Global Themes /

Climate change – the leading disruptor for global cement producers

    Vahaj Ahmed
    Vahaj Ahmed

    Head of Industrials Equity Research

    Tellimer Research
    30 October 2019
    Published byTellimer Research

    Cement is one of the oldest industries, but it now faces disruption driven by climate change. In this report, we explain how cement production leads to CO2 emissions, and propose solutions for how cement producers can reach the targets agreed under the 2015 Paris Agreement. We also discuss some of the regulatory actions (such as carbon taxes) being considered by different countries and how cement companies in our universe are positioned to face them.

    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). 

    First retrofit… 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. 

    …then innovation. 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 of companies is positioned. We have ranked our universe of countries to identify those that are best placed to cope with the disruption in the sector. Our ranking is led by Nigeria and Bangladesh, while Egypt and Kenya trail.