Climate Bonds Unveils New Policy Paper on the Cement Sector's Decarbonisation Journey
Climate Bonds' new policy paper on the cement sector’s transition to net zero lays out how sustainable finance markets and policies can support the sector’s decarbonisation and bring the cement industry into a net zero future.
Rapid, Deep Decarbonisation Across All Sectors, Including High-Polluters
Climate change is a global emergency that goes beyond national borders, requiring international cooperation. The 2015 Paris Agreement aiming to limit the average global temperature rise to 1.5°C is a testament to this. Despite commitments to the Paris Agreement, its objectives are beyond reach without immediate emissions reductions across all sectors, including the cement industry, whose barriers to decarbonisation are much higher than others due to technological, economic, or socio-political reasons.
If global cement manufacturing were a country, it would be the third-largest emitter on the planet, only after China and the United States of America. Cement production represents around 7% of global emissions and is the second largest global industrial emitter after steel.
Cement is also a key input into the supply chain of many industries, especially construction and infrastructure and decarbonising cement production is a critical enabler in the transition of these sectors.
The decarbonisation of cement is not just a technological and political challenge but also a financial one. It will require a new range of levers identified and guided through sector criteria, such as those released by Climate Bonds in 2022.
Sustainable Finance Critical in Bridging the Funding Gap
The cement industry is very capital intensive and financial flows need to be aligned with a Paris-compatible scenario, avoid lock-in, and be in place for the next investment cycle considering the longevity of cement assets (up to 60 years).
The capital required to transition the global cement industry could reach USD70bn annually between 2030 and 2040 (double current levels). The sustainable debt market could unlock the financing needed for cement companies that commit to ambitious targets and can develop credible transition plans.
The cost premium of low-carbon concrete in construction projects can vary widely across regions. However, given that concrete represents around 5% of a typical building, a green premium on concrete will not significantly increase the final cost of a new building. Even in a high-estimate scenario where low-carbon concrete costs 50% more than conventional concrete, the cost implication for a new building would be less than 3%.
Crucial Role of Green Policy for Public Procurement and Regulatory Support for Cement Decarbonisation
Most sectors require substantial financing, clear guidance, and a framework of supportive policies to transition to net zero – and the cement sector is one of these.
Green public procurement (GPP) policies can increase demand for decarbonised cement goods and for the whole value chain. The opportunity for GPP is huge and historically, public procurement has been a key lever to bring down emissions.
The purchasing power of public authorities totals around USD11tn each year. Public procurement accounts for up to 40% of the global cement demand and represents a high share of consumption in critical industries for cement activities, such as construction and infrastructure.
Aligning GPP with Taxonomy criteria will ensure climate alignment and consistency of sustainable investments. The US government aims to spend 80% of its procurement funds with suppliers that have set targets for their scope 1 and 2 emissions. Major suppliers to the US federal government will be required to disclose their greenhouse gas emissions and climate-related financial risk.
The development of mandatory criteria is key to the effective implementation of GPP. In some jurisdictions, such as the EU and South Korea, GPP remains voluntary, meaning that each public authority can decide whether to follow this guidance.
Fabio Passaro, Climate Bonds Senior Transition Policy Analyst says: “The cement sector is at an early yet critical stage in the net-zero transition. The success of the cement transition relies heavily on policy support which can play a significant role in determining which pathways are taken”.
Policymakers should act promptly to support industry and investors in a climate-aligned cement pathway and to promote informed investment decisions compatible with a low-carbon cement investment strategy.
To learn more, check out the latest episode of Climate Bonds’ Ready, Set, Transition podcast on the cement sector transition, available now.
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