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China’s cement sector needs carbon trading system akin to Europe to tackle emissions, industry expert says


China’s cement manufacturers, who have to invest in expensive carbon capture and storage (CCS) equipment when Beijing introduces emissions trading quotas by next year, can draw on Europe’s experience to design their own system, according to an industry veteran.

The key for China’s cement makers to undertake such investments is higher profitability, said Ian Riley, CEO of London-based World Cement Association.

This can be facilitated by a trading system that allocates a level of free quotas that can promote tighter supply and higher prices, he told the Post ahead of the association’s seventh annual conference in Nanjing, capital of China’s eastern Jiangsu province, this weekend. Industry leaders are expected to discuss challenges such as cost reduction and carbon trading.

“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].”


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In the European Union, free emission quotas – less than industry demand – are allocated to cement producers annually, which has curtailed supply as producers try 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 has boosted industry profits and will help fund CCS investment to prepare the industry for the phasing out of free quotas by 2034.

China’s cement industry, which accounts for half the global output, saw total profit fall by 55 per cent last year to a 16-year low of 31 billion yuan (US$4.3 billion) as supply failed to fall in tandem with demand amid a property sector downturn, according to industry portal Digital Cement.

China’s cement demand could halve in 20 years from last year’s level, Riley predicted. 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.

Because of data quality challenges and cheating by some polluters and audit firms, it has so far only included the power generation sector, despite its aim to cover seven other carbon-intensive industries by next year.
Carbon trading experts expect aluminium, cement and steel to be among the next batch to be added to the scheme by next year, since exporters of these carbon-intensive commodities will be impacted by the European Union’s carbon import duties in 2026.
China’s cement industry is already under pressure to cut 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.

Improving energy efficiency is one of three methods the industry is using to reduce emissions. The others are switching from coal to natural gas, and lowering clinker content in cement by adding fly ash and slag, by-products of coal-fired power plants and steelmaking, respectively.

However, these can only address part of the industry’s emissions, a third of which comes from energy consumption and the rest from the conversion of limestone into calcium oxide.

“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 alone is about 50 per cent more than the plant itself, which means a US$200 million cement plant in Europe would cost US$500 million if installed with CCS, he noted.

In China, where infrastructure construction and energy costs are lower, a carbon emission permit price of US$30 to US$40 a tonne – compared with US$80 to US$100 in Europe – may be needed for companies to find it financially viable to install CCS equipment, Riley said.

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