INVESTMENT, CARBON PRICING AND LEAKAGE – A CEMENT SECTOR PERSPECTIVE

The document analyzes the cement industry's response to carbon pricing, highlighting that while short-term impacts involve limited cost pass-through to consumers, long-term risks include the relocation of production to non-constrained regions. It argues that border adjustment measures (BAM) are more effective than free allowances at preserving carbon price signals and deterring investment leakage, particularly given the capital-intensive nature of the industry and high regional variations in production costs.

• The global cement market is structured as a network of regional oligopolies where high transportation costs relative to product value protect regional markets from international competition.
• Cash production costs for cement vary significantly by region, with mature countries averaging around US$30/t, emerging countries US$20-25/t, and China as low as US$12/t.
• Cement demand is highly inelastic to price, but extremely volatile and cyclical, which often leads to uneconomic surplus capacity that influences corporate investment decisions.
• In the short term, cement producers have a limited ability to pass carbon costs through to product prices, with empirical estimates for the EU sector ranging between 25% and 50%.
• Long-term carbon pricing creates a risk of production relocation because regional differences in investment costs mean that even modest carbon costs can make domestic investment in the EU uneconomical compared to non-constrained regions.
• The EU cement sector has shown a trend of increasing clinker import dependency and limited kiln capacity investment since the introduction of the EU ETS, as importing clinker allows firms to avoid long-term risky capital investments.
• Fixed free allocation of allowances may improve firm profitability but does not necessarily prevent carbon leakage or loss of market share, and can lead to 'windfall' profits if over-allocated.
• Output-based allocation (OBA) reduces competitiveness impacts but dilutes the carbon price signal, removing the incentive for product substitution toward less carbon-intensive materials.
• Border adjustment measures (BAM) are identified as the most efficient policy for the cement sector because they preserve the carbon price signal, equalise costs between domestic and foreign producers, and reduce the risk of investment relocation.

APA

Cook, G. (2011). INVESTMENT, CARBON PRICING AND LEAKAGE – A CEMENT SECTOR PERSPECTIVE. Climate Strategies. https://climatestrategies.org/wp-content/uploads/2014/11/cs-investment-carbon-pricing-leakage-cement-sector-perspective-cook.pdf

Chicago

Cook, Gregory. INVESTMENT, CARBON PRICING AND LEAKAGE – A CEMENT SECTOR PERSPECTIVE. Climate Strategies, 2011. https://climatestrategies.org/wp-content/uploads/2014/11/cs-investment-carbon-pricing-leakage-cement-sector-perspective-cook.pdf.

Wikipedia

{{cite report |last1=Cook |first1=Gregory |title=INVESTMENT, CARBON PRICING AND LEAKAGE – A CEMENT SECTOR PERSPECTIVE |publisher=Climate Strategies |date=September 2011 |url=https://climatestrategies.org/wp-content/uploads/2014/11/cs-investment-carbon-pricing-leakage-cement-sector-perspective-cook.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{cook2011investment, author = {Cook, Gregory}, title = {{INVESTMENT, CARBON PRICING AND LEAKAGE – A CEMENT SECTOR PERSPECTIVE}}, institution = {Climate Strategies}, year = {2011}, month = sep, url = {https://climatestrategies.org/wp-content/uploads/2014/11/cs-investment-carbon-pricing-leakage-cement-sector-perspective-cook.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }