Associate Partner, McKinsey & Company
Engagement Manager, McKinsey & Company
Associate Partner, McKinsey & Company
Partner, McKinsey & Company
Partner, McKinsey & Company
This article is published in collaboration with McKinsey & Company
- The cement industry is setting ambitious targets to reduce emissions and transition to a low-carbon future.
- There are a number of promising new technologies, such as carbon capture and utilization and storage (CCUS), that can help the industry decarbonize.
- Government support and market-based incentives are essential to accelerate the transition.
- The transition to a low-carbon cement industry is complex and challenging, but it is essential to meet climate goals.
Decarbonizing the cement industry has never been more important. Globally, cement accounts for about 7 percent of total greenhouse-gas (GHG) emissions, one of the largest sectoral carbon footprints on the planet. Our research suggests that global cement production volumes will remain stable until 2050, which means the industry must make active efforts today to reduce emissions in line with industry and global targets.
But cement is particularly difficult to decarbonize, because it directly releases CO2 in chemical processes during its production. Novel decarbonization solutions are emerging, from new applications of carbon capture, utilization, and storage (CCUS) in clinker production to innovative materials and other cementitious solutions. However, these solutions will significantly shift value within the industry. As new business models emerge, players and providers of different solutions are expected to compete for market share.
For cement players looking for a place in a net-zero future, low-carbon offerings will be key to success. But players must act strategically to come out on top in a shifting market. This article outlines some of the solutions that hold the most promise for decarbonization—including lower-carbon clinker, admixtures, innovative cementitious materials, and materials circularity—and the factors to consider when making green investments and building business models around them. How players in the cement ecosystem combine and balance these solutions will likely determine the decarbonization trajectory of the industry as well as which players will gain competitive advantage over time.
The road to a greener cement industry
The cement and concrete industry has established new targets to lower and even eliminate emissions, such as those set by the Global Cement and Concrete Association (GCCA). These targets aim for a 20 percent reduction of CO2 per metric ton of cement and a 25 percent reduction of CO2 per cubic meter of concrete by 2030 compared to 2020 levels. The GCCA calls for complete decarbonization by 2050.
For the past few decades, cement players have relied on traditional levers to reduce their emissions, such as increasing fuel efficiency and substituting clinker and traditional fuels with more-sustainable options. However, to reach net-zero emissions by 2050, annual capital spending will need to almost double to $60 billion on average from 2021 to 2050. These costs, as well as the costs to develop novel decarbonization technologies and processes, have made industry players cautious about adopting newer innovations.
A few factors could help ease these cost burdens. For example, cement players could benefit from green premiums. Our analysis suggests that in the short term, the supply of lower-carbon cement is unlikely to keep up with increasing demand from end consumers with ambitious CO2 targets, particularly in Europe. This is likely to drive short-term green premiums for cement. We already see demand rising in a number of today’s markets; for example, Hoffmann Green Cement Technologies is capturing high premiums for its new products, and Cemex is capturing premiums for its lower-carbon concrete products. As more low-carbon materials become available to end consumers, especially in Europe, these premiums are expected to decline.
In addition, supportive regulation could help speed decarbonization. For instance, the 45Q tax credit in the US Inflation Reduction Act (IRA) offers tax incentives for CCUS technology for projects started before January 2033. Similarly, the EU Innovation Fund supports industry decarbonization in Europe by funding innovative technologies.
Innovative pathways to reach net-zero emissions
Four pathways show particular promise for effectively targeting the carbon-intensive aspects of cement and reducing its use in concrete. Although some of these solutions require further development to be scalable, each holds significant abatement potential.
Lower-carbon clinker facilitated by CCUS
Clinker, an intermediary used as a binder in cement, is a core component of cement products, but its production process is highly emissive. Lower-carbon clinker uses CCUS technology to capture and manage these carbon emissions before they are released. Other than moving away from clinker entirely, CCUS is the only known technology that addresses the process emissions in clinker production. In theory, CCUS could even help produce clinker with net-zero emissions. Many clinker producers are already focused on implementing CCUS, but these technologies often come with a high price tag and remain unproven at scale in the industry. As a result, CCUS has mostly been explored by larger incumbents. In addition, CCUS is generally economically viable only in select areas that have access to storage capacity or outlets for captured carbon (for example, applications in which mineralized carbon is used), government support, and affordable renewable energy, which is particularly important for clinker production.
In some locations, incumbents are exploring retrofits to existing assets, which can make sense where transport and storage capacity is available, along with needed space on existing plants. In addition, CCUS-enabled lower-carbon clinker could become more widespread with the construction of new net-zero megaplants in advantaged markets. Such markets include areas in the United States with cheap renewable power and IRA support, as well as locations in Europe with renewable resources, CO2 sinks, supportive regulation, and the ability to export to wider Europe. Players may need to restructure their asset strategies to benefit from the advantages of these markets while continuing to serve their existing markets. This might involve producing lower-carbon clinker in megaplants and then shipping it to local markets and grinding it there. Beyond choosing markets to enter, cement players can also benefit from economies of scale by using AI in logistics and leveraging larger plants (ranging from four million to six million metric tons per year). Strategically built megaplants could potentially reduce production costs for lower-carbon clinker by up to 60 percent, making it a more economically viable option (Exhibit 1).
Admixtures are substances added to concrete to improve its performance, such as its durability and workability. They can also reduce the amount of cement needed in concrete, which both lowers cement-related costs and reduces concrete’s carbon footprint. According to our analysis, admixtures have the potential to reduce CO2 emissions in concrete by up to 30 percent under current standards and up to 50 percent under updated standards. By reducing the volume of cement needed, additional admixtures allow the cost of concrete to stay stable. Admixtures also allow for greater levels of concrete recycling and the use of fiber reinforcement.
However, a few obstacles currently hinder the widespread adoption of admixtures. Different concrete applications require different types of admixtures, and incorporating different concrete mixtures can make construction more complex to plan and execute. In addition, key stakeholders may have limited awareness about the decarbonization potential of admixtures. In markets in which cement assets offer significant returns, there is also a transition challenge for integrated incumbents, which will need to disrupt their own business models to increase admixtures in ready-mix concrete (RMC).
Innovative cementitious materials
Alternative cementitious materials, such as low-carbon cement or geopolymer concrete, have historically struggled to scale. However, current investment trends and rapid technological advancements have allowed start-ups to disrupt the alternative-cementitious space with low-carbon offerings.
In particular, supplementary cementitious materials (SCMs) offer promising ways to significantly reduce the carbon footprint of traditional cement and concrete. Traditional SCMs—such as fly ash, ground granulated blast-furnace slag (GGBFS), and silica fume—can be used to partially replace the clinker used in cement or the cement content used in concrete. This can have both sustainability and cost benefits, but SCMs are typically not fully leveraged. In many markets, local and regional standards limit the volume of traditional SCMs in cement based on their hydraulic and cementitious properties. For example, the European Union limits fly ash to a maximum of 35 percent, whereas the United States limits it to 40 percent. New SCMs such as calcined clay, limestone, and recycled concrete may require a reevaluation of these standards to maximize both the performance and decarbonization potential of cement and concrete, particularly as the availability of traditional SCMs decreases.
Circular economies aim to minimize the environmental impact of concrete by using less virgin cement—and therefore less clinker—in its production. To boost circularity, cement and concrete players can use strategies such as reusing concrete waste and incorporating recycled materials in new-concrete production.
With increased materials circularity, owning demolition, waste streams, and separation technologies will become increasingly important compared with owning a kiln, today’s main control point. As a result, new players such as start-ups focused on waste stream management and infrastructure companies overseeing waste from construction projects are entering the cementitious space. However, waste transportation and processing pose logistical challenges, limiting scalability and making waste value chains highly localized.
Although these four pathways are complementary, they will compete for growth and investment, and the pace at which they are adopted may differ markedly across markets. Down the value chain, new admixtures and recycling could create great value, although recycling is difficult to scale. Cement players in the middle will need to balance CCUS-driven lower-carbon clinker and innovative cementitious solutions to achieve near- and long-term success as different technologies mature. Their choices will be driven by cost and facilitated by regulators, industry organizations, and specifiers building pathways toward decarbonization.
New business models to capitalize on these opportunities
In the years to come, cementitious producers and providers of solutions and services will need to choose which strategies and business models they wish to implement in the pursuit of net-zero cement. Our analysis has identified nine potential future business models for cementitious producers and solution providers, ranging from entirely new approaches to minor adjustments to the status quo. Most of these business models are anchored around a specific solution that is tailored to respond to a specific need. At the same time, many of these business models are complementary and can be combined for greater decarbonization.
As the industry decarbonizes, a new landscape of cementitious producers could emerge to compete for market share:
- Low-cost traditional cement players. As lower-carbon options take greater market share, the last remaining producers of traditional cement are expected to be players focused on lowering costs. These will likely be small to midsize players in slow-to-decarbonize markets that choose to push the limits of traditional levers, including maximizing energy efficiency and using alternative fuels.
- Retrofitted lower-carbon-cement producers. Existing cement producers can be retrofitted to manufacture cement with low- to net-zero carbon by leveraging decarbonization technologies such as CCUS. These can be complemented with cementitious solutions, such as a higher SCM-to-clinker ratio.
- Lower-carbon clinker and cement disruptors. Disruptors are expected to enter with lower-carbon clinker and cement offerings. New clinker megaplants and grinding facilities with CCUS capabilities could produce net-zero cement, although cement products using lower-carbon clinker could vary in how emissive they are, depending on the mix of materials they use and their production process. This could be facilitated by offtake agreements and direct collaboration with forward-looking real estate developers and contractors.
- Specialized players monetizing CO2 (mineralization). Another emerging space is monetizing CO2 via mineralization. Specialized players could use CO2 or carbonated recycled waste in aggregates and SCMs or directly in the production of concrete during manufacturing and curing processes.
- Innovative SCM producers. Players focusing on novel processes and materials could provide SCMs as partial or full replacements for clinker. These may be challengers or existing suppliers of incumbents. Players in this space also have the opportunity to license their technology.
Solutions and service providers
As cementitious producers navigate the materials transition, other forward-thinking players will be able to find business opportunities supporting them. These solutions providers could offer lower-carbon clinker, fillers, and special cement blends, which will be critical for retrofitted low-carbon cement producers. These offerings could reduce the cost of decarbonization on the cement and concrete manufacturing side while enabling maximum performance of the materials and the lowest CO2 footprint possible.
As players innovate tailored solutions to meet customer needs, a number of cementitious-solutions providers could emerge:
- Construction material recyclers. These players will own construction and demolition waste, controlling a significant source of raw materials for new construction.
- CCUS-as-a-service providers. Emerging players can offer end-to-end CCUS capabilities, from technology and operation of carbon capture units to CO2 storage and transportation to sinks.
- Providers of construction chemicals solutions. New and established players can develop innovative chemicals and additives that allow for a higher share of cementitious materials in cement, less cement in concrete, and higher recyclability of concrete. For example, Sika announced the LC3 project with the Swiss Federal Institute of Technology Lausanne to reduce the amount of traditional clinker needed in cement.
- RMC mix optimization-platform players. New platforms could offer data-based software-as-a-service models for RMC mix optimization, which could reduce manufacturers’ dependency on specific cement types. In addition, technology-focused platform players using these models could build businesses that are relatively less capital intensive.
Lessons for the future
The jury is still out on which of these paths or business models will win, but several clear messages emerge for cement industry players and solution providers.
In the energy transition, incumbents will need to navigate between CCUS and cementitious-driven approaches, using a combination of technologies to meet decarbonization goals and to hedge their bets on which recipe will win in the long run. Depending on their strategy, incumbents can take steps to secure sources for traditional SCMs and greener materials, or they can innovate or acquire new SCMs. Incumbents also have greater freedom to invest in lower-carbon clinker megaplants, which could prove to be a powerful advantage in the future.
Innovators can leverage technology partnerships to develop new SCMs and admixtures in cement and concrete. These new SCMs could potentially be used in higher shares, winning both volume and margin advantages and potentially leading to new performance-based pricing arrangements, because less volume could achieve the same value. Regulatory positioning and certification will be key in these efforts.
To reach net zero, the cement industry will need to engage in active efforts. This will be a real transformation from past ways of operating, and the time to start building this muscle is now. If incumbents and disruptors can invest strategically in innovative technologies and business models, they could be well positioned to lead in the industry landscape to come.
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