Carbon pricing to drive down emissions

As the USA effectively doubles its target for carbon emissions reduction by 2030 and more countries pledge to carbon neutrality by 2050, we take a look at how carbon pricing is expected to play a key role in driving down emissions.

Last month the European Parliament adopted a resolution for a WTO-compatible Carbon Border Adjustment Mechanism (CBAM), which would introduce a carbon price on certain products imported from countries outside the EU with less robust carbon pricing schemes. The resolution is an effort to lessen the effect of carbon leakage and is set to be presented as a legislative proposal in June. As a result, the cement sector could potentially be covered by the CBAM by 2023.

June 2021 also marks the publication of the EU Commission’s ‘Fit for 55’ paper, which is expected to highlight many of the proposals it will look to set out to meet the updated 55 per cent carbon reduction target. The proposals are expected to include adding more sectors to the EU’s Emissions Trading Scheme (EU-ETS) and could even look to reduce the number of free allowances for the sector.

At TurkÇimento’s recent DigitalCem webinar, Claude Loréa of the GCCA noted the importance of having a level carbon pricing landscape to avoid carbon leakage. Ms Loréa also stated that the goal for carbon pricing initiatives should be to drive innovation in manufacturing to reduce carbon emissions at the source. Currently, 64 carbon pricing initiatives have been implemented or are scheduled for implementation. This only represents 22.3 per cent of global GHG emissions. Therefore, Ms Loréa stated that the ultimate goal should be to move towards net zero and more than 100 countries have already pledged to meet this goal by 2050.

One of the challenges faced by governments around the world in reaching this target is the growth of energy-related CO₂ emissions, which are on course to increase by 1.5bnt in 2021. This would be the second-largest increase in history and reverse most of last year's decline, according to the International Energy Agency.

Elsewhere, a recent report by Exane BNP Paribas highlighted the opportunities that the cement industry will have to take full advantage of to reach carbon neutrality by 2050. One of the key factors identified is the technical and economic feasibility of carbon capture, storage and utilisation. Therefore, it is encouraging to see the Norcem Brevik project progressing at pace, with HeidelbergCement recently signing a contract with FLSmidth for the delivery of plant modifications that would allow for downstream CO₂ removal. Final commissioning of the CCS project is due for 2024 and will see a 50 per cent reduction of emissions from the cement produced at the plant.

Other variables include the expansion of carbon pricing models into more international regions, with the United Nations estimating that a US$100/t CO₂ price is required to meet the 2050 target. Whether it is down to carbon prices or capex-related to CCS technology, the costs of carbon neutrality would likely need to be passed on to the consumer.

Another few important months lie ahead for cement sector sustainability and while change will be necessary, the sector has the capacity and the potential to succeed in the carbon-neutral world.

However, there will be no room for complacency, as Exane BNP also makes the forecast that around 1bnta of current clinker capacity could be surplus to requirements in an environment with stable cement demand and an increased range of alternative products.