Toward a Tradable Low-Carbon Cement Standard: Policy Design Considerations for the United States
This paper outlines design considerations for an effective low-carbon cement standard in the United States, including how to set benchmarks and stringency, how to address leakage and competitiveness, and how to structure cost containment policies. A low-carbon cement standard offers several advantages as part of a broader climate change policy portfolio and can serve dual purposes: moving the market in the nearer term through existing technological opportunities while setting a clear regulatory roadmap to inspire long-term investment in deep emissions reductions. We envision that this publication will equip policymakers to consider such a standard as an element of relevant climate policy packages and help ensure that if it is included, it will be designed in a sensible manner based on our recommendations.
- A low-carbon cement standard that sets a limit on the emissions intensity of cement by using tradable credits can encourage the adoption of existing abatement opportunities while setting a clear regulatory road map to inspire long-term investment in deep emissions reductions.
- Cement producers and importers would generate or need to surrender credits based on their performance against an emissions intensity benchmark. These credits would be tradable, rewarding companies that reduce emissions intensity.
- Such a standard would provide a targeted incentive to catalyze decarbonization in the sector in a potentially more effective manner than under economy-wide carbon pricing. The standard would provide incentives to adopt existing abatement options and to invest in emerging technologies.
- Addressing the technological, financial, market, and other barriers to abatement in the cement-concrete value chain will require a suite of complementary policies. Although a low-carbon cement standard can play a significant role, additional policies will be needed to decarbonize the full cement-concrete value chain.
- This paper outlines design considerations for an effective low-carbon cement standard, including how to define an emissions intensity metric, set the benchmark stringency, establish a price ceiling and floor for credits, and address the risk of leakage and competitiveness concerns.
Achieving the goals of the Paris Agreement will require decarbonizing the global economy, including heavy industry sectors such as cement. Cement production accounts for an estimated 1.2 percent of U.S. greenhouse gas (GHG) emissions and 7 percent of global carbon emissions (EPA 2020; IEA and CSI 2018). These emissions come from fuel combustion and the chemical reactions inherent in the production process. Around three-quarters of cement is used to make ready-mix concrete (USGS 2020).
Many opportunities to reduce the emissions intensity of cement exist or are in development. Options include reducing the clinker-to-cement ratio by using supplementary cementitious materials, fuel switching, carbon capture technology, energy efficiency, and the production of novel cements. Not all options would apply to all plants—some are not commercially available yet, are constrained by resource availability, or are dependent on the use of certain inputs or plant-specific technologies.
A tradable, low-carbon cement standard would provide a targeted approach to reducing the emissions intensity of the cement sector. It would incentivize the wider adoption of existing abatement options today and establish a transparent regulatory road map to set the pace of decarbonization across the industry, incentivizing investment in more nascent technologies.
Although this paper focuses on a low-carbon cement standard, decarbonizing the sector would rely on complementary policies throughout the supply chain. Innovation policies can help advance early-stage technologies, financial and technical assistance can increase deployment for emerging technologies, and policies and programs that stimulate market demand can overcome resistance to change for market-ready technologies.
A low-carbon cement standard would create an emissions intensity benchmark for cement, with cement producers generating either credits or an obligation to surrender credits based on their emissions intensity relative to that benchmark. Because the credits are tradable, companies have a financial incentive to reduce their emissions intensity. As the benchmark is lowered over time, the standard can help drive innovation by increasing demand for abatement technologies.
Design considerations include defining an emissions intensity metric, setting and strengthening the benchmark stringency, and addressing competitiveness concerns and the risk of leakage. Preliminary recommendations include the following:
- Establish an emissions intensity standard that covers direct (Scope 1) and indirect (Scope 2) carbon dioxide (CO2), methane (CH4), and nitrous oxide (N2O) emissions per unit of clinker and mineral additives, using a default, grid-average emissions factor to calculate Scope 2 emissions.
- Set the standard at an initial stringency marginally lower than the current average emissions intensity to incentivize investment in currently available, cost effective abatement options.
- Tighten the stringency of the standard annually, taking into consideration factors such as the need to achieve global net-zero CO2 emissions before 2050 and net-zero GHG emissions by the 2060s to hold warming to 1.5°C, the expected contribution of the standard to reduce emissions (e.g., to meet an economy-wide emissions education target), available abatement options and their costs, and the magnitude of incentive required to accelerate innovation. The rate of decline should be updated every five years.
- Include a price floor and ceiling for credits, with the values for each taking into consideration the cost of abatement options and backstop carbon removal technologies.