Sustainability is very critical for the hard-to-evade sector as there are fewer substitutes for such components and ingredients. We had a fireside chat with Mr.Pratap Raju, Supranil Majumdar from The Global Development Incubator, who is also the moderator of this call, and Vishal Baksha, who has a varied corporate experience in different industries and domains, and they have shared their views on this subject.
This post is written by Prince Thakkar
What are the upcoming efforts and technologies to mitigate carbon emissions for these hard-to-evade sectors?
Based on the data and progress in this area, many such efforts on this frontier of hard-to-abate sectors have been made in the US, Israel, and Japan, but in India, things are still in their infancy. The major part of this is contributed by the industries like steel, cement, and construction, which are very hard to substitute.
However, one of the world's biggest climate challenges is decarbonizing fossil energy uses in some sectors. Among these are steel, cement, and others. Each emits carbon as an integral part of their process, and altogether these sectors account for almost 30% of the world's greenhouse emissions.
Specific Challenges for Decarbonizing Cement and Steel sectors
We are mainly focusing on hard-to-abate industries, which include Steel, Power, Cement, Petrochemical, etc. Almost 70% of the carbon emission is through these sectors in India. We will understand the challenges separately for each sector.
Cement
Cement manufacturing has an inherent carbon-intensive process as part of the whole evolution of technology, and hence it is difficult to change that part due to the carbon-intensive base of the technology. One major problem with Cement as a product is its manufacturing process which requires high-temperature heat. The clinkerization process requires the temperature to go up almost 1400 degrees. Currently, in the scheme of how technology evolved, the only way this heat can be achieved is by using fossil fuels like coal and pet coal. If you look at the emissions from cement as a sector that will constitute easily about 25% to 30% of carbon emissions.
Another problem is the raw material that is used in the production of cement. In cement manufacturing, we need to convert limestone, which is the key ingredient or raw material, into a clinker where this heat is required, and then the clinker is blended with gypsum and additives to get into a fine product like cement. We should also know that cement is a very unique product. It is not an end product like steel, Steel is an end product that is used in the market, but cement is used more as a binder. Concrete is an end product that gets used in building infrastructure, be it residential or commercial buildings or infrastructure.
If we go by the chemistry, limestone is basically CaCO3. After applying the heat, by the sheer nature of chemistry, one ton of limestone consumed will lead to one ton of CO2 emission. This is the major emissions source for cement manufacturing.
Currently, there is no technology that can reduce either CO2, which comes out of the clinkerization process. Currently, there is only coal and pet coal for solid fuels or some form of liquid fuels. This is one of the key barriers in cement as a sector.
Steel
In steel manufacturing, there is also the requirement of reaching a temperature beyond 1400 degrees. Therefore, fossil fuel is used to achieve high temperatures, plus a poking pole is used as a reducing agent to convert the iron into steel. Steel, like cement, should gradually move towards net zero emissions if we want to achieve sustainability in the construction industry.
The motivation of Indian Companies to Achieve Decarbonization in these Sectors
It is very crucial to understand the main reasons behind the decarbonization process that is adopted by the industries and what action plan they are trying to use to achieve the decarbonization process.
India has recently agreed upon the challenge of decarbonization and achieving zero carbon in the future, and this goal is very critical for a country like India where the per capita GreenHouse Gas emission is around 1.8 tons per capita. India has agreed to be Net Zero till the year 2070. There is no particular pressure to achieve this mark, but the Indian government has also put a lot of emphasis on reducing the GreenHouse Gas emission as soon as possible. Even in the absence of such regulatory pressures, many Indian companies have also agreed to achieve net zero emissions. This includes the companies like Ultratech Cement, in fact, the whole Aditya Birla Group, Dalmia Cement, and Mahindra. As a business, the motivation for these companies has always been in trying to be a differentiator and a leader in the sector. All of these companies also participate in global discussions.
Businesses are very crucial in global events. Like during the build-up of the Paris Agreement, a lot of input was taken from the businesses. There are also other multi-stakeholder organizations like the World Economic Forum, which try to represent the voice of the business. Similarly, there are other organizations that try to represent the voice of the business, and the good thing is that Indian companies have not shied away from taking the lead even if there was no regulatory pressure.
Another very critical factor in this matter is the voice of the customers, who always try to engage with the brands and the companies and also focus on this idea, and this would also be considered as one of the big drivers for them. Similarly, with the customers, the investors have also started talking about the idea of net zero.
India’s exports to foreign countries are also increasing with the increase in production capacity of the country. The leverage and benefits of the exports can only be seen in the developed market due to higher paying capacity. Foreign markets like Europe do take into consideration the use of net zero technology used in the production process.
Some of the big corporate houses in India like Ultratech Cement, Tata Motors, and Mahindra plan the net zero emission in a systematic manner, and this also helps them in positioning their positive brand image.
Possible Solutions in the Market Currently and in the Future
The one technology that has a clear advantage in this direction is the renewable energy sector. But the whole scale of renewable energy is like a curve of maturity which most of the other technologies of decarbonization also undergo right in the future. We have seen so much success in terms of adoption and scale-up of renewable energy that will give confidence for the organizations to commit to this decarbonization technology in terms of specifically steel and cement.
Cement is a very critical component in the building material process, and hence using the alternative material is a smart move when we see it in terms of the decarbonization process. To explain cement manufacturing, you have a clinker, which is almost a pure form of limestone, but you can replace this clinker with another cement material that has properties similar to clinker in terms of cementitious properties. Cement companies, for the last two decades, have maximized the usage of fly ash which is a waste or by-product coming from the thermal power plant, basically coal-based thermal power plants, and slag, which is a by-product of the steel manufacturing process.
if we look at 15 years back, maybe this technology was new to the sector, but now it is almost mature. The cement industry may face a problem when the steel and power sector starts its decarbonization journey due to the lack of availability of fly ash and slack. Cement as a sector will have to look for alternate sources of these additives. Other than this, the sourcing of the raw material for the fuel would be done with the help of other raw materials, which will include hazardous industrial waste, non-hazardous industrial waste, and municipal solid waste.
Now very recently, companies have also started to focus on biomass or agro waste, which is a very new concept that was not present ten years ago. All these changes do affect the chemistry of the cement industry. There is a big learning curve for Cement Manufacturers now. Maybe on average Indian cement companies consume almost 5% or 8% of the heat coming from these alternative fuels. In the long term, for the net zero ambition, by 2050 or by 2070, this has to constitute almost more than 60%. 60% to 70% of the heat requirement for cement companies in the future will come from these alternate sources.
It's not like pure technology, but it's the same process that is trying to learn and address barriers and reach the maturity scale in the future. Similarly, you will have another form of cement, LC three, limestone Kelsey Clay cement. The availability of fly ash and slag will come down and start getting replaced with the Kelsey Clay in the Trl scale below. There are four or five technologies that are known, but you also need codes and standards to be framed by the government and accepted by customers. Some of the technologies are quite ready for scale-up.
Big Challenge on the Way Forward
The big challenge in this form of technology is the very critical deployment process. In the existing plant in the steel industry, the existing processes include equipment like blast furnaces, the supply chains. Replacing these technologies overnight would be a big challenge. Making all this replacement in a scalable manner is very critical.
Steel has also adopted a lot of new technologies for the production process. The manufacturers have replaced coal with agro-waste or some other types of waste. The previous setup in the industry is more like a traditional setup. In the future, the growth in steel production would also be seen at the rate of almost 8 fold, considering the development and infrastructure projects that would be carried out. Keeping up with the production capacity in relation to the demand and requirement will be a critical factor.
As per the opinions of the experts and different think tanks for the manufacturing of steel, there would be a similar route. Until the time the market is conducive for alternate technologies like electric arc furnaces, and hydrogen, which will be matured by the year 2035 and onwards. That is when traditional technologies may have to be phased out from India.
Ecosystem Evolution for Private Equity & Venture Investing
The whole net-zero ambition in India will require almost $12 trillion of investment. This is huge in terms of capital allocation, which will be required. Both steel and cement will require almost $400 to $500 billion of investment. If we look at the current capacity, the companies have invested that capacity just to manufacture steel and cement. Almost that much capital has to be allocated to achieving net zero. Right now, the government is trying to look at various things. They have supported green hydrogen through policy support. Similarly, the government is also trying to look at how to accept carbon capture as a technology.
Indian companies on their own have also done a lot, like Ultratech Cement went out to the market and raised almost $400 million of sustainability-linked bonds. Similarly, JSW Cement did a sustainability-linked loan. We have seen a lot of power companies who have gone and subscribed to green bonds. Companies on their own are also going out in the market, and in addition to this, we will have financial institutions that will try to offer their products which will be required to support the whole transition going forward.
Opportunity for Startups
To solve the carbon problem, we have large technology players who will come and support but we also need the startup ecosystem. Ultratech Cement did one MoU with Prespl, a supplier of biomass and agro waste. Similarly, they had signed up for one technology startup company from Finland. In cement manufacturing, we need high heat from poles and pet coal as fuel. This Finland-based startup gave a technology option that will help in reaching higher temperatures by using electricity and that will eliminate the use of other substances that were required to reach that heating level.
Similarly, Tata Steel has done a lot of collaborations with startups to introduce the aspects of sustainability in their manufacturing process. Aditya Birla Group they have an innovation team trying to just scan through the startup ecosystem and search for a potential startup product or service that they can introduce in their company. Another example is a company called Shell. As an oil and gas company, they run the process where they go through the entire global landscape of startups which can help in their decarbonization process. This program is also running for their customers. In terms of partnerships, initially, the startups could only do a proof of concept or a pilot project. There will be an investment that will be required from a startup side in terms of proving that technology works for these companies.
Partnerships Between Corporate and Academia
There are a lot of sign-ups that have happened with academia. One such example from Concrete is a global association which is Global Cement and Concrete Association running out of the UK, and it is a voice for the whole sector. Now, GCCA runs a program called ‘The Innovandi Program’, where they have thrown up on the challenge of coming up with an affordable decarbonization technology for cement. They have identified almost 40 research institutes or academia globally for this vision who are working in this direction. This program has been running for almost two years now. The whole objective of this program is to tap into the knowledge, both tacit knowledge and active knowledge, present in the academia and research ecosystem, which can be used to accelerate the commercialization of Decarbonization technologies.
We thank all our panelists for sharing their views on this critical topic. Sustainability is crucial for all of us in the future, and to achieve that goal, we need to accept the idea of decarbonization which can only be achieved through cautious and careful choices that we will have to make in the future.
