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2020s Vision: Climate change, cement and the challenge for EM infrastructure

    Vahaj Ahmed
    Vahaj Ahmed

    Head of Industrials Equity Research

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    Tellimer Research
    16 December 2019
    Published byTellimer Research

    Cement is one of the oldest industries, but, as we discuss in our 2020s Vision global themes, it now faces disruption driven by climate change. Annual CO2 emissions from the global cement industry must fall by at least 16% by 2030.

    To make this possible, cement producers not only need to reduce the use of fossil fuel, but also invest in overhauling the cement-making process itself (which has remained unchanged for almost 200 years).

    Retrofit, then innovate

    In the short-to-medium term, we expect cement companies to invest in retrofit technologies (such as alternative fuel and WHR) and roll out low-carbon products. In the longer term, we expect manufacturing equipment providers such as FLSmidth and Sinoma to introduce innovative solutions to make cement production carbon-neutral by 2050.

    How cement production leads to CO2 emissions 

    The production of clinker – a key component of cement – accounts for at least 90% of the sector’s emissions (estimated at 0.58 tCO2e per tonne). The remaining 10% (or less) is attributed to activities such as quarrying and transport. The emissions from clinker production can be broken down into: (1) process emissions (at least 50% the total); and (2) thermal emissions (40% of the total).

    What’s the target and how to reach it? 

    To meet the 2015 Paris Agreement, annual CO2 emissions from the global cement industry should be 16% (or 0.4bn tCO2e) lower by 2030, despite an estimated 4% higher production of 4,250 mtpa, and 24% (or 0.6bn tCO2e) lower by 2050 despite 14% higher production. Cement companies should lower their clinker-to-cement ratio, upgrade kilns (and use alternative fuels such as biomass) and use eco-friendly electricity. However, these suggestions are insufficient to achieve 16% / 24% lower emissions by 2030 / 2050 without integrating carbon capture and storage (CCS) into the cement-making process. Two start-ups, CarbonCure Technologies and Solidia Technologies, have made remarkable progress in this field and could help the global cement industry to reduce its annual emissions by up to 80%.

    Carbon tax – an added cost for the industry

    Twelve developing countries have already implemented carbon taxes, ranging from US$0.10 to US$31.30 per tCO2. Since more countries are considering carbon pricing as part of their climate policy packages, investors in the global cement industry must analyse the potential impact on their investments. We think the ideal target for investment would be a low-carbon cement producer operating in a high-margin, underpenetrated market.

    How our universe is positioned

    Based on the 2019f EBITDA (in US$/tonne), we estimate that a carbon tax of US$3-5/tCO2e will be the most detrimental for Kenya, followed by Egypt and Sri Lanka. In contrast, Nigeria, Tanzania and Bangladesh have the highest margin of safety against a similar per-unit carbon tax. To read more of our research on the Cement industry and the winners and losers from disruption, see our in-depth report.

    Read our full 2020s Vision: 20 themes for the next decade report.