This article investigates how the costs associated with deep reductions in CO2 emissions from the cement industry will influence the costs across the entire value chain from cement production to the eventual end-use, in this case a residential building. The work is motivated by the substantial difference between the pricing of CO2 emissions and the costs of mitigation at the production sites of energy-intensive industries, such as cement manufacture. By examining how CO2 trading and investments in low-carbon kiln systems affect costs and prices further up the supply chain of cement our analysis provides new perspectives on the costs of industry abatement of CO2 and on the question of who could or should pay the price of such abatement. The analysis reveals that the cost impacts decrease substantially at each transformation stage, from limestone to final end-uses. The increase in total production costs for the residential building used as the case study in this work is limited to 1%, even in the cases where the cement price is assumed to be almost doubled. Policy relevance With the price of emission allowances under the EU Emissions Trading System (EU ETS) currently far below the levels required to unlock investments in low-CO2 production processes in carbon-intensive industry (i.e. petroleum refining, iron and steel production and cement manufacturing), this article seeks to pave the way for a discussion on complementary policy options. The results from this study, using the supply of cement and concrete to a residential building as a case study, suggest that because cement and concrete typically account for a limited proportion of the total cost of most construction and civil engineering projects, a policy scheme designed to allocate more of the costs of CO2 abatement to the end-users (of cement) would neither (significantly) alter the cost structure nor (dramatically) increase overall project costs.
