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Why grey firms will have to go green
Aug 27th 2016
THE cement industry is one of the world s most polluting: it accounts for 5% of
man-made carbon-dioxide emissions each year. Making this most useful of glues
requires vast quantities of energy and water. Calcium carbonate (generally in
the form of limestone), silica, iron oxide and alumina are partially melted by
heating them to 1450 C in a special kiln. The result, clinker, is mixed with
gypsum and ground to make cement, a basic ingredient of concrete. Breaking down
the limestone produces about half of the emissions; almost all the rest come
from the burning of fossil fuels to heat the kiln.
About 4.3 billion tonnes of cement were consumed in 2014 China alone needed
more than half of that. It also produces 60% of the stuff, followed at a
distance by India and America. The industry brings in about $250 billion a
year. Cement firms have not attracted the ire of environmental campaigners in
the way that oil firms have. But that could change if they shirk efforts to cut
emissions in a manner consistent with keeping the world less than 2 C warmer
than it was in pre-industrial times (as agreed at UN climate talks last year).
For now, few cement companies are setting environmental targets that are tough
enough.
The main reason is a lack so far of strong enough financial imperatives, but
that is changing. And as is the case for many industries, going green could
save firms money. Around a third of cement s production costs come from energy
bills. Retrofitting old kilns to improve thermal efficiency can lower the
industry s energy needs by two-fifths, according to the Carbon Disclosure
Project, a research body. Another way to go green is to reduce the amount of
clinker in cement by using waste substitutes such as fly ash from coal plants
or slag from steel blast furnaces, but these are becoming scarcer and more
expensive.
Capturing carbon and then sequestering it, often underground, is another method
for cutting emissions. But the bother and expense of such schemes makes them a
rarity. There are variations that can cut costs in rich countries. Rather than
stuffing the CO spewed out of cement and other plants underground, Blue
Planet, a carbon-capture company based in California, creates building
materials from it in the form of aggregates. These can be recycled into making
new concrete, avoiding the need for more limestone.
As almost all big cement firms also produce building materials such as concrete
and asphalt, capturing emissions to create such products is worthwhile. It
could also reduce open-pit mining for limestone, which is especially
destructive. Blue Planet is providing materials for San Francisco s new airport
and has other projects across North America. Concrete is the 900-pound gorilla
in the carbon footprint of any building says its CEO, Brent Constanz.
The group of cement bosses that environmentalists need to win round is small.
Just six firms LafargeHolcim, Anhui Conch, CNBM, Cemex, Heidelberg and
Italcementi dominate the global market. The last two are set to merge this
year, leaving just five behemoths. The nature of the industry helps explain its
propensity for consolidation. The great weight of cement and its ingredients
makes the materials tough to transport, creating localised markets. Companies
prefer to serve distant markets by buying firms that are already there. Deals
have multiplied as firms from the rich world have splurged on those in
developing countries, and, occasionally, vice versa. Slowing growth in China
has created a huge, grey supply glut of cement in the country, which is likely
to mean more dealmaking.
Further consolidation, bringing economies of scale, ought to help the industry
to clean up. China is to introduce a national carbon-trading scheme in 2017,
and the EU s own scheme will reduce its emissions cap by 2.2% every year after
2020. The industry is becoming more vulnerable to emissions-curbing
legislation, says Phil Roseberg of Sanford C. Bernstein, a research firm. Some
cement giants are at last taking action. LafargeHolcim already uses an internal
carbon price of $32 per tonne; Heidelberg works with one of $23. In a changing
regulatory and political environment, investors may start to see nasty cracks
in the business model of any firm still stuck in the industry s old, polluting
ways.