Michael McSweeney, Cement Association of Canada, explores the Canadian cement industry, and looks at how it is dealing with the climate change challenge.
On 9 December 2016, Canada’s First Ministers adopted the Pan Canadian Framework on Clean Growth and Climate Change, a joint federal-provincial roadmap to “lead Canada toward a prosperous low carbon and climate resilient future.” The cornerstone of the agreement includes a commitment to a national price on carbon, building on the carbon pricing systems already in place in Canada’s most populous provinces. Equally significant for the cement sector, the framework commits to historic investments in green infrastructure, public transit, and clean technology and innovation.
The Canadian cement and concrete industry has welcomed these developments and continues to play its now longstanding and constructive role in supporting the design and implementation of climate mitigation and adaptation policies, including carbon pricing. The Cement Association of Canada’s (CAC) objective is to help federal, provincial, and local governments rise to the climate change challenge in a manner that preserves and enhances the competitiveness of the sector, while incentivising solutions that both reduce greenhouse gases (GHGs) from the manufacture of cement and support a low-carbon and climate resilient built environment through strategic lifecycle-driven investments in infrastructure.
Carbon pricing and cement sector competitiveness Carbon pricing in Canada
As of January 2017, all but one cement facility in Canada operate in a provincial economy that has priced carbon. In British Columbia, the CAC’s two cement facilities are subject to a CAN$30/t carbon tax applied directly to fossil fuels (i.e. kiln fuels such as coal, petcoke, natural gas, as well as transportation fuels). Ontario- and Quebec-based facilities are captured under the Western Climate Initiative’s (WCI) linked cap-and-trade system (with a current market price of about CAN$18). In Alberta, facilities are subject to a hybrid carbon pricing scheme that includes a fixed carbon price of CAN$20/t (rising to CAN$30/t in 2018), but where Emissions-Intensive Trade-Exposed sectors (EITEs), like cement, will benefit from output-based allocations indexed to intensity benchmarks in a manner similar to cap-and-trade systems.
At the national level, Canada has committed to a 2030 GHG reduction target of 30% below 2005 levels, and to using carbon pricing as one of the tools to get there. In October 2016, the federal government announced that it will backstop existing provincial pricing systems with a minimum national carbon price. Beginning in 2018, the federal government will impose a price on carbon in all provinces that do not have an equivalent pricing system in place, starting at CAN$10/t and rising in CAN$10 increments to CAN$50/t in 2022. The scope of the federal price is to be modelled on British Columbia’s carbon tax (i.e. applied directly to fossil fuels and not broader categories of emissions, such as non-combustion industrial process emissions). Importantly, the federal government has indicated that the equivalency of provincial systems with the federal price will be evaluated not simply on price, but also price coverage, stringency, provincially legislated GHG reduction targets, and the presence of other provincial policies that support emissions reductions. For example, the WCI cap-and-trade system deployed in Ontario and Quebec is likely to yield market prices well below the federal price benchmark, but because it covers a broader suite of emissions and is indexed to an economy-wide emissions cap that is more stringent than the federal target, it is widely anticipated that Ontario’s and Quebec’s systems will be deemed equivalent to the federal price, and therefore continue to function more or less as they do today.
Protecting the competitiveness of EITEs
The fact that cement is a highly emissions-intensive, trade-exposed industry has been well documented internationally, as well as in Canada, by such groups as Clean Energy Canada,1 Sustainable Prosperity,2 and the EcoFiscal Commission.3 A carbon price that applies to cement facilities domestically, but not to competing facilities outside of the country, reduces the local industry’s competitiveness against imports, as well as in export markets. Put simply, cement manufacturers cannot transfer the cost of carbon pricing to the price of cement and remain competitive against cement manufactured in non-carbon-priced markets.
British Columbia’s carbon tax is a case in point. At CAN$30/t of CO2, it nearly doubles the cost of traditional kiln fuels and has resulted in significant loss of market share against imports from the US and Asia. When British Columbia introduced its carbon tax in 2008, cement imports in the province gradually climbed from less than 6% to a peak of over 40%. The net result is lost economic opportunities in British Columbia and, perversely, a net increase in global GHG emissions (so called emissions leakage) associated with the transportation of cement from import markets. It has also had the compounding effect of discouraging investment in the sector, since cement manufacturing facilities in British Columbia must compete for capital with other facilities in the corporate portfolio operating around the world.
Supported with funding from the provincial government, a coalition of British Columbia’s leading environmental groups, the cement sector and other EITE industries operating in the province collaborated to recommend solutions to the competitiveness and leakage challenges created by British Columbia’s carbon tax. After a year of analysis, the coalition recommended that the British Columbia government adopt an output-based allocation system for EITEs. The British Columbia government is currently considering that work. While the competitiveness and leakage challenges in British Columbia remain, other jurisdictions in Canada have taken note and have been proactive in integrating EITE provisions into the design of their respective carbon pricing systems. For example, Ontario’s cap-and-trade system provides cement manufacturers with free allowances, such that cement manufacturers only pay for GHG emissions above an established benchmark intensity. While the benchmarks and number of free allowances differ in Quebec’s cap-and-trade system, it is otherwise substantively similar. Alberta’s carbon pricing regime will likewise include an output-based allocation system that establishes an intensity benchmark for combustion emissions, below which cement producers will be sheltered from the carbon price (through carbon tax rebates or similar mechanism).
Free allowances, or their output-based allocations equivalents, are the cornerstone strategy for preventing leakage in EITE sectors. However, as the intensity benchmarks used to establish the number of free allocations that a cement facility receives decline over time, leakage and competitiveness challenges remain. For example, in Ontario, the benchmark GHG emissions intensity for combustion emissions declines by 4.57% per year in the first compliance period (2017 – 2021). Even with free allocations, the cost of compliance, either through the purchase of allowances or capital investments in low-carbon technologies, will ultimately tip the balance in favour of cement in/from non-carbon-priced markets. In addition, some of the market-ready solutions for reducing GHGs in cement manufacturing – chiefly, low-carbon fuel (LCF) substitution – face other market and regulatory barriers.
As such, the Canadian cement industry has been working hard to identify and address these barriers through regulatory and policy reform, as well as by leveraging carbon revenues to support investments into LCF infrastructure and other low-carbon technologies.
Low-carbon strategies for the cement industry
Alternative low carbon fuels
In comparison to leading international markets, fuel substitution rates at Canadian cement facilities are low: historically static at about 8 – 12% across the fleet. These low substitution rates can be explained, in part, by the lack of robust waste management policies. There are few market incentives to divert waste from inexpensive landfills toward more environmentally friendly solutions, thereby limiting access to significant and sustained volumes of LCF materials. In addition, regulatory and social licence barriers have reduced incentives for cement manufacturers to pursue LCF investments.
This environment is quickly changing as governments and civil society groups become aware of the significant GHG and economic benefits of LCF. As part of engagement on carbon pricing, it has been possible to attract regulatory reform, as well as financial support, for transitioning to lower carbon fuels. In British Columbia, facilities are benefiting from a five-year CAN$27 million fund to invest in facility-level LCF infrastructure and market development. Similarly, Ontario has earmarked CAN$40 – 60 million in its Climate Change Action Plan, derived from cap-and-trade auction revenues, to help coal-intensive sectors transition to lower carbon fuels. These investments, if sustained and broadened to other jurisdictions, could help ease the competitive impacts of transitioning to lower carbon cement production and put the Canadian fleet on a path toward best-in-class low-carbon fuel use. It is estimated that a robust market for LCF could, over the medium-term, reduce combustion emission intensity by up to 50%, and cut overall GHG emissions by up to 20% (2 – 3 megatonnes per year).
Portland limestone cement
The Canadian cement sector recently came together to promote portland limestone cement (branded nationally as ContempraTM) as a no-regrets opportunity to reduce GHGs from concrete. Contempra cement reduces the GHG footprint of concrete by 10%, offering immediate carbon reductions from construction projects, while maintaining the same level of strength and durability as regular concrete. If adopted as a full replacement for all cement sold in Canada, Contempra could yield annual CO2 reductions of up to 900 000 t, at no additional cost. While Contempra is included in the CSA cement and concrete standards referenced in the 2010 National Building Code of Canada, it does not yet enjoy deep market penetration. This is in large part because the construction industry codes and standards bodies, as well as the public procurement agencies responsible for planning and commissioning infrastructure projects, are, understandably, risk averse and wrestling with how to value and incentivise new innovations in low-carbon construction materials and design.
A significant component of climate change engagement has therefore been focused on helping to identify lifecycle-based procurement strategies and tools that can identify and incentivise significant GHG reduction opportunities in the built environment (see below).
Carbon capture and utilisation
The cement sector is slowly benefiting from the development of innovations in clean technology and investment focused on long-term carbon capture and utilisation solutions. In Canada, the Votorantim Cimentos facility in St Marys, Ontario has attracted significant excitement with its algae-based carbon capture system, Pond Technologies, which captures flue gas as a feedstock for algae, which can subsequently be processed into other saleable commodities such as biofuels, nutritional supplements and agricultural feedstocks. (Editor’s Note: for more on Pond Technologies, see: MASON, C., ‘The Search for Global Solutions’, Cement Plants of the Future: A Supplement to World Cement (April 2017), pp. 29 – 33).
Carbonated concrete is also drawing interest, with technologies like LafargeHolcim’s Solidia and Halifax-based CarbonCure demonstrating the role that carbonation can play among a suite of strategies to move us closer to carbon-neutral, or even carbon-negative, concrete products and systems on a lifecycle basis.
As promising as these technologies are, it is important that governments understand that they will require time to mature and scale. Maintaining a competitive playing field, particularly in the context of carbon pricing, and thinking creatively about the role of public procurement in drawing new low-carbon technologies into the market, will be essential.
LCA for low-carbon, climate-resilient infrastructure
Governments have made a significant commitment to renewing and modernising Canada’s infrastructure, with a view to facilitating a transition to a low-carbon climate-resilient economy. Some CAN$250 billion in federal, provincial, and municipal infrastructure investments are expected over the next decade.
Clearly, a massive investment in the renewal and modernisation of Canada’s infrastructure presents an important economic opportunity for the industry in a very traditional sense. At the same time, it must be diligent in ensuring that cement is understood as a strategic asset in the effort to reduce GHGs and make communities more resilient to the impacts of climate change. In this effort, lifecycle costing and assessment (LCCA/LCA) is the most important ally in demonstrating the economic, social, and environmental value that the strategic use of concrete can offer to a huge variety of infrastructure projects.
For example, robust third-party developed and certified LCCA/LCA tools for pavement can accurately and objectively quantify the ‘cradle-to-cradle’ lifecycle cost, resource efficiency, and GHG reduction benefits of concrete pavement projects compared to other pavement systems. These tools draw attention to, and place a value on, previously unconsidered benefits, such as the economic and environmental fuel efficiency benefits associated with the reduced rolling resistance of rigid concrete pavements. This is the type of multivariable thinking that must be integrated into core planning and tendering frameworks used by public procurement agencies, if communities are to benefit from cost-effective, low-carbon, and climate-resilient infrastructure investments.
In this vein, the cement and concrete industry is working hard with a variety of infrastructure, environmental, cleantech, and other stakeholders, to help ensure that Canada’s infrastructure investments return the greatest possible value to communities by integrating three lifecycle-based screens into all infrastructure investments.
Full economic lifecycle cost assessment rather than the initial cost framework that guides most infrastructure decisions today. Full carbon cost assessment, including embodied carbon, operational carbon, end-of-life carbon and sequestered carbon impacts. Best available solutions assessment that considers whether the need associated with the infrastructure project can be met through a different type of infrastructure that performs better under one or both of the first two screens.
While there is now an abundance of lifecycle data and tools, a lack of consistency in boundaries, methodologies, and robustness can impede credible full lifecycle carbon assessments and sow confusion in the marketplace. With the exception of pavements, where the choice of materials and designs is relatively limited, there currently exist few robust yet accessible tools to properly inform an integrated infrastructure design and decision protocol.
These challenges could be overcome with a modest investment to integrate, refine, and standardise a lifecycle carbon platform, and fill in remaining lifecycle inventory information gaps. Work underway at MIT, the Athena Sustainable Materials Institute, and the Risk Sciences Institute, among others, is already helping to amass lifecycle costing data and tools, making it easier to accommodate uncertainty around the impacts of any given project.
This integrated approach should also take into account the need for increased resilience in infrastructure as a result of climate change. New studies from MIT show that failing to accurately value the risk to infrastructure from disasters, including, for example, more extreme weather, can have a dramatic impact on the lifecycle cost and carbon performance of a given project (e.g. if it requires premature replacement or repairs).
Throughout history concrete has been an essential material in the building and modernisation of economies around the world, and is poised to become an even more valuable commodity as society marches toward a more sustainable, more resilient and more prosperous low-carbon future. As an industry that offers a host of expertise, affordable solutions, and innovations for the low-carbon and climate-resilient communities of the future, the climate agenda is an important opportunity for the sector.
This article was first published in World Cement. To receive your free copy of the magazine, click here.
Read the article online at: https://www.worldcement.com/special-reports/03072017/rising-to-the-challenge/
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