Cenin Cement’s Martyn Popham argues that major cement producers should recognise how carbon costs will come to bear on the cement sector in the future, and offers a solution from the ancient past...
Here is a sobering statistic: Since 2000, 52% of the companies listed in the Fortune 500 have ceased to exist. While some of the businesses were subject to mergers and acquisitions, the majority lost out because they failed to keep pace with a changing world.
I am not arguing here that everything has to move relentlessly forward. In fact, I believe that the cement industry can learn a valuable lesson from the past at the same time as recognising an urgent future requirement that it would be foolhardy to ignore.
First, a look back in time. It has often been noted that the ancient Romans used a form of concrete that outperforms concrete made with today’s Portland cements. Not just iconic buildings like the Parthenon, but harbour structures are also intact after more than 2000 years. Modern concrete commonly shows degradation at around 50 years.
Roman engineers benefitted from the use of volcanic ash, combined with lime to form mortar. Essentially they harnessed the properties of vast amounts of raw materials that would otherwise have remained unused. In doing so, they not only hit upon a production method that was durable but one that was also low-CO2. At Cenin Cement, our technical team used a similar approach when we developed an ultra-low carbon cement. We turned existing custom and practice on its head. Instead of focusing on the production of clinker and then adding extenders and additions, we make cement by using industrial byproducts that set with the addition of water. If a faster set or higher strength is required, some clinker can be added, but in our world clinker is just a
minor addition.
Of course, the volumes that Cenin manufactures don’t compare to the volumes in the rest of the global cement industry. Each year, around 4.2Bnt of OPC is produced, a process that creates approximately 1t of CO2 for every 1t of cement. It is why our industry accounts for around 5% of global CO2 emissions, a higher percentage than aviation.
So what? This is not news. We have known for some time that existing mainstream production methods are not environmentally friendly. Alongside many other higher profile environmental cement companies, our low-carbon cement can cut clinker use (and hence CO2) by 80%. However, a large proportion of the cement industry seems to lobby that this is unachievable by 2050.
In my ‘world,’ the biggest barriers I face on a day-to-day basis are those of resistance to change. I have had trade associations tell us that we will never be allowed to be a member and quality assurance assessors who refuse to assess new products and systems.
But rather than waving the flag for environmentally friendly alternative products, the time has now come to re-think why de-carbonisation will prove critical to longer-term economic performance. A failure to move away from a reliance on CO2-intensive production now will result in a significant threat to the viability of businesses.
This is not just my view. At the end of 2015, the Governor of the Bank of England, Mark Carney, spoke to Lloyd’s of London about the challenge ahead. He said, “Take, for example, the Intergovernmental Panel for Climate Change’s (IPCC) estimate of a CO2 budget that would likely limit global temperature rises to 2°C above pre-industrial levels. That budget amounts to between a fifth and a third of the world’s proven reserves of oil, gas and coal. If that estimate is even approximately correct it would render the vast majority of reserves ‘stranded’ – oil, gas and coal that will be literally unburnable.”
Investors are now factoring in the risk that the ‘carbon bubble’ represents and are investigating how companies can plan to mitigate it. The Institutional Investors Group on Climate Change (IIGCC) is one of the groups behind the launch of the Investor Platform for Climate Actions, which documents initiatives in 30 countries by more than 400 investors managing US$25tn of funds.
Stephanie Pfeifer is the IIGCC’s Chief Executive. She has observed investor behaviour changing, noting, “Some are starting by CO2 footprinting their portfolios; some are setting targets to decarbonise portfolios; some are exiting positions with the highest risk exposure and others are using low-CO2 indexes to tilt portfolios away from high-CO2 assets.”
Going forward
It is inevitable that a split will emerge in our industry. To make a significant reduction in CO2 emissions, businesses will need to change the way they operate, not just adding some extenders to the clinker. Visionary cement companies will stop, take a cold hard look at their methods and realise that, in order to make highly-sustainable cement in the future, the clinker producing cement plant of today will be just a small part of production in the future.
As well as proving environmentally beneficial, this would result in much lower capital requirements per tonne of installed production capacity, as well as a much higher ratio of grinding to clinker production plants. Some 70 - 80% of the raw materials would not need to come from the clinker plant. Each finished tonne of cement would have far lower embodied energy and cost less to produce. As a result, there would be a significant reduction in the CO2 emissions per tonne of cement for low-CO2 cement produced by a new generation of cement companies.
Tackling CO2 reduction in the production of cement is an issue for the boardroom and there is a great deal at stake. Cement companies that continue to put all their investments into the production of high carbon cement, even if it is into an efficient, well-engineered modern cement plant, risk it becoming a stranded asset in 30 years’ time.
There are rewards as well as risks at play: Changes made now will need less capital as the energy and overall production cost per tonne decreases and enhancing the environmental performance can massively improve a company’s economic performance. Businesses could enjoy much higher valuations in their share prices, as the big pension investors seek out not only sound environmental planning but boards that have a longer-term strategic vision that accommodates diversification and asset protection. Once fund managers understand that it is possible to make cement with a much lower capital and energy cost that will result in a highly efficient business, surely change becomes inevitable.
It is possible that those companies that resist change and decarbonise at the slowest rate will see this effect reflected in their share price as fewer fund managers want to hold the stocks. This could be the difference between the cement companies that prosper over the next 50 years and those that flounder into a slow and painful decline.
Changing a system that is designed to produce high-CO2 cement to the model that is required to produce low-CO2 cement will take brave CEOs. However, as Mark Carney concludes, “The more we invest with foresight; the less we will regret in hindsight.”
The global cement industry has many superb companies run by exceptional teams. The question many will now be asking is, if you are a profitable business that produces high CO2 cement, are you really relying on short-term gain at the expense of long-term viability?
Some companies will resist change and put up robust arguments about how the decarbonisation of the cement industry can’t happen very quickly. Perhaps someday when plants have become stranded assets, some revenue can be gained by showing students and tourists how cement used to be made in the past. But I don’t expect that those companies will feature in the Fortune 500 list of 2050.