Cement decarbonization: A work in progress

OPINION – On March 14 the California Air Resource Board (CARB) released its long-awaited Draft SB 596 Cement Strategy, per mandate, to “achieve net-zero emissions of greenhouse gases associated with cement used within the state as soon as possible, but no later than December 31, 2045.”

The 125-page report details a wealth of information on cement markets, technologies, decarbonization options, and emissions accounting, all of which will be foundational to any regulatory framework that is ultimately adopted. But in one significant omission, the report makes no mention of negative-carbon cement, which has the potential (with projected demand growth) to meet most, if not all, of the IPCC’s projected Carbon Dioxide Removal requirement at zero net cost. (See CARB’s 10/20/2022 Workshop Presentations.)

The discussion of regulatory strategies is rather sparse, consisting of only two pages (pp. 96-97) summarizing stakeholder recommendations from prior SB-596 workshops. The recommendations include two options for tradable standards: a “Zero-Emissions Cement (ZEC) Standard” (proposed by NRDC/RMI) and a “Low-Carbon Cement Standard” (LCCS, proposed by WRI).

The LCCS, which is modeled on California’s Low-Carbon Fuel Standard (LCFS), would mandate an annually declining standard for cement emissions intensity, gradually reducing to zero by 2045. However, cement processes cannot be changed “gradually.” Cement plants usually operate from 25 to 40 years between major retrofits, and the marginal incentive of an incrementally declining “low-carbon” cement standard could commit producers to marginal emission-reduction technologies that will be too little, too late to decarbonize the cement industry by mid-century.

For this reason, the NRDC/RMI proposal cuts to the chase, recommending a zero-emission cement standard. This approach is modeled after California’s Zero-Emission Vehicle (ZEV) Standard. A ZEC Standard, like an LCCS, would allow trading of allowance credits to provide compliance flexibility. However, compliance credit prices under a tradable standard can be volatile and unpredictable, and program ambition would be necessarily constrained by cost conservatism to accommodate price uncertainty and ensure affordability.

The regulatory options also include two alternative policy mechanisms, Advanced Market Commitments and offtake agreements (proposed by NRDC/RMI and DC2), which would provide stable price incentives conducive to long-term investment in sustainable cement. Both alternatives would employ advance purchase commitments by cement buyers. The market would be limited by the high “green premium” for the new technology, but the price premium could be avoided by employing some form of cost sharing that pools the investment resources of the cement industry, the state, and the public to finance and subsidize sustainable cement.

Cost sharing with other states and nations would minimize the investment risk and regulatory burden on California businesses. Moreover, multi-state and multinational collaboration could extend the impact of California’s policies to global scope, far surpassing the direct climate impact of in-state emission reductions alone. Cement decarbonization could be financed, in part, by leveraging the long-term investment potential of sustainable cement in the global market, which is 400 times larger than the domestic California market.

CARB could take inspiration from proven regulatory strategies such as Germany’s feed-in tariff (FIT) for solar power in the early 2000s, which subsidized ground-mounted photovoltaic systems at an initially high rate of 45¢/kWh. Consumers did not pay this price; the subsidy was financed by a surcharge on consumer electricity bills amounting to only 0.56¢/kWh – about 3% of household electricity costs. This was possible because an initially small renewables market was being supported by a large ratepayer base. The same principle could be applied to cement.

Policies such as FITs that create stable pricing incentives for decarbonization can lead to outcomes exceeding expectations and regulatory requirements. For example, CARB’s cap-and-trade program achieved its 2020 statewide emissions goal well ahead of schedule in 2016. This result can be attributed to the regulatory pricing incentive created by the program’s modest price floor, which started at $10/ton-CO2 in 2012 and gradually increased to $16.68/ton-CO2 by 2020.

By comparison, the 45¢/kWh solar subsidy in Germany’s FIT program created a marginal incentive for coal power displacement comparable to a $450/ton-CO2 carbon price. This triggered an explosive expansion of the global solar power market led by Germany in the 2004-2014 time frame. A focused application of such policies to key industries such as cement could rapidly move California – and the global economy – toward net-zero emissions.

CARB will be considering regulatory policy options for cement decarbonization as it continues to develop its SB 596 strategy. Stakeholder feedback on the draft strategy is being solicited, and public comments will be accepted through April 23.

Ken Johnson and Adam Sweeney are affiliated with the Climate Reality Project: Silicon Valley Chapter, Legislation and Public Policy Committee. Adam Sweeney is the committee’s Co-Director. Ken Johnson has published on a variety of climate-policy topics and recently authored “California’s Senate Bill 596: Spearheading the global transition to sustainable cement.”