[CemExec] Howard Klee, WBCSD (Part 2 of 2)

Following up on the previous issue of the CemExec feature with Howard Klee from the WBCSD Cement Sustainability Initiative (CSI) Program Director, he expands on the practical implications of his work for cement companies.

Klee explains how he sees regional and regulatory differences impact competitiveness. Additionally, he highlights how ÔÇ£environmentally consciousÔÇØ needs to be an integral part of cement business operations.

CemWeek:  How can cement companies in high-cost regions benefit from the regulations and stay competitive with less regulated, emerging markets?

Howard Klee: Cement tends to be a local product, and is not traded as much internationally as some other materials such as aluminum and steel.  Nevertheless, cement can be and is transported over large distances by ship where adequate port facilities are available at both ends of the shipment.  In the past few years, cement has been exported from China to the US and Europe, among other places.  Cement can be exported from the mid-east into Europe relatively easily.  There are manufacturing cost differences between countries which reflect differences in fuel and labor costs, equipment costs, and other factors.

When countries or regions adopt different climate policies, these can add to normal economic cost differences.  It is possible that the differences between regions would be great enough to drive further imports into high cost regions from lower cost regions.  Effective climate regulations would be designed to minimize these trade distortions which could disrupt local industry.  This subject was discussed in detail at a recent OECD Sustainable Development Roundtable in which several CSI companies participated.

The climate policy modeling work we just completed showed both the distortions and the impacts of different regulatory approaches. We looked at the case where, for example, one region adopted a hard limit (a ÔÇ£capÔÇØ) and other regions do not.  In such a case, the region with the more stringent CO2 limits will need to consider policies which minimize possible trade distortions.  For example, emissions allowance allocation policies can strongly affect price differences between regions.  Free allowances (as compared to an allowance auctioning system) can minimize these trade distortions.

CW:  ÔÇ£Environmental consciousnessÔÇØ ÔÇô how can cement companies use this as a strategic advantage as opposed to see it as a cost?

HK: I think the ÔÇ£consciousnessÔÇØ you mention extends beyond environmental concerns.  The company members of the CSI share a common belief that sustainable practices are the best way to keep their businesses thriving.  They understand that their local licenses to operate, innovate, and grow depend in large measure on effective management of the environmental, safety and social sides of their business, just as their financial performance determines their reception by investors.

For example, the cement industry has a unique role in that it can process a variety of fuels, including waste streams from other parts of society, and do so in an environmentally responsible and sustainable way.  When you consider some of the poor experiences seen from landfills, and the potentially hazardous residual material from incinerators, a cement kiln looks more and more like an effective way to co-process a number of waste streams.  The energy content is recovered in making a useful product, and residual materials are incorporated into the cement matrix.

Using tires as a fuel is a much more responsible way to deal with them than leaving them in storage piles which can catch fire, or provide breeding grounds for mosquitoes.  The world is now producing over a billion waste tires each year.  Many billions more are in discarded stockpiles. Using them as fuel in a cement kiln reduced the need to use other fossil fuels, and in some cases can even reduce other emissions such as NOx. The steel belts in tires provide iron, which is normally added as part of the cement-making process. In some cases the lower costs of these waste streams can improve the economic as well as the environmental performance of the kiln.

CW: 80% of cement is produced and consumed in emerging economies such as China.  The CSI has no member in China.  Why is this and are you doing anything to work with companies in China?

HK: You are absolutely correct that most of the world's cement is produced in developing economies.  We expect the 80% share that you cited to grow to 90% in the next 15 years.  And you are certainly correct that China is a major factor in cement production, accounting for 50% of the world's supply today.

The CSI began working in China in 2001, and has had a number of constructive discussions over the years.  In the early years we worked with existing associations and institutes in China, rather than individual companies.  We have made recommendations via the China Council to the national Chinese government about eliminating the large number of small cement facilities in favor of larger, more efficient plants.

We have worked with the Chinese Cement Association and the China Building Materials Institute to help train a number of cement plant personnel on using the CSI CO2 Protocol for analyzing energy efficiency and CO2 emissions.  Today we see a much greater interest from China in addressing energy efficiency and climate change and in participating in international programs.  China is a key part of any sustainable solutions for the cement sector.

This summer we held detailed discussions with a number of Chinese companies that have expressed interest in joining the CSI.  IÔÇÖm pleased to report that one company has now applied for CSI membership.  Two more have confirmed their interest in joining, and we expect to hear soon from two others.

CW:  How do you ensure that members implement the actions agreed to by the CSI?

HK: The CSI is a voluntary organization, and individual companies join with the signature of their CEO on the CSI Charter. The Charter commits each member to a set of obligations within 4 years of joining. One of those obligations is to report publicly on progress in meeting the individual company targets they have set.  Most companies do this via their annual environmental or sustainability reports that are available in print or on web sites or both.

The CSI Secretariat in Geneva serves to remind members of these obligations and collects data annually on specific key performance indicators that each company has agreed to measure.  As part of our overall progress report in 2007, the Secretariat, at the request of the members, hired an outside auditing firm to check up and confirm that members were actually complying with their obligations.  The audit pointed out a few areas where there was some confusion in measuring or reporting, but by and large, provided a very good report on membership performance.

CW:  Sustainable Development being such an important topic, we are hapy to have had the opportunity to present your viewpoint over the past two CemExec features. We thank you very much for sharing these very interesting perspectives with the CemWeek readers.