An Example Analysis of Potential Reductions in CO2 Emissions from the US Cement Industry

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This section presents an example analysis of the U.S. cement industry, investigating the potential for near-term reductions in CO2 and other pollutants, associated costs, and industry operation. The ISIS-cement model described above was used to conduct this analysis and the regulatory mechanism selected was cap-and-trade of CO2. This mechanism has been used in many of the recent policy proposals addressing reduction of CO2 emissions. The analysis presented is an example of the type of sector-specific analyses that may be needed for developing GHG reduction policies for industrial sectors.

Two broad questions were investigated in this example analysis: (1) what range of CO2 reduction options may be practicable in the near-term (i.e., the decade ending 2020 selected for this analysis), and (2) for that range, what may be the market characteristics for the U.S. cement industry. The first question is relevant because in the absence of carbon capture technology, the path forward for reducing emissions in the near-term will need to depend on the currently available energy efficiency measures and raw material and product substitution approaches, some of which are described earlier. The second question speaks to industry operation under the potentially practicable options determined while answering the first question.

To investigate the above questions, CO2 emissions targets corresponding to a range of reductions from projected CO2 emissions in 2013 were analyzed. Relatively modest reduction levels ranging from 5% to 25% were chosen to be generally consistent with the capabilities of energy efficiency and raw material substitution measures. These targets are summarized in Table 8.10. Only the measures depicted in Tables 8.4 and 8.6 were considered in this example analysis because at this time ISIS-cement does not include calculation procedures for the measures shown in Tables 8.3 and 8.5. In addition to the energy efficiency measures of Tables 8.4 and 8.6, a fuel substitution technology, MKF-tires, and a raw material substitution technology, CEMstar, are also considered in this analysis. As mentioned before, the use of MKF-tires results in reduced fossil fuel consumption (by about 15%) and this is included in ISIS-cement. Relative to Cemstar, a 7.5% reduction in limestone and a 3% reduction in fuel for every short ton of clinker produced is included in ISIS-cement. The costs for energy efficiency measures are described

Table 8.10 CO2 caps modeled in this analysis

Reduction from projected 2013

CO2 cap (short tons)

emission level (%)a

64,099,115

5

60,725,478

10

57,351,840

15

53,978,202

20

50,604,565

25

a 2013 emissions were those under the BAU case a 2013 emissions were those under the BAU case

40 35 30252015 10-1 5 0

40 35 30252015 10-1 5 0

25.0

CO2 Reduction (%)

Fig. 8.8 Projected CO2 allowance prices under a range of CO2 reduction levels

CO2 Reduction (%)

25.0

Fig. 8.8 Projected CO2 allowance prices under a range of CO2 reduction levels in Andover Technology Partners [49] and for MKF-tires and Cemstar in Andover Technology Partners [29]. These costs are included in ISIS-cement. Information on the extent to which each of the energy efficiency measures in Tables 8.4 and 8.6 could be applied on existing kiln capacity was obtained [50] and included is ISIS-cement. These penetration numbers ranged from 5% for CGC to 88% for PM. Also for this example analysis it was assumed that each of CEMstar and MKF-tires cannot be applied on more than 25% of the existing and unretired kiln capacity over the horizon 2013-2020.

Runs were made with ISIS-cement for the BAU case (i.e., when no emission reduction requirements are in effect) and with each of the above caps. The corresponding results are presented in Figs. 8.8-8.14.

In a cap and trade framework, allowance price is a primary metric for deciding on emission reduction levels. Figure 8.8 reflects that CO2 allowance price (in 2013 for example) for various reduction levels range from about 10 to 35 $ per short ton of CO2. A recent analysis of the American Clean Energy and Security Act of 2009, reflects a price range of 13-24 $ per metric ton in 2015 [51]. Considering this

OT 3

U.S. Industry Revenue (billion $) Change in U.S. Industry Revenue (%)

CO2 Reduction (%)

20.0

25.0

Fig. 8.9 Projected revenue for the U.S. cement industry under a range of CO2 reduction levels over the horizon 2013-2020

Fig. 8.9 Projected revenue for the U.S. cement industry under a range of CO2 reduction levels over the horizon 2013-2020

CO2 Reduction (%)

20.0

CO2 Reduction (%)

20.0

25.0

Fig. 8.10 Projected average cement prices in 2013 for the U.S. cement industry under a range of

CO2 reduction levels indication, a reduction range of 5-15% appears practicable for purpose of this example analysis.

Two metrics for additional evaluation of potential emission reduction levels could be: (1) U.S. industry revenue under policy, and (2) cement price under policy. Arguably, these metrics speak to the interests of both the industry and consumers.

An increase in cement price under a CO2 reduction policy will cause a drop in demand. Also, if the policy does not impose any requirements on imports, these can increase under policy because production can shift to other countries. Both factors,

' 1,000 f 900 800 -700 -600 , 500 -400 300 200 -100 0

CO2 Reduction (%)

20.0

CO2 Reduction (%)

20.0

25.0

• Demand (million short tons) ■ Change in Demand (%)

Fig. 8.11 Projected demand for cement under a range of CO2 reduction levels

Fig. 8.11 Projected demand for cement under a range of CO2 reduction levels

CO2 Reduction (%)

25.0

CO2 Reduction (%)

25.0

• Imports (million short tons) ■ Change in Imports (%)

Fig. 8.12 Projected imports for the U.S. cement industry under a range of CO2 reduction levels over the horizon 2013-2020

drop in demand and increased levels of imports, can cause a reduction in revenue for the cement industry in the U.S.

Increase in price will, in general, result in a reduction in demand because consumers will reduce their needs at higher prices and the drop in demand will contribute to

• Retired/mothballed Capacity (million tons) ■ Retired/mothballed Capacity (%)

CO2 Reduction (%)

20.0

25.0

Fig. 8.13 Projected capacity retirement/mothballing

1000

600-

200-

1000

600-

200-

Fig. 8.14 Projected emissions of NOX, SO2, and CO2 from the U.S. cement industry under a range

Fig. 8.14 Projected emissions of NOX, SO2, and CO2 from the U.S. cement industry under a range of CO2 reduction levels over the horizon 2013-2020

reduction in revenue for the industry. As mentioned before, ISIS-cement includes a calculation procedure for calculating drop in demand with increase in price.

Figures 8.9 and 8.10 show the U.S. industry revenue and cement price (in 2013 for example) for the BAU case (0% reduction), and for emission reductions ranging from 5% to 25%. Figure 8.9 shows that the drop in U.S. industry revenue under policy relative to BAU ranges from about 4% to 6.5% for the reduction range of 5-15%. For the same reduction range, Fig. 8.10 reflects that the increase in cement price ranges from about 5% to 12%. Figure 8.11 shows the drop in demand due to rising prices under increasing CO2 reduction levels. This drop contributes to the loss of revenue seen in Fig. 8.9. Notably, the drop in demand relative to BAU is less than about 16% if the reduction levels are kept at or below 15%.

Figure 8.12 reflects that under example policy options imports increase relative to the BAU case. In addition, as the cap is tightened from the 15% reduction level to the 25% reduction level, the industry resorts to increasing imports in a monotonic fashion. Since imports come with zero emissions in the U.S. and result in reduced domestic fuel and raw materials processing, they can help comply with a policy requiring reductions in domestic emissions. While the impact of increases in imports in the U.S. on emissions in exporting countries is beyond the scope of this analysis, it is recognized that such increases in imports will generally result in increases in CO2 and other emissions in exporting countries.

A concern related to drop in revenue can be retirement/mothballing of kiln capacity in the U.S. cement industry. Figure 8.13 reflects the potential for retire-ments/mothballing under the example reduction options. For this work, a unit is considered retired or mothballed if it does not produce in any year of the horizon 2013-2020. The figure shows that even under the BAU case, 12-13% of the existing capacity may be retired or mothballed. This is because in each year of the horizon 2013-2020, the U.S. cement industry has excess kiln capacity relative to BAU demand. For the reduction range 5-15%, the retired or mothballed capacity ranges from 23% to 27% of the existing capacity, or about 10% to 15% points over the BAU projection.

Significant collateral reductions in other pollutant emissions may be possible under the range of practicable CO2 reduction levels arrived at in this example analysis. Figure 8.14 shows such collateral reductions in NOx and SO2 emissions. At the 15% CO2 reduction level, each of NOX and SO2 emissions may be reduced by more than 200,000 short tons over the selected time horizon. These reductions result from use of energy efficiency measures (see below) and reduced production.

For the cap at the 15% reduction level, which is in the range of practicable reductions for purpose of this example analysis, additional detailed results are presented in Figs. 8.15 and 8.16.

Figure 8.15 shows the projected CO2 emissions under the BAU and policy cases, emission caps corresponding to 15% reduction from CO2 emissions in 2013, and banked allowances. As seen in this figure, the industry engages in relatively modest levels of CO2 allowance banking and related trading activity. This is consistent with the relatively modest level of reduction required.

Figure 8.16 reflects that, in response to the CO2 reduction requirement, the industry installs and operates measures with multi-pollutant, NOx, SO2, and CO2, reduction benefits. The majority of these measures are installed in 2013 to help comply with the reduction requirement. The energy efficiency measures reflected in the legend in this figure are defined in Tables 8.4 and 8.6. In addition, CEMstar and MKF-tires are briefly described in the section on raw material and/ or fuel substitution. Note that Fig. 8.16 reflects that CEMstar will need to be applied on about 40% of operating capacity in 2013. Consequently, a reliable and adequate supply of BFS will need to be ensured for this level of CEMstar application.

2013

2014

2015

2016

2017

2018

2019

2020

2013

2014

2015

2016

2017

2018

2019

2020

i BAU Case Emissions, CO2 (tons) ■ Emission Cap, CO2 (tons) Controlled Emissions, CO2 (tons) i Banked Allowances, CO2 (tons)

Fig. 8.15 Projected CO2 emissions and reductions from the U.S. cement industry under the BAU

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2013 2014 2015 2016 2017 2018 2019 2020 Fig. 8.16 Projected control technology applications in the U.S. cement industry under the 10%

CO2 reduction case and the 10% CO2 reduction cases

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