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Cementing your lead in the green transition – McKinsey

Decarbonizing the cement industry has never been more important. Globally, cement accounts for about 7 percent of total greenhouse-gas (GHG) emissions, one of the largest sectoral carbon footprints on the planet.1Cement,” McKinsey Quarterly, August 1, 2022. Our research suggests that global cement production volumes will remain stable until 2050, which means the industry must make active efforts today to reduce emissions in line with industry and global targets.
But cement is particularly difficult to decarbonize, because it directly releases CO2 in chemical processes during its production.2Laying the foundation for zero-carbon cement,” McKinsey, May 14, 2020. Novel decarbonization solutions are emerging, from new applications of carbon capture, utilization, and storage (CCUS) in clinker production to innovative materials and other cementitious solutions. However, these solutions will significantly shift value within the industry. As new business models emerge, players and providers of different solutions are expected to compete for market share.
For cement players looking for a place in a net-zero future, low-carbon offerings will be key to success. But players must act strategically to come out on top in a shifting market.3Building value by decarbonizing the built environment, McKinsey, June 2023. This article outlines some of the solutions that hold the most promise for decarbonization—including lower-carbon clinker, admixtures, innovative cementitious materials, and materials circularity—and the factors to consider when making green investments and building business models around them. How players in the cement ecosystem combine and balance these solutions will likely determine the decarbonization trajectory of the industry as well as which players will gain competitive advantage over time.
The cement and concrete industry has established new targets to lower and even eliminate emissions, such as those set by the Global Cement and Concrete Association (GCCA). These targets aim for a 20 percent reduction of CO2 per metric ton of cement and a 25 percent reduction of CO2 per cubic meter of concrete by 2030 compared to 2020 levels. The GCCA calls for complete decarbonization by 2050.4
For the past few decades, cement players have relied on traditional levers to reduce their emissions, such as increasing fuel efficiency and substituting clinker and traditional fuels with more-sustainable options. However, to reach net-zero emissions by 2050, annual capital spending will need to almost double to $60 billion on average from 2021 to 2050.5Cement,” McKinsey Quarterly, August 1, 2022; The net-zero transition: What it would cost, what it could bring, McKinsey Global Institute, January 2022. These costs, as well as the costs to develop novel decarbonization technologies and processes, have made industry players cautious about adopting newer innovations.
A few factors could help ease these cost burdens. For example, cement players could benefit from green premiums. Our analysis suggests that in the short term, the supply of lower-carbon cement is unlikely to keep up with increasing demand from end consumers with ambitious CO2 targets, particularly in Europe. This is likely to drive short-term green premiums for cement. We already see demand rising in a number of today’s markets; for example, Hoffmann Green Cement Technologies is capturing high premiums for its new products, and Cemex is capturing premiums for its lower-carbon concrete products. As more low-carbon materials become available to end consumers, especially in Europe, these premiums are expected to decline.
In addition, supportive regulation could help speed decarbonization. For instance, the 45Q tax credit in the US Inflation Reduction Act (IRA) offers tax incentives for CCUS technology for projects started before January 2033.6 Similarly, the EU Innovation Fund supports industry decarbonization in Europe by funding innovative technologies.
Four pathways show particular promise for effectively targeting the carbon-intensive aspects of cement and reducing its use in concrete. Although some of these solutions require further development to be scalable, each holds significant abatement potential.
Clinker, an intermediary used as a binder in cement, is a core component of cement products, but its production process is highly emissive. Lower-carbon clinker uses CCUS technology to capture and manage these carbon emissions before they are released.7 Other than moving away from clinker entirely, CCUS is the only known technology that addresses the process emissions in clinker production. In theory, CCUS could even help produce clinker with net-zero emissions.8 Many clinker producers are already focused on implementing CCUS, but these technologies often come with a high price tag and remain unproven at scale in the industry. As a result, CCUS has mostly been explored by larger incumbents. In addition, CCUS is generally economically viable only in select areas that have access to storage capacity or outlets for captured carbon (for example, applications in which mineralized carbon is used), government support, and affordable renewable energy, which is particularly important for clinker production.
In some locations, incumbents are exploring retrofits to existing assets, which can make sense where transport and storage capacity is available, along with needed space on existing plants. In addition, CCUS-enabled lower-carbon clinker could become more widespread with the construction of new net-zero megaplants in advantaged markets. Such markets include areas in the United States with cheap renewable power and IRA support, as well as locations in Europe with renewable resources, CO2 sinks, supportive regulation, and the ability to export to wider Europe. Players may need to restructure their asset strategies to benefit from the advantages of these markets while continuing to serve their existing markets. This might involve producing lower-carbon clinker in megaplants and then shipping it to local markets and grinding it there. Beyond choosing markets to enter, cement players can also benefit from economies of scale by using AI in logistics and leveraging larger plants (ranging from four million to six million metric tons per year). Strategically built megaplants could potentially reduce production costs for lower-carbon clinker by up to 60 percent, making it a more economically viable option (Exhibit 1).
Admixtures are substances added to concrete to improve its performance, such as its durability and workability. They can also reduce the amount of cement needed in concrete, which both lowers cement-related costs and reduces concrete’s carbon footprint. According to our analysis, admixtures have the potential to reduce CO2 emissions in concrete by up to 30 percent under current standards and up to 50 percent under updated standards. By reducing the volume of cement needed, additional admixtures allow the cost of concrete to stay stable. Admixtures also allow for greater levels of concrete recycling and the use of fiber reinforcement.
However, a few obstacles currently hinder the widespread adoption of admixtures. Different concrete applications require different types of admixtures, and incorporating different concrete mixtures can make construction more complex to plan and execute. In addition, key stakeholders may have limited awareness about the decarbonization potential of admixtures. In markets in which cement assets offer significant returns, there is also a transition challenge for integrated incumbents, which will need to disrupt their own business models to increase admixtures in ready-mix concrete (RMC).
Alternative cementitious materials, such as low-carbon cement or geopolymer concrete, have historically struggled to scale. However, current investment trends and rapid technological advancements have allowed start-ups to disrupt the alternative-cementitious space with low-carbon offerings. For example, Brimstone replaces limestone in traditional cement production with calcium-silicate rock, and Sublime Systems uses an electrochemical process that eliminates the need for a kiln. Although these approaches are novel, investment data indicates that appetite for alternative cementitious materials is high: Brimstone announced a $55 million funding round in 2022, and Sublime Systems has raised more than $40 million in two funding rounds since 2021.9
Local markets play a strong role in shaping the supply and demand of different cementitious products, making global trends somewhat difficult to predict. However, some general trajectories are expected in the coming years (exhibit).
Traditional clinker. Demand for traditional clinker is expected to shrink as the construction market increases its requirements for sustainable materials. Traditional-clinker production is expected to shrink as well, since some production facilities will be retrofitted with carbon capture, utilization, and storage (CCUS) technology to make lower-carbon clinker. Margins are expected to remain stable or fluctuate only slightly, depending on local conditions.
Lower-carbon clinker. CCUS-enabled lower-carbon clinker is expected to increase in both demand and supply (from zero today),1The net-zero transition: What it would cost, what it could bring, McKinsey Global Institute, January 2022. but ultimately it will be limited to production in markets with advantaged access to CO2 sinks, raw materials, government support, and renewable power. This will likely entail excess demand and could enable lower-carbon-clinker producers to charge a premium. A 2021 McKinsey survey found that two-thirds of developers and contractors expected these premiums to materialize, but it is still too early to estimate their size. The cost of lower-carbon-clinker production could be up to 45 percent higher than that of traditional clinker,2Cement,” McKinsey Quarterly, August 1, 2022. but this cost premium could be significantly reduced for megaplants in advantaged markets producing lower-carbon clinker at scale.
Traditional supplementary cementitious materials (SCMs). Traditional SCMs, such as granulated blast-furnace slag and fly ash, are traditionally sourced from heavy industries (iron and steel plants and coal-fired plants, respectively). Although these SCMs are increasing in value, their supply is expected to continue to decrease as heavy industries decarbonize. This could lead to higher margins and push sourcing strategies further offshore.
Innovative SCMs. Our analysis suggests that SCMs produced through novel processes will benefit from increased demand and a cost advantage over CCUS-enabled lower-carbon clinker, and the potential for high margins is expected to drive investment. Players will need to ensure access to these new materials early on to avoid missing out.
In particular, supplementary cementitious materials (SCMs) offer promising ways to significantly reduce the carbon footprint of traditional cement and concrete. Traditional SCMs—such as fly ash, ground granulated blast-furnace slag (GGBFS), and silica fume—can be used to partially replace the clinker used in cement or the cement content used in concrete. This can have both sustainability and cost benefits, but SCMs are typically not fully leveraged. In many markets, local and regional standards limit the volume of traditional SCMs in cement based on their hydraulic and cementitious properties. For example, the European Union limits fly ash to a maximum of 35 percent, whereas the United States limits it to 40 percent.10 New SCMs such as calcined clay, limestone, and recycled concrete may require a reevaluation of these standards to maximize both the performance and decarbonization potential of cement and concrete, particularly as the availability of traditional SCMs decreases (see sidebar, “Market projections for cementitious offerings”).
Circular economies aim to minimize the environmental impact of concrete by using less virgin cement—and therefore less clinker—in its production.11The circular cement value chain: Sustainable and profitable,” McKinsey, March 6, 2023. For a broader view on circularity in materials, see Anders Åhlén, Per-Anders Enkvist, Per Klevnäs, and Robert Westerdahl, “How a ‘materials transition’ can support the net-zero agenda,” McKinsey, July 20, 2022. To boost circularity, cement and concrete players can use strategies such as reusing concrete waste and incorporating recycled materials in new-concrete production.
With increased materials circularity, owning demolition, waste streams, and separation technologies will become increasingly important compared with owning a kiln, today’s main control point. As a result, new players such as start-ups focused on waste stream management and infrastructure companies overseeing waste from construction projects are entering the cementitious space. However, waste transportation and processing pose logistical challenges, limiting scalability and making waste value chains highly localized.
Although these four pathways are complementary, they will compete for growth and investment, and the pace at which they are adopted may differ markedly across markets. Down the value chain, new admixtures and recycling could create great value, although recycling is difficult to scale. Cement players in the middle will need to balance CCUS-driven lower-carbon clinker and innovative cementitious solutions to achieve near- and long-term success as different technologies mature. Their choices will be driven by cost and facilitated by regulators, industry organizations, and specifiers building pathways toward decarbonization.
In the years to come, cementitious producers and providers of solutions and services will need to choose which strategies and business models they wish to implement in the pursuit of net-zero cement. Our analysis has identified nine potential future business models for cementitious producers and solution providers, ranging from entirely new approaches to minor adjustments to the status quo. Most of these business models are anchored around a specific solution that is tailored to respond to a specific need. At the same time, many of these business models are complementary and can be combined for greater decarbonization.
As the industry decarbonizes, a new landscape of cementitious producers could emerge to compete for market share:
As cementitious producers navigate the materials transition, other forward-thinking players will be able to find business opportunities supporting them. These solutions providers could offer lower-carbon clinker, fillers, and special cement blends, which will be critical for retrofitted low-carbon cement producers. These offerings could reduce the cost of decarbonization on the cement and concrete manufacturing side while enabling maximum performance of the materials and the lowest CO2 footprint possible.
As players innovate tailored solutions to meet customer needs, a number of cementitious-solutions providers could emerge:
The jury is still out on which of these paths or business models will win, but several clear messages emerge for cement industry players and solution providers.
In the energy transition, incumbents will need to navigate between CCUS and cementitious-driven approaches, using a combination of technologies to meet decarbonization goals and to hedge their bets on which recipe will win in the long run. Depending on their strategy, incumbents can take steps to secure sources for traditional SCMs and greener materials, or they can innovate or acquire new SCMs. Incumbents also have greater freedom to invest in lower-carbon clinker megaplants, which could prove to be a powerful advantage in the future.
Meanwhile, disruptors such as solutions and service providers can leverage data and analytics to help end customers manage the materials transition.12The net-zero materials transition: Implications for global supply chains,” McKinsey, July 5, 2023. Innovators can leverage technology partnerships to develop new SCMs and admixtures in cement and concrete. These new SCMs could potentially be used in higher shares, winning both volume and margin advantages and potentially leading to new performance-based pricing arrangements, because less volume could achieve the same value. Regulatory positioning and certification will be key in these efforts.
To reach net zero, the cement industry will need to engage in active efforts. This will be a real transformation from past ways of operating, and the time to start building this muscle is now. If incumbents and disruptors can invest strategically in innovative technologies and business models, they could be well positioned to lead in the industry landscape to come.
Fabian Apel is an associate partner in McKinsey’s London office, Johanna Hoyt is a consultant in the Toronto office, Francisco Marques is an associate partner in the Lisbon office, Sebastian Reiter is a partner in the Munich office, and Patrick Schulze is a partner in the Berlin office.
The authors wish to thank Krysta Biniek, Michael Birshan, Jose Luis Blanco, Thomas Czigler, Ali Khan, and Imke Mattik for their contributions to this article.


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