The cement industry is both a driver for economic expansion in developing countries and a large CO2 emitter. What approach should development finance institutions adopt in order to curb the carbon footprint and at the same time boost the economy? Rely on the Kyoto Protocol’s Clean Development Mechanism? It is a complex issue requiring action to be taken both on existing industrial facilities and with regard to future projects.
A local cement industry has a positive impact on a country’s development but emits large amounts of CO2. Since one of the main objectives of Development Finance Institutions (DFIs) is to combat climate change, particularly by reducing global CO2 emissions, DFIs are questioning the appropriateness of supporting this industry. It is a matter of balancing the boost given to local employment, revenues and housing quality against global greenhouse gas emissions.
Weighing the positives versus the negatives should make it possible to define an intervention strategy for the cement industry, which is vital given the developing countries’ strong economic and demographic growth. This is putting pressure on housing and infrastructure needs, resulting in a substantial growth of the demand for cement.
At the country level, there is a close correlation between economic growth and cement demand. In the wealthiest economies, most of which are no longer experiencing demographic expansion, cement demand is confined to refurbishing existing constructions. Studies show that when the level of development corresponds to an annual GDP of over USD 25,000 per capita, annual cement consumption falls to 200 kg per capita (Figure 1).
The key point illustrated by Figure 1 is that as the poorest countries develop, their cement consumption will considerably increase, potentially reaching extremely high levels (up to 1,000 kg per capita per year), as is the case in China today. The figures for Sub-Saharan Africa are still very low – 70 kg per capita per year, against the global average of 340 kg (Lafarge, 2011). However, with an urban population set to rise by at last one billion over the next fifty years, combined with the forecast economic growth rate, this region is likely to be one of tomorrow’s biggest cement consumers. More generally, the developing countries’ share in global cement consumption is expected to rise from 80% today to over 90% by 2025 (PS&D, 2011).
Key stage in economic development
Beyond the cement needs essential to economic growth in developing countries, establishing a local cement industry is a major stage of their economic expansion. This has a significant impact, resulting, for example, in domestic power generation capacities being stepped up in order to meet the very considerable needs of cement plants, as well as public infrastructure improvements (roads, airports) and the training of technical personnel.
Furthermore, a large number of indirect jobs are created by a cement plant. There is a multiplier effect greater than 10 between the direct jobs at a cement plant (between 200 and
400 employees for an average-sized cement plant) and indirect jobs.
Another major benefit of establishing a cement plant is that it brings production centres (limestone resources) closer to consumption centres, thus bringing down sale prices; the low price per tonne makes land transport for cement relatively expensive. The radius covered by a cement plant generally does not exceed 300 km. Beyond this, the transport cost (roughly USD 10 per 100 km) causes a steep rise in the price of cement, which is generally sold at between USD 50 and USD 100 a tonne. In some countries, particularly the least industrialised and/or the most landlocked, the price can exceed USD 200. Investing in local production can therefore help avoid costly imports, which push prices up and thus limit housing construction. A case in point is Nigeria, where the 2006 production deficit was considerable: annual domestic demand was estimated at 10 million tonnes, whereas domestic production attained only 3.7 million, i.e. 63% was imported (World Bank/CF Assist, 2009). This is a major challenge in that the economic and social development of the poorest countries requires cheaper cement.
Developing countries: main cement industry CO2 emitters
The developing countries alone already account for over 80% of CO2 emissions from the cement industry (which is responsible for between 5 and 7% of global emissions); Asia is the chief culprit with over 66% (CDIAC, 2007). Sub-Saharan Africa, where the cement industry is embryonic, today only accounts for 3% of global cement CO2 emissions. Judging by the economic development witnessed over the past decade, these levels are expected to rise sharply. In the future, developing countries’ share in global cement production is expected to rise further, and these countries will be responsible for the bulk of additional CO2 emissions.
However, contrary to generally held assumptions, analyses on cement production performance in emerging countries show that the efficiency of production processes in terms of carbon emissions is comparable to that of developed countries, sometimes even better. For example, China and India produce an average of 638 kg of CO2 per tonne of cement and Africa/Middle East 667 kg per tonne. These levels are only slightly higher than those in Europe (619 kg/tonne) and are much lower than in North America (760 kg/tonne) (WBCSD-CSI, 2009). Emerging countries have benefited from major improvements to production processes since 1990. A large number of cement plants built in these countries in recent years are equipped with efficient, state-of-the-art energy technologies, whereas cement plants in developed countries are often older.
However, these average figures only partially reflect the situation in the cement industry. Recent cement plants with better standards operate alongside plants that are much older and less efficient, with levels of CO2 emissions per tonne of cement produced that sometimes exceed 1,000 kg/tonne. For example, in 2002 only 66% of cement plants in Africa were operating using the dry process,1 which consumes between 30% and 40% less energy than the wet process, whereas by contrast the proportion in India was nearly 98% in 2008 (World Bank/CF Assist, 2009).
Clean Development Mechanism, a suitable framework?
A cement plant’s CO2 footprint can be improved under the Clean Development Mechanism (CDM) introduced by the Kyoto Protocol. It specifically provides for the transfer of certificates that can be sold to developed countries, which will use them to meet their emission reduction targets.
Cement projects may be eligible in three cases: the partial replacement of fossil energies by alternative or low-carbon fuels, the increase in the proportion of non-clinker2 components in cement and the use of cogeneration for power generation. These CO2-emission reducing technologies do, however, come with a high price tag (Table 1).
This cost constraint is so high that only 4% of CDM projects in the cement industry have been approved, i.e. 52 out of a total of 1,300 registered projects (World Bank/ CF Assist, 2009). Most of these are located in China and India (respectively 25 and 17 projects). Africa has only received one approval for a wind farm project in Morocco.
A few projects are currently being certified, such as schemes to replace combustible fuel by biomass in Egypt and jatropha in Senegal.3 There is no shortage of biomass projects in Africa, but CDM certification is very rarely requested. The main obstacles are the high transaction costs for project development, a difficult business environment and the low level of access to financing in a context where the returns on investments from CDM projects are more long-term than those of a cement plant. Furthermore, financial brokers and consultants lack awareness of this mechanism, and lastly there is little support from local authorities (no CDM authority appointed, no training in place). Given the sharp growth in demand, many entrepreneurs do not bother about the restrictive problem of carbon emissions.
Helping to curb carbon footprint
In order to reduce CO2 emissions, it is necessary to invest in developing countries, which will be the main cement producers and consumers in the coming decades. This means upgrading existing cement plants and imposing higher production standards with regard to energy efficiency and respecting optimal clinker/cement ratios on both new and existing facilities.
With climate change a core concern for DFIs, in addition to providing financing, they must enter into a dialogue on the issue of carbon footprint with cement producers for each of their operations. DFIs are a vehicle for disseminating the potential of CDM in Africa. They should systematically do this for the projects they finance, through support in the form of technical assistance, particularly in the least developed countries.
¹ On this topic, see the article by Hendrik G. van Oss, in this issue of Private Sector & Development.
² Clinker is the basic component of cement obtained by calcinating a mixture of silicic acid, alumina, iron oxide and lime. The calcination process for clinker production emits high levels of CO2.
³ On this topic, see the article by Pierre-Alain Boyer, in this issue of Private Sector & Development.
References / Carbon Dioxide Information Analysis Center, 2007. Database // Gonnet, J., 2010. Carbon footprint of cement industry, report, October. // Lafarge, 2011. Annual Report. // Private Sector & Development, 2011. Cement, confronting ecological responsibility and economic imperatives, n°10, p.16, May. // World Bank/CF Assist, 2009. Cement Sector Program in Sub-Saharan Africa: barriers analysis to CDM and solutions, report, April. // World Business Council for Sustainable Development – Cement Sustainability Initiative, 2009. Cement Industry Energy and CO2 performance “Getting the numbers Right”, report.