Evaluating Clean Development Mechanism Projects in the Cement Industry Using a Process-Step Benchmarking Approach

Abstract

This report describes the potential use of benchmarking for evaluating Clean Development

Mechanism (CDM) projects in the cement industry. We discuss a methodology for comparing

proposed projects against a benchmark using a process-step approach. We find that cement

production is well suited to a process-step benchmark methodology for evaluating energy use

because it consists of a number of discreet steps for which energy use can be measured. There are three primary process steps that can be evaluated with a benchmark: raw material preparation, clinker production, and cement grinding. Benchmark values can be determined for these three major process steps in a number of ways. The most promising methodologies involve analyzing plant performance of recent new plants or modifications and looking to technological estimations of “best practice” for energy use.

We use technological “best practice” estimates for the cement industry as benchmark values to

test the process-step benchmarking approach. Two examples are constructed and evaluated

against these benchmarks; one uses data from an efficient plant in Thailand and one uses the most efficient values from a range of best available technology estimates. Our examples show that the expected potential financial incentives from CDM credits are small relative to the price of

cement. Further research into the economics of cement production would be needed to determine whether CDM credits are significant relative to production costs and therefore offer an incentive to adopt efficient technologies.

We identify some issues relevant to cement production that should be considered when a Bench marking scheme for this industry is designed. These issues include the production of “blended cements”, which lower the need for clinker, and therefore present an option for avoiding large amounts of carbon dioxide emissions. Reductions of carbon emissions from blended cements potentially greatly overshadow savings from efficiency improvements, but evaluating blended cement projects with a benchmark introduces some methodological problems. Another issue is that most new plant additions in the cement industry utilize modern, efficient technologies and approaches, so setting a benchmark “strict” enough to exclude non-additional emission reductions may provide only a small economic incentive to improve on the benchmark, depending upon the market value of avoided carbon emissions. Plant modernizations that lower energy consumption are common and provide an excellent opportunity for reducing emissions.

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Such projects might play a major role in CDM, and can be evaluated at the process-step level using the benchmarks for the whole plant analysis.

I. Introduction

Energy efficiency projects in the industrial sector provide a source for reducing greenhouse gas

emissions under a Clean Development Mechanism (CDM) scheme as laid out in Article 12 of the

Kyoto Protocol. The CDM offers a mechanism for developed countries to meet greenhouse gas

(GHG) reduction requirements by gaining offsets from projects they fund in developing countries. To receive these offsets – known as Carbon Emission Reduction Units (CERs) – the project should demonstrate “real, measurable, and long-term benefits” and the reductions should be  additional to any that would occur in the absence of the project.”(UNFCCC, 1997) In other words, energy-efficiency CDM projects must be compared against some baseline to quantify the carbon reduction, and this baseline should reflect, as closely as possible, what would have happened in the absence of the CDM project.

In this report we develop a “process-step” benchmarking approach, in which the important energy-consuming production steps in an industry are assigned a benchmark value. Actual projects are evaluated against these benchmarks at the process level. The advantage of using a benchmarking approach is that it establishes a baseline against which a number of projects can

e compared. It eliminates the process of constructing project-specific counterfactual baselines, which can entail high transaction costs and could be influenced by strategic “gaming” by the project planner1. (Lazarus et al. 1999) Setting the benchmarks at a process-step level rather than at an aggregate production level creates a more flexible tool that can more accurately measure emission reductions from a range of similar projects.

The energy-intensive industries – e.g. cement, iron and steel, pulp and paper – are well suited for CDM project development. These industries account for a majority of industrial energy consumption, especially in developing countries. Within each of these industries, firms produce a relatively homogenous set of products (or intermediate products) using similar production methods and equipment. The production steps have been studied extensively, so valuable information is available for constructing process-step benchmarks.

In this report we use the cement industry to illustrate the process step benchmark approach. Cement production is an energy-intensive process and is critical for the development of infrastructure in many countries. This report begins with a description of the cement making process and a discussion of the energy requirements. We then describe the process step approach for this industry and present examples using possible benchmarks and CDM projects. We have provided a discussion of selected issues relevant to cement industry benchmarks, including blended cements, plant modernization, and alternative fuel choices. In the conclusion we suggest several areas for further research that would strengthen the process-step benchmarking approach and contribute to a greater understanding of how these benchmarks could be used.