Price of a commodity:

• Set by supply vs. demand (Economics 101)
• Fluctuates based on the market and is difficult to predict into the future (as there are too many changing market dynamics that are out of the control of the cement producer)
  • This is bad for bankability in which financiers rely on a stable price to be set to provide certainty of revenue stream
• Concrete companies consider a product based on whether it can be used to build their asset or not, regardless of whether it is green or not (with a commodity dynamic in play, green companies have a difficult time commanding a Green Premium for their product)

Ways to change supply / demand:

• Demand-side: increase firms who purchase green cement
  • Commitments from the concrete sector
  • Commitments by firms later in the concrete value chain
• Keep commodity dynamic but price in externalities (e.g. Cap & Trade system)
  • For example, the EU ETS which will become fully operational in 2027 and will put a price on carbon, expected to provide a market incentive for investments in construction projects using low-emissions products (source)

Stakeholder Value Chain:

Many players that are involved in the construction sector value chain [insert screenshot from Mevo laptop]

• Concrete Companies: direct purchasers of cement and are required to produce the cement
  • Many concrete companies are owned by cement companies (& the mines that are being used to extract the RMs used in traditional cement manufacturing - which is a topic for another day), thus controlling this portion of the value chain
• Architects & Engineers: focused on the regulatory and safety aspect - they are specifying the building projects and have a lot of control over whether green products can or must be used in a particular project
• Developers
• Private Businesses:
  • For example, Microsoft stated that “the rise in [its] Scope 3 emissions primarily comes from the construction of more datacenters and the associated embodied carbon in building materials, as well as hardware components such as semiconductors, servers, and racks. [This] reflects the challenges the world must overcome to develop and use greener concrete, steel, fuels, and chips. These are the biggest drivers of [Microsoft’s] Scope 3 challenges (source)

Not only do you need to get a single purchaser on board with your cement, you need to get all of these (and more depending on the application: think insurance companies, banks providing mortgages, etc.). They each have their own unique decision making criteria and will not all be convinced by the same data or sales pitch.

Cap & Trade

Low-carbon cement companies must thus be innovative in their method of connecting organizations looking to decarbonize with a concrete company who would supply them and who is the direct purchaser of cement.

One option of simplifying the process is through a Book & Claim system which would allow for organizations seeking decarbonization of their buildings to interact with low-carbon cement producers, without needing to purchase the cement from them directly. This type of system would also assist with the supply and demand curve as it would offer low-carbon building product companies an additional source of revenue through selling their emissions savings - thus offering their cement product at the commodity price while commanding an overall higher revenue stream (source). For this type of system to work, transparency and accountability of the system must be monitored and reported by a governing third-party body. RMI has recently released a report “Structuring Demand for Lower-Carbon Materials” which provides guidance on what a Book & Claim system would look like for low-carbon building materials.