Decarbonising cement and concrete value chains: Takeaways from Davos (Part 1)

The built environment accounts for approximately 40% of global CO₂ emissions from fuel combustion and 25 percent of global greenhouse-gas (GHG) emissions.¹ As a part of these totals, cement production is one of the highest-emitting industries, accounting for 7% of global CO₂ emissions.² Reaching net-zero emissions by 2050 will require the rapid decarbonisation of the cement and concrete industry. Although many companies in the industry have committed to decarbonisation, no individual player can achieve this goal without buy-in from across the ecosystem.

McKinsey hosted an interactive panel at the World Economic Forum Annual Meeting 2023 (AM23) in Davos, Switzerland, to discuss the future of the industry. The panel brought together stakeholders along the value chain, including investors and banks from around the globe, who discussed what actions the industry can take now, where circularity could play a valuable role, and how stakeholders across the value chain can collaborate to succeed.

As the panelists discussed the future of cement and concrete value chains, four key themes emerged: the possibility of decarbonisation in cement and concrete, the value creation opportunity of circular economies, new opportunities for investment and green-business building, and the key role collaboration will play in decarbonisation.

Decarbonisation in cement and concrete is possible through a combination of levers

Given its significant emissions, cement manufacturing is a crucial area of interest for decarbonisation efforts.³ Beyond the environmental costs of CO₂ emissions, monetary costs are increasing because of carbon-pricing systems, which could reach up to €180 billion globally by 2050. That said, cement remains the number-one building material: four billion metric tons—as much as 50 000 fully loaded airplanes—are produced annually. More precisely, building-materials players at AM23 highlighted the increased demand for lower-carbon building materials, specifically green cement.

To meet this demand for sustainably produced materials, cement and concrete manufacturers can engage in the following levers to decarbonise along the value chain:

• Reducing the amount of clinker in cement. Clinker accounts for approximately 90% of the emissions released in cement production, making it a high priority for industry players to address.⁴ To decarbonize the industry, cement producers can consider substituting clinker with alternative materials, such as fly ash, metal slag, or calcined clay. They can also seek to reduce the amount of clinker needed through innovations in construction, design, and material mixes and developing low-binder cements and reusable concrete modules.
• Reducing the CO₂ from energy used in the production process. To reduce energy-related emissions, players are exploring alternative fuels and newer technologies such as kiln electrification. In addition, cement and concrete producers are developing proprietary waste-recycling businesses that target the use of industrial and municipal waste in their kilns.
• Storing or utilising remaining CO₂ emissions. One major topic of interest for all stakeholders—including manufacturers of cement and concrete, building-materials offtakers, and investors—was the storage and reuse of CO₂. For instance, cement and concrete players described how CO₂ can be stored in concrete aggregates when construction and demolition waste is recycled.⁵ And investors highlighted their specific appetite for businesses that aim to capture and utilise industrial carbon emissions.

Circularity is an opportunity for value creation

Circularity also emerged as a major theme during the roundtable. Panelists pointed out that to achieve a green built environment, recycled cement and concrete materials can be utilised in new buildings and construction, either as reusable modules or as materials that can be broken down and incorporated into new building materials. There are already examples of cement and concrete recycling across the globe, including in the Nordic countries. There, construction companies are building new structures that use concrete from demolished buildings. Taking this a step further, even entire buildings can be reused or repurposed. A building that was once a warehouse could be converted into a retail store, an office complex, or housing. Repurposing buildings in this way could help meet urgent societal needs, such as providing new housing in restricted markets without needing to start construction from scratch.

Although most of these technologies are relatively new and have not yet been deployed at scale, the interest and action of players in this field is growing. It is estimated that roughly 2.6 billion metric tons of CO₂ emissions could be avoided or mitigated by applying circular solutions for cement and concrete by 2050.⁶ These economic and CO₂ savings could potentially contribute up to €110 billion in EBITDA annually to the built environment by 2050.

The incentives for the industry to move toward circularity are strong, but stakeholders will need to navigate several challenges. For instance, circular solutions require the industry to adapt and build new supply chains and technologies. And achieving circularity in the built environment will require supportive regulations and industry-wide standards.

Part 2 of this article is available here.

References

1. Tony Hansen, Focko Imhorst, Anna Moore, and Sebastian Reiter, “Glasgow COP26 2021: Decarbonizing the built environment,” McKinsey, November 11, 2021.

2. Sebastian Reiter, “Cement,” McKinsey Quarterly, August 1, 2022.

3. Thomas Czigler, Sebastian Reiter, Patrick Schulze, and Ken Somers, “Laying the foundation for zero-carbon cement,” McKinsey, May 14, 2020.

4. Sebastian Reiter, “Cement,” McKinsey Quarterly, August 1, 2022.

5. Sarah Heincke et al., “Circularity: A key enabler to reach net-zero in cement and concrete,” World Economic Forum, November 4, 2022.

6. Sarah Heincke et al., “How circularity can increase profits in cement and concrete,” World Economic Forum, January 11, 2023.

Read the article online at: https://www.worldcement.com/special-reports/06022023/decarbonizing-cement-and-concrete-value-chains-takeaways-from-davos-part-1/