By Daniel Layug, CFA

Cement is the building block of infrastructure. It's strength, durability and affordability improves the lives of billions. However, in countries such as India, cement contributes 8% of emissions. Investors aiming to decarbonize heavy industry in India may have the most "additionality" focusing on cement tech, particularly: carbon-cured concrete manufacturers, electric kiln retrofitters and green hydrogen electrolyzer manufacturers.

A. Why cement and not other heavy industries?

• Cement has a large market size: Aluminum production in India, though significantly higher in carbon intensity, only has 1/10 the CO2e emissions of the each Steel and Cement.[i]
• Single product: Chemicals as a sector encompasses too many types of materials to focus niche.
• Decarbonizing cement is currently more costly than steel[ii]: In 2020, the Indian steel industry and cement industry produced almost an equivalent amount of emission –roughly 242 million tCO2 and 255 million tCO2, respectively.[iii] However, technologies to further decarbonize steel –CCUS, hydrogen, arc furnaces and enhanced recycling- are closer to commercialization as compared to those of cement.

B. Why is is this important to India’s low-carbon development?

India is the second largest cement producing country in the world.[iv] Due to rapid urbanization and industrialization, cement production is projected to increase at a CAGR of 6-7% till 2025.[v]

• Major demand drivers are private demand for affordable housing and government initiatives such as 100 Smart Cities.
• Given cement’s affordability and performance, it is likely to remain the most used building material in emerging markets such as India.

The cement industry is integral to India reaching its 2030 NDC target of reducing CO2e emissions intensity of GDP by 33%-35%. Each ton of cement produced also produces 0.67 tCO2. Together with Scope 2 emissions, the cement industry produces 7-9% of the GHG of India and generates the most CO2 emissions per dollar of revenue.[vi]

The Indian cement industry is recognized globally as one of the most energy efficient in the world, with relatively large production units and the use of low-carbon, cost-effective technologies. However, the industry is difficult to further decarbonize because of the necessity for high heat and process emissions. Low technology readiness is due to slim profit margins, capital intensity, and long asset life.

While manufacturers feel the pressure from investors and the public to abate, the economic rationale is still not yet due to the lack of

• Government subsidies/grants provided for nascent decarbonization technologies
• Mechanisms promoting ‘green premiums’ to increase demand for low carbon products, similar to how a Feed-In-Tarif stimulated further investment into efficiencies of renewable energy.
• Green procurement standards for national infrastructure projects