China’s cement sector can ‘follow Europe’s model’
China’s cement manufacturers, which will have to invest in expensive carbon capture and storage (CCS) equipment when Beijing introduces emissions trading quotas next year, can draw on Europe’s experience to design their own system, according to an industry veteran.
The key for the cement makers to undertake such investments was higher profitability, said Ian Riley, CEO of the London-based World Cement Association.
It could be facilitated by a trading system that allocated a level of free quotas that could promote tighter supply and higher prices, he told the Post ahead of the association’s seventh annual conference in Nanjing, capital of Jiangsu province, this weekend.
Industry leaders will discuss challenges such as cost reduction and carbon trading at the conference.
“If you look at the finances of the Chinese cement companies, they might be able to get loans from policy banks [to install carbon capture equipment], but on the commercial market nobody will lend them the money,” he said.
“The government has to do something to make it work. I think the European model is probably [a good reference].”
In the European Union, free emissions quotas – less than industry demand – were allocated to cement producers annually, which curtailed supply as producers tried not to exceed their quotas, said Riley, a former China head of Switzerland-based LafargeHolcim and former vice-president of Wuhan-based Huaxin Cement.
This boosted industry profits and helped fund CCS investment to prepare the manufacturers for the phasing out of free quotas by 2034.
China’s cement industry, which accounts for half the global output, saw its total profit fall by 55 per cent last year to a 16-year low of 31 billion yuan (HK$33.47 billion) as supply failed to drop in tandem with demand amid a downturn in the property sector, according to industry portal Digital Cement.
Demand from the country could halve in 20 years from last year’s level, Riley said. It has fallen for three consecutive years, hitting 2 billion tonnes last year.
Global cement production contributed to around 8 per cent of carbon emissions.
Beijing launched a national carbon emissions trading scheme in 2021, as part of efforts to rally market forces towards the nation’s goal to peak emissions before 2030 and achieve net-zero emissions by 2060.
The cement industry is already under pressure to cut carbon emissions. In 2021, Beijing had set a target to reduce energy consumption per tonne of cement produced by 3.7 per cent by 2025 from 2020.
“The only way to go to zero [carbon emissions] is by using carbon capture and storage, but the problem is that it is really expensive,” Riley said.
The capital cost of CCS equipment alone was about 50 per cent more than the plant itself, meaning a US$200 million plant in Europe would cost US$500 million with the system, he noted.
In China, where infrastructure construction and energy costs were lower, a carbon emissions permit price of US$30 to US$40 a tonne, compared with US$80 to US$100 in Europe, might be needed for companies to find it financially viable to install the equipment, Riley said.