risk in a sector where carbon pricing legislation could have a material impact through schemes such as the EU’s Emissions Trading Scheme, China’s nascent national carbon market and North American markets such as the Regional Greenhouse Gas Initiative and its counterparts in California, Quebec and Ontaria in Canada, and Mexico. Carbon markets have failed to live up to their potential so far, but with 195 countries signing up to the Paris Agreement, they are likely to be far more important in the coming decades.
Another move that would accelerate progress is the linking of managers’ remuneration to long-term climate risk, something that only Cementos Argos of Colombia has done, of those surveyed.
CDP assessed the companies according to the recommendations of the Task Force on Climate-Related Disclosures (TCFD), which encourage companies to disclose how they are adjusting their business models to manage transition risks and take advantage of the opportunities created by the transition to a low-carbon economy. As the TCFD requirements become more mainstream, a growing number of investors are going to expect cement companies to explain how they are meeting these challenges.
A number of companies have been working on innovative, low-carbon cements, including the U.K.’s Cenin Cement and Banah, but nothing has broken through to the mainstream, in part because of a lack of support from the big players.
Marco Kisic, Senior Analyst at CDP commented: “Cement companies have made some progress towards reducing their emissions, but they need to do a huge amount more. Cement companies should be looking at ways to further use alternative materials and fuels, improve the energy efficiency of their plants, and accelerate investments in low-carbon technologies such as carbon capture and storage, which is crucial for their long-term viability. Regulation may be the key driver for change here, and interestingly this may come from downstream as building regulators and owners shift their focus from operational emissions, to those associated with creating the buildings themselves.”
