Moody’s: Pressure Mounts for Cement Producers to Reduce Emissions
Amid efforts to decarbonise the global economy, pressure is increasing on energy-intensive cement producers to reduce greenhouse emissions, Moody’s Investors Service stated in a new report released yesterday.
According to the report, the industry will be challenged given expected demand growth of 12-23 per cent by 2050 and the limited options cement producers have to make large scale emissions cuts.
“The effects of carbon transition will vary across the cement industry due to differences in emissions intensity that stem from several factors, including clinker concentration, type of fuel used in combustion, and kiln efficiency,” Moody’s Vice President, John Thieroff explained.
Moody’s explained that it had developed a framework to evaluate the credit impact on all sectors under three transmission mechanisms: policy and regulatory uncertainty; demand substitution and changes in consumer preferences and risk of technological shocks.
It pointed out that for cement makers, the greatest threat comes from policy and regulatory uncertainty.
The cement industry is directly responsible for six per cent of global CO2 emissions, exposing it to risk from rising carbon prices around the world.
If carbon prices rise, and the increase cannot be passed on to customers, profitability of the cement company would be hampered, the report noted.
Furthermore, it pointed out that to date, global pricing schemes have provided cement producers high levels of allowances, generally keeping carbon prices very low.
“As pressure builds for countries to accelerate efforts to meet their commitments under the Paris Agreement, allowances are likely to be reduced and carbon prices should rise accordingly.
“Regulation of the industry is likely to increase and a rise in carbon prices under the EU-ETS combined with a reduction in allowances to the cement sector would have a significant impact on the cash flow of EU cement producers, in the event cement makers were unable to pass along the increased carbon price to consumers,” Thieroff added.