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This paper was produced as a referencepaper to inform the discussion paper“New Mechanisms for FinancingMitigation: Transforming economies sec-tor by sector.” The views expressed inthis paper do not represent the views ofWWF nor the agencies that committedfinancial support to carry out this proj-ect.

Strategies to Reduce Mexico’s Cement and Iron and Steel Industry GHG Emissions

Energía, Tecnología y Educación, S.C.

Paper prepared for WWF México

February 2009

An Introduction to the Global Financial Mechanism Supporting Studies Series

Beginning in mid-2008, at the request of several European governments, WWF led an analysis and dialogue on international financing arrangements to address climate change in developing countries. That meant, on the one hand, advancing a technically strong proposal capable of mobilizing the considerable public and private funds that may be needed to attain the below 2 degrees centigrade goal for climate change stabilization and, on the other hand, advancing an equitable proposal that could garner the support of the parties at COP15.

The work approach is designed (a) to bring a bottom-up perspective to the to the current top-down discussion, based on a suit of developing countries’ sectoral studies that focus on what it would actually take to move whole economic sectors towards a low emission trajectory; (b) to focus on the operational requirements of an international financing scheme; (c) to engage leading experts on a critical review of relevant experiences and government proposals; (d) to convene experts and negotiators from South and North to discuss these issues; and (e) to present the project findings to key stakeholders and forums in the run-up to COP15.

The program’s main conclusions and proposals are in the document: “Global Financial Mechanism. The Institutional Architecture for Financing a Global Climate Deal” that can be downloaded from http://www.panda.org/what_we_do/how_we_work/policy/macro_economics/our_solutions/gfm/

In this Supporting Studies Series we are presenting a dozen reports that were used as inputs to the project. All these studies were commissioned to independent experts or institutions. Some are case studies of mitigation opportunities in different sectors of developing countries (e.g. cement and iron & steel in China and Mexico, coal based power generation in India, renewable energy opportunities in Morocco). Others are stock-taking reports focusing on critical issues for the global climate change financing (e.g. mapping new financing options for climate change, a review of sectoral mitigation proposals, a review of proposals to fund technology cooperation, etc.).

Some of the ideas and proposals in these support series have been carried over to the project recommendations and have been summarized in the main document (either as short summaries, theme boxes, or pull quotes). Still, these documents have much more to offer, and for that reason we present them here in full. As usual, opinions in each document are the sole responsibility of its author(s), and should in no way be considered representative of WWF positions.

Authors and titles in this GFM Supporting Studies Series include:

1. Michael Rock; (Bryn Mawr College) Using External Finance to Foster a Technology Transfer-Based CO2 Reduction Strategy in the Cement and Iron and Steel Industries in China

2. Christine Woerlen (Arepo consult, Berlin) ; “Opportunities for renewable energy in Tunisia: A country Study

3. The Energy and Resources Institute (TERI, Delhi) “Strategies to reduce GHG emissions from India’s coal-based power generation”

4. Britt Childs with Casey Freeman (WRI, Washington DC) “Tick Tech Tick Tech: Coming to Agreement on Technology in the Countdown to Copenhagen”

5. Energia, Tecnologia y Educacion, SC (ETE, Mexico DF) “Strategies to reduce Mexico’s cement and iron & steel industry GHG emissions”

6. Charlotte Streck (Climate Focus, Brussels) “Sectoral Transformation Plans as Strategic Planning Tools”

http://www.panda.org/what_we_do/how_we_work/policy/macro_economics/our_solutions/gfm/

7. Charlotte Streck (Climate Focus, Brussels) “Financing REDD a Review of Selected Policy Proposals 8. Charlotte Streck (Climate Focus, Brussels) “Financing Climate Change: Institutional Aspects of a Post-

2012 Framework” 9. Silvia Magnoni “Review of the CDM and Other Existing and Proposed Financial Mechanisms to

Transfer Funds from North to South for Mitigation and Adaptation Actions in Developing Countries” 10. Silvia Magnoni “Sectoral approaches to GHG mitigation and the post-2012 climate framework” 11. Weishuang Qu (Millennium Institute, Washington DC) “Using the T21 computing model to forecast

production and emissions in China’s cement and steel sectors” 12. Neil Bird et al (ODI, London) “New financing for climate change. And the environment in the

developing world” 13. Energia, Tecnologia y Educacion, SC (ETE, Mexico DF) “Strategies to reduce Mexico’s cement and

iron & steel industry GHG emissions” 14. Charlotte Streck (Climate Focus, Brussels) “Sectoral Transformation Plans as Strategic Planning

Tools” 15. Charlotte Streck (Climate Focus, Brussels) “Financing REDD a Review of Selected Policy Proposals 16. Charlotte Streck (Climate Focus, Brussels) “Financing Climate Change: Institutional Aspects of a Post-

2012 Framework” 17. Silvia Magnoni “Review of the CDM and Other Existing and Proposed Financial Mechanisms to

Transfer Funds from North to South for Mitigation and Adaptation Actions in Developing Countries” 18. Silvia Magnoni “Sectoral approaches to GHG mitigation and the post-2012 climate framework” 19. Weishuang Qu (Millennium Institute, Washington DC) “Using the T21 computing model to forecast

production and emissions in China’s cement and steel sectors” 20. Neil Bird et al (ODI, London) “New financing for climate change. And the environment in the

developing world”

Contents

Introduction.............................................................................................................................. 1

1. The iron and steel industry in Mexico ............................................................................... 2

1.1 The importance of iron and steel in Mexico’s economy................................................ 2 1.2 Steel production and consumption in Mexico .............................................................. 2 1.3 Demand drivers .......................................................................................................... 4 1.4 Growth forecasts for 2020 and 2030 ............................................................................ 5 1.5 Energy consumption ................................................................................................... 6 1.6 Energy intensity .......................................................................................................... 7 1.7 GHG emissions............................................................................................................ 9 1.8 Emissions forecasts for 2020 and 2030 ...................................................................... 11

2. The cement industry in Mexico............................................... Error! Bookmark not defined.

2.1 The importance of cement in the economy................................................................ 13 2.2 Cement production and consumption in Mexico ........................................................ 13 2.3 Demand drivers ........................................................................................................ 14 2.4 Production forecasts for 2020 and 2030..................................................................... 15 2.5 Energy Consumption ................................................................................................. 16 2.6 Energy intensity ........................................................................................................ 17 2.7 Greenhouse gas emissions ........................................................................................ 18 2.8 Emissions forecast for 2020 and 2030 ........................................................................ 20

3. Technology shift needed to significantly reduce GHG emissions in a 2020/2030 horizon Error! Bookmark not defined.

3.1 The iron and steel industry........................................................................................ 21 3.2 The cement industry ................................................................................................. 27

4. Elements that favor and hinder the technology shift needed to significantly reduce GHG emissions....................................................................................................................... 31

4.1 Elements that favor the technology shift needed to significantly reduce GHG emissions ................................................................................................................. 31

4.2 Elements that hinder the technology shift needed to significantly reduce GHG emissions ................................................................................................................. 32

4.3 Other elements to consider in the adoption of technologies and strategies to significantly reduce GHG emissions in Mexico’s steel and cement industries .............. 33

5. How could an international mechanism that transfers funds and technology from the north help accelerate the transition?....................................................... Error! Bookmark not defined.

References.............................................................................................................................. 36

1

Introduction

The iron and steel (IS) and cement industries play a key role in Mexico’s economic development because they provide essential elements and products for a number of important economic activities such as construction and manufacturing.

These industries represent close to 3% of Mexico’s gross domestic product (GDP) and they are the most important industrial export sectors. Mexico’s IS and cement sectors operate in a global market and are a point of reference in Latin America. Also, they have the highest growth expectations in the Mexican economy and these industries have had a steady growth over the past few decades, motivated by an increased demand for their products.

In terms of energy use, these industries are the major energy consumers of the industrial sector, just after the energy sector, and significantly contribute to greenhouse gas (GHG) emissions. According

to the latest National Greenhouse Gas Inventory (1990 2002), the IS and cement industries represent almost 9% of Mexico’s GHG emissions.

Nonetheless, over the past few years, Mexico’s IS and cement industries, faced with high energy prices and strong competition, have undertaken significant efforts to reduce costs and modernize their installations and, as an indirect result, reduce their GHG emissions.

Also, the fact that large multinational enterprises own and operate most of these industries has positively affected their general efficiency and has placed Mexico’s installations among the cleanest industries worldwide.

However, there are still several opportunities for GHG mitigation in these industries, particularly through the future adoption of the newest and still noncommercial GHG-emission-reducing breakthrough technologies.

This document provides a brief overview of the current situation of the IS and cement industries in Mexico, annotates the variety of mitigation options these industries have in a 2020 and 2030 horizon, describes what is favoring and hindering the effective adoption of conventional and advanced mitigation technologies, and suggests international actions for further GHG mitigation.

2

1. The iron and steel industry in Mexico

The IS industry in Mexico is composed of 19 integrated companies distributed along the country, with infrastructure to both reduce iron and produce steel (figure 1).

The most important firms in the country by level of production are Altos Hornos de México, S. A. (AHMSA), ArcelorMittal, GERDAU-SIDERTUL, Ternium, and Villacero (some are identified in the map below).

Figure 1. Geographic distribution of the steel industry in Mexico (2008)

Source: National Chamber of Iron and Steel Mexico 2008

1.1 The importance of iron and steel in Mexico’s economy

In Mexico, IS industry production is valued at more than U.S.$211 million per year, representing 2.2% of national GDP and 9.1% of industrial GDP. During 2008, it generated 53,700 direct jobs and more than half a million indirect jobs. It is also the first consumer of electric energy and natural gas in the country and one of the main users of the transport sector services.1

1.2 Steel production and consumption in Mexico

In 2007, steel production in Mexico represented 1.3% of world production and the country ranked 15th in steel production in the world. It also contributed 26% of the production of Latin America, ranking second behind Brazil.2

According to the latest data of the National Chamber of Iron and Steel (CANACERO), steel production in 2008 was around 18.6 million tons, 10% more than the 16.7 million tons produced in 2004.3 According to the data from the National Institute of Geography and Statistics and CANACERO in Mexico, from 2001 to 2008 steel production grew 4.8% each year (figure 2).

1 National Chamber of Steel and Iron Industry 2008.

2 Ibid.

3 Ibid.

3

Figure 2. Steel production in Mexico (2001 2008)

Note: Data from 2008 was accumulated until July.

Source: Own elaboration based on data from National Institute of Statistics, Geography and Data Processing 2008 and National Chamber of Steel and Iron Industry (2008).

It is important to note that the 2004 to 2005 reduction in production was a result not of a decrease in steel consumption but rather of higher prices of natural gas that led the industry to reductions in production (figure 3). The IS sector is the greatest consumer of natural gas in Mexico.

Figure 3. Natural gas prices for industrial end-users 1997 2007

(pesos per 1,000 cubic meters)

Source: La Industria en México 2009

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Steel consumption totaled more than 25.5 million tons in 2008 (figure 4). The difference is covered with imports.

Figure 4. Steel consumption in Mexico (2004 2008)

Note: Data from 2008 was accumulated until July.

Source: Own elaboration based on data from National Institute of Statistics, Geography and Data Processing 2008 and National Chamber of Steel and Iron Industry 2008.

The largest IS demand comes directly from the construction sector (28%), distributors and marketers of finished products (21%), exports (15%), machinery and equipment production (8%), and automotive manufacturing (8%) (figure 5).

Figure 5. Distribution of sales of steel and steel products by type of market in Mexico in 2006

Source: Own elaboration based on data from National Insititute of Statistics, Geography and Data Processing 2008.

1.3 Demand drivers

The construction industry is the greatest steel consumer in Mexico and most likely will continue as such because the projections of housing construction show growth expectations. Statistics foresee an

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28%Packages and Packing

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equipment

8%

Other metalic

products

5%

Distributors and

Remarketers

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Exports15%

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annual growth of 650,000 new homes per year to reach 33 million in 2020 and 40 mil lion in 2030. 4 These programs would represent an average annual growth rate of 2% to the year 2020 and 1.7% from 2020 to 2030.5

On the other hand, Mexico’s federal government announced investments in infrastructure of

around US$250 billion per year in the 2007 2012 period, which represents a 45% growth with respect to 2006.6

The automobile industry is another important steel consumer. The National Institute of Statistics, Geography and Data Processing (INEGI)7 forecasts a rise in the production of cars from 2005 to the year 2030 of more than 250%, reflecting an annual growth rate of 5%.8

1.4 Growth forecasts for 2020 and 2030

In late 2008, the Mexican Iron and Steel Chamber (CANACERO) jointly with the Mexican Ministry of Economy (SE) defined an IS industry development plan with the aim of doubling the IS sector’s GDP by 2020, from US$6 billion to US$12 billion. Expected growth of steel production in Mexico according to this plan is 17.8 million tons per year.9

In this sense and according to the terms of the plan outlined by CANACERO and SE, Mexico’s IS sector should be able to “. . . totally capture the whole inertial growth of the sector by 2020 by replacing a portion of Mexico’s steel imports and increasing steel exports to the United States.”

The plan forecasts that other related sectors will also grow and will add to this inertial IS industry growth:

The automobile industry is expected to demand 0.8 million tons of steel each year at an increasing rate;

The extraction industry is expected to demand 0.4 million tons of steel each year; and

The construction industry, a main demand driver of the IS industry, will demand over a million tons of steel each year, in line with the prospects set forth in the National

Infrastructure Program 2007 2012.

To cover the expected demand, steel production in Mexico should grow at an estimated rate of 4.7% as of 2009, and is expected to grow to more than 32 million tons in 2020 and approximately 50.8 million tons by 2030 (figure 6).

4 Comisión Nacional de Población.

5 Datos propios con base en los datos de Comisión Nacional de Población 2007.

6 Presidencia de la República 2008.

7 National Institute of Statistics, Geography and Data Processing 2008.

8 The forecast of the National Institute of Statistics is based on 2005 data.

9 CANACERO 2008.

6

Figure 6. Steel production in Mexico 2007 2030

Source: Based on estimates and projections of CANACERO and SE plan to develop Mexico’s IS industry.

1.5 Energy consumption

Coke and natural gas are the main energy sources of the Mexican IS industry and are used as fuels but also as reducing agents in direct reduction of iron (table 1). Fuel oil and in some cases natural gas are used as auxiliary fuels for basic oxygen furnace (BOF) and electric arc furnace (EAF). Electricity is used mainly in EAF processes and also used in rolling and oxygen production for the BOF process.

Table 1. Energy consumption in Mexico’s iron and steel industry

2001 2007 (in petajoules)

Fuel type 2001 2002 2003 2004 2005 2006 2007

Natural gas 117.00 109.00 114.60 122.30 122.80 123.70 128.90

Coal coke 68.90 75.80 72.10 74.90 76.30 77.50 78.00

Petcoke 2.10 3.05 — — — 5.80 6.00

Electricity 26.70 24.10 24.50 26.20 26.40 26.70 27.60

Fuel oil 13.10 10.50 10.70 11.50 11.50 6.50 7.70

GLP and diesel 0.81 0.71 0.71 0.81 0.81 1.01 1.11

Total (rounded) 228.70 223.10 222.60 235.70 237.80 241.30 249.30

Source: Secretaría de Energía 2008. Note: GLP = l iquid gas

Mexico’s energy balances do not include small amounts of energy generated from cokemaking gases and blast furnace gases. In some cases and since 1982, these gases have been used toge ther with natural gas to generate electricity.

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Energy consumption in the steel industry increased by approximately 9% from 2001 to 2007. Coal coke’s participation in overall energy consumption increased from 69 petajoules (PJ) in 2001 to 78 PJ in 2007.

Consumption of fuel oil significantly decreased from 2005 to 2006 because it was substituted

with natural gas, usage of which increased from 117 PJ to 129 PJ in the 2001 2007 period.

About 7% of current electricity needs of the IS industry come as self -supply (figure 7).

Figure 7. Electricity self-supply in Mexico’s IS industry (2002 2007)

Sources: Secretaría de Energía, 2004, 2006, and 2008.

1.6 Energy intensity

The energy intensity of the steel industry in Mexico in 2007 was close to 14 gigajoules (GJ)/ton and decreased significantly (more than 20%) from 2000 to 2004 (figure 8).

Figure 8. Energy intensity of steel industry in Mexico (1996 2007)

Sources: Own elaboration with data from Ministry of Energy, “National Energy Balance 2007”;

World Steel Association, formerly International Iron and Steel Institute, “World Steel in Figures 2006”; Secretaria de Energía 2008.

This phenomenon is a result of a number of important factors:

Shift in ironmaking processes. Until 1995, cast iron production (blast furnace) and direct reduced iron (DRI) production had almost the same participation in the national production.

As of 1996, DRI production increased its participation significantly. In the 2001 2006 period,

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DRI production grew at an annual rate of 11%, compared with cast iron production, which decreased at an annual rate of 2.8% in the same period (figure 9).

Figure 9. Mexico ironmaking by process type 1970 2006

Sources: INEGI, “La Industria Siderúrgica en México,” Serie de Estadísticas Sectoriales, México, 2007,

http://www.inegi.org.mx; INEGI, “La Industria Siderúrgica en México,” México, several years.

Changes in steelmaking processes. EAF technology has increased its participation in the national steel production, particularly in the past five years because of a significant production of DRI (figure 10).

Figure 10. Steel production in Mexico 1970-2006 per process type

Source: INEGI, “La Industria Siderúrgica en México” Serie de Estadísticas Sectoriales, México, 2007, http://www.inegi.org.mx; INEGI, “La Industria Siderúrgica en México,” México, several years

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Use of continuous casting. Continuous casting has replaced ingot casting at most steelmaking facilities in Mexico. Continuous casting process use in Mexico increased from 9.8% in 1970 to 99.3% in 2006 (figure 11).

Figure 11. Continuous and ingot casting in Mexico 1970 2006

Sources: INEGI, “La Industria Siderúrgica en México,” Sectorial statistical series, México, 2007, http://www.inegi.org.mx ; INEGI, “La Industria Siderúrgica en México,” México (several years); “La Industria

Siderúrgica en México,” México (several years).

1.7 GHG emissions

The 2002 National Greenhouse Gas Inventory of Mexico reports that Mexico generated 643 million tons of carbon dioxide (CO2) and the IS sector contributed almost 5% of this total (almost 32 million equivalent CO2 tons). In the industrial sector, IS is an important emitter of greenhouse gases, contributing 30% of the emissions of the sector (figure 12).

Figure 12. Contribution of the industrial sector to the greenhouse gases in Mexico

Source: National Greenhouse Gas Inventory1990-2002; Instituto Nacional de Ecología 2006.

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For 2007, Mexico produced 17.6 millions of tons of steel and, according to World Steel Association (formerly the International Iron and Steel Institute) estimates, 1.7 tons of CO2 is given off per ton of steel produced. As a result, about 30 million tons of CO2 were emitted.10

Of this total (and based on energy consumption data and Intergovernmental Panel on Climate Change [IPCC] GHG emission factors), around 20 million tons of CO2 came from energy use, with 16 million from the direct use of fuels and 4 million tons of CO2 from electricity consumption (figure 13). The rest, 20 million tons of CO2, came from process emissions.

Figure 13. Estimated CO2 emissions by fuel used in the IS industry in Mexico (2007)

Source: Own calculations with data from the National Balance of Energy 2007 and emission

factors of the IPCC.

This also means that there has been a decrease of close to 2 million tons of CO2 emissions with respect to 2002, mainly because of the use of more energy-efficient technology, higher use of installed capacity, the fact that the Mexican steel industry has changed the proportion of fuels, and a shift from fuel oil to natural gas (figure 14).

Figure 14. CO2 emissions for energy consumption in the IS industry (1996 2007)

Source: Own calculations with data from the National Balance of Energy 2007 and emission factors of the IPCC.

10 World Steel Association 2007.

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1.8 Emissions forecasts for 2020 and 2030

A GHG emission indicator per ton of steel produced for the IS industry was elaborated in light of the GHG emissions reported under the GEI Program by the three largest steel producers in Mexico (AHMSA, ArcelorMittal, and Ternium) (table 2).11 These three companies represent more than 60% of Mexico’s steel production.

Table 2. GHG emissions of the three main steel-producing companies GEI Program, 2007

Company Millions of tons of CO2 Millions of tons of

steel produced Ton of CO2/ton of

steel

Altos Hornos de México (AHMSA) 8.4a 3.54a 2.38

ArcelorMittal ASSA, Las Truchas y Lázaro

Cárdenas 7.9b 4.78d 1.66

Ternium de México 4.1c 2.60e 1.59

TOTAL 20.4 10.92 1.87

Sources: (a) Altos Hornos de México S.A. 2008; (b) ArcelorMittal SA de CV 2008; (c) Ternium de México SA de CV, 2008; (d) 2006 information from INEGI, “La Industria Siderúrgica en México,” Serie de Estadísticas Sectoriales, México, 2007, http://www.inegi.org.mx; and (e) Ternium 2008.

An average index of 1.87 tonCO2/ton of steel produced resulted from the three company

indexes. This index is 20% lower than the estimate given by the GHG emission index, which was based on the 2002 National Greenhouse Gas Inventory developed by the Mexican government.

Two GHG emission scenarios for the year 2030 were considered, taking into account the expected production growth forecast of CANACERO and SE:

The business as usual (BAU) scenario, which considers the 2007 GHG emissions calculated in table 2 (1.87 tonCO2/ton) and no changes in the technology and fuel mix conditions through 2030.

An alternative scenario for 2030 is based on the assumptions made by the World Steel Association and the American Iron and Steel Institute, which express that a 1.50 tonCO 2/ton index results from the following:

o An increase of up to 97% of DRI production (it was 61% in 2006),

o An increase in EAF production from 74.5% in 2006 to 96% of the national steel production, and

o Increased use of natural gas both as fuel and as a reducing agent (by 20%).

Therefore, GHG emissions under the two scenarios are (figure 15)

11 The GEI Program is a voluntary GHG emissions disclosure program jointly operated by the Commission of

Sustainable Development Studies of the Private Sector (CESPEDES) and the Mexican Ministry of Environment and

Natural Resources.

12

Close to 60 million tonCO2 by 2020 and 95 million tonCO2 by 2030 in the BAU scenario.

48 million tonCO2 for 2020 and almost 76 million tonCO2 by 2030 in the alternative scenario.

Figure 15. GHG emission scenarios for Mexico’s IS industry (2007 2030)

The cement industry in MexicoThe cement industry in Mexico involves seven firms: Cemex Mexico, Holcim Apasco, La Cruz Azul cooperative, GCC Cements, Cementos Moctezuma, Cementos y Concretos Nacionales, and Cementos Lafarge. Together they operate 32 plants in 18 states of the country (Figure 16).

Figure 16. Geographic distribution of the cement industry in Mexico (2008)

Cemex México

Cementos y Concretos

Nacionales

Lafarge Cementos

Cementos Moctezuma

Cooperativa La Cruz Azul

Holcim Apasco

GCC Cemento

Source: National Chamber of the Cement Industry 2008.

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1.9 The importance of cement in the economy

In Mexico, the cement industry represents almost 1% of GDP. In 2007 the industry generated 21,000 direct jobs and more than 120,000 indirect jobs.12

1.10 Cement production and consumption in Mexico

In 2007 the production of cement in Mexico represented 1.6% of world production, making Mexico the 13th highest producer in the world.13 The cement production from 2000 to 2007 had an average annual growth rate of 2.9%, reaching 38.8 million tons of cement in 2007, 20% more than in 2000 (figure 17).

Figure 17. Cement production in Mexico (2000 2007)


It should be noted that the slight decrease in cement production from 2000 to 2001 was in

response to a decrease in the national consumption of cement. Demand has been growing significantly

over the 2001 2007 period (figure 18).

Figure 18. Cement consumption in Mexico (2000 2007)


12

National Chamber of the Cement Industry 2008.

13 International Energy Agency 2007.

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The main consumer of the cement industry in 2007 was the government (mainly for public works at municipal, state, and federal levels), followed by the concrete industry (which feeds into the building sector), formal construction, and self-construction (figure 19).

Figure 19. Distribution of the cement market in Mexico (2007)


Cement production in Mexico is mostly based in modern plants operating with dry-process technology. The cement industry is the only industrial sector in Mexico that has been certified as Clean Industry.14

1.11 Demand drivers

As shown in figure 19, the greatest demand drivers for Mexico’s cement industry are the government and the building sector (housing and commercial buildings). This means that the industry is very sensitive to public investments in cement-intensive infrastructure such as bridges, freeways, streets, public buildings (schools and hospitals), and large hydroelectric plants.

The cement industry in Mexico has identified the main drivers for future growth and has estimated investments for US$1,300 million in the next 2 years to increase its installed capacity and for research and development (R&D), mainly as a response to the federal and local programs of infrastructure that the federal government has undertaken.15

The expected growth in cement sales is based on the following facts:

The continuity in the housing programs of the federal government: the government expects an annual growth of 650,000 new homes per year, to reach 33 million in 2020 and 40 million

14

The Federal Attorney’s Office on Environmental Protection grants the certification of Clean Industry to those

companies that demonstrate a satisfactory fulfillment of environmental legal requirements. The Clean Industry certification process considers a systematic and comprehensive revision of the company’s procedures and practices with the purpose of verifying that the company is undertaking practices and procedures that are above environmental regulations’ requirements.

15 Cámara Nacional del Cemento (CANACEM), 2008, “Prensa,” http://www.canacem.org.mx

Government43%

Industry Concrete

29%

Formal Construction

24%

Self-construction

4%

15

in 2030.16 These programs would represent an average annual growth rate of 2% to the year 2020 and thereafter 1.7%, to the year 2030.17

The continuation and start of important infrastructure projects, mainly in communications and transportation: the Mexican government announced an infrastructure investment of more than U.S.$250 billion.18

The rise of investment in the tourism sector, mainly as a result of the expected growth in hotel and restaurant activities.

1.12 Production forecasts for 2020 and 2030

Mexico’s National Chamber of the Cement Industry (CANACEM) expects cement production to grow at the same rate as it has in the past 7 years. Under this assumption, production will reach 57 million tons in 2020 and 76.6 million tons in 2030 (figure 20).

Figure 20. Production forecast of cement in Mexico (2007 2030)

Source. Based on projection made by the National Cement Chamber in 2008 .

16

Comisión Nacional de Población (not dated).

17 Elaborated with data from the Comisión Nacional de Población (not dated).

18 Presidencia de la República 2008.

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1.13 Energy consumption

Energy consumption in the cement industry grew 44% from 2001 to 2007. The growth rate in this period was 6.3% (figure 21).

Figure 21. Energy consumption in the cement industry in Mexico

Source: Secretaría de Energía 2008.

In 2007, petroleum coke was the main source of energy use in the cement industry. From 2000 to 2007 the share of petroleum coke grew significantly, as it took the place of fuel oil as the main fuel for the industry. The main reason for this change has been price. The price of fuel oil increased significantly from 2 pesos per liter in 2003 to 5.44 pesos per liter in 2008 (figure 22)

Figure 22. Prices of oil products in Mexico 2001 2008

Source: PEMEX 2008.

Ninety percent of thermal energy consumed in Mexican cement industry is used in the stage of

clinkering, while 40% of electricity is employed in cement milling.

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Also used in Mexico’s cement industry are wood, paper, cloth, plastic, oil, alcohol, dirt or leftovers of tanks, solvents, and used tires (figure 23). Just from 2000 to 2008, the cement industry has used more than 7.5 million tires in a co-processing method whereby they are used as fuel in the ovens to dehydrate raw material as part of cement production.19

Figure 23. Alternative fuel consumption in Mexican cement industry (2000 2007)

Source: Secretaría de Energía 2000, 2004, 2006, 2008.

1.14 Energy intensity

The energy intensity of the Mexican cement industry in 2007 was 4.1 GJ/ton (figure 24). This intensity is above that of Japan (3.4 GJ/ton), but below that of the United States (5.5 GJ/ton).20

Figure 24. Energy intensity of the cement industry in Mexico (2000 2007)

Source: National Chamber of the Cement Industry 2008 and Secretaría de Energía 2008.

19

Cámara Nacional del Cemento 2008.

20 International Energy Agency 2007.

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1.15 Greenhouse gas emissions

The cement industry is an important GHG emitter. In 2002, the last year for which there is an official greenhouse gases inventory for Mexico, the cement sector was responsible for almost 30% of the emissions of the Mexican industrial sector.21

On the other hand, the Mexican cement industry has undergone significant technological changes. According to CANACEM, the cement industry in Mexico uses only dry processes in its production. Also, cement companies in the country have made important investments to modify their processes, such as the use of preheaters and preburners to increase the thermal efficiency of the ovens. According to CANACEM, 12% of their investment is destined for this type of project.

It is important to note that Mexico does not produce blended cements (Portland slag cement or Portland fly ash cement), as transportation of granulated slag from iron and steel plants or fly ash from electric plants is expensive. This area offers an opportunity to reduce GHG emissions that, as will be shown below, is under consideration.

Also important is the fact that at least three projects are currently registered with and being implemented through the Executive Board of the UNFCCC’s Clean Development Mechanism, which introduces mitigation technologies into CEMEX, which is the largest cement producer in Mexico and one of the most important companies in the world. These projects are considering the introduction of the following mitigation measures:22

Reduction of the clinker content in CEMEX production plants. The project activity consists in the reduction of the average clinker content in the cement of resistance Class 30R (30 N/mm2 after 28d) produced by CEMEX Mexico operations. The average clinker percentage is expected to decrease from 78.4%, in the base year, to 72.1% in the crediting period.

Use of waste ashes resulting from electricity generation at a power plant. The purpose of the project is to reduce GHG emissions at the CEMEX Huichapan Cement Plant in Mexico by using waste ashes combined with a proportion of fluorite (CaF2) for clinker production, considering the following benefits:

o Substitution of a part of the raw material (limestone) for clinker production with waste ashes from a power plant that reduces CO2 emissions in the cement kiln through calcination of raw meal.

o Reduction of about 6% of energy demand for clinker production in the cement kiln as a result of the reduction melting point in the formation of clinker phases (alite and belite).

Introduction of six-stage preheaters in new kilns. This project is being replicated in several CEMEX cement plants, starting from the original CDM project, which was approved in mid-2008.

Use of alternative fuels to substitute for fuel oil. The project consists in the substitution of the current equipment and the reduction of fuel-oil consumption used in the raw meal

21

Instituto Nacional de Ecología 2006.

22 Mexico’s UNFCCC Clean Development Mechanism DNA 2009.

19

drying process by the utilization of the waste heat gas generated in the clinker-making process.

Notwithstanding these efforts, the emissions of Mexico’s cement industry have risen by 11% from 2005 to 2008. As discussed above, the rise in the GHG emissions is a result of substitution of fuel oil with petroleum coke (which has a higher unit GHG emission index). The cement industry increased its use of oil coke from 26% in 2001 to 68% in 2007 and decreased the use of fuel oil from 53% to 12% in the same period.23 This substitution was driven by the low costs of coke and refinery modifications by PEMEX that increased its supply capabilities.

Six of the seven cement producers have reported their GHG emissions in the framework of a voluntary GHG emissions data disclosure in Mexico. These firms account for 30 out of the 32 plants in the country and emitted slightly more than 32 million tons of CO2 in 2007 (table 3).

Table 3. Emissions reported in 2007 by individual cement companies

Company CO2 (thousands of tons)

Cemex México (a) 16,722

Holcim Apasco (b) 5,539

La Cruz Azul Cooperative (c) 3,464

GCC Cementos (d) 1,533

Cementos Moctezuma (e) 3,404

Cementos y Concretos Nacionales (f) 1,804

Sources: (a) Cemex de México S.A. 2008; (b) Holcim Apasco S.A. de C.V. 2008; (c) Cooperativa La Cruz Azul S.C.L. 2008; (d) Grupo Cementos de Chihuahua S.A. de C.V. 2008; (e) Cementos Moctezuma S.A. de C.V. 2008; (f) National Cements and Concretes 2008.

Between 90 and 93% of the GHG emissions are direct emissions, produced by the fuel combustion in the process and 7 to 10% are indirect emissions from electric energy consumption (table 4).

23

Secretaría de Energía 2002, 2004, 2006, 2008.

20

Table 4. Direct and indirect emissions due to electric consumption by individual cement companies in 2007

Firm CO2 (thousands of tons)

Cemex México (a)

Direct emissions 15,287

Emissions from electric consumption

1,435

Holcim Apasco (b)



482

Cooperativa La Cruz Azul (c)



324

GCC Cementos (d)



117

Cementos Moctezuma (e)



212

Cementos y Concretos Nacionales (f)



132

Sources: (a) Cemex de México S.A. 2008; (b) (2008) Holcim Apasco S.A. de C.V. 2008; (c) Cooperativa La Cruz Azul S.C.L. 2008; (d) Grupo Cementos de Chihuahua S.A. de C.V. 2008; (e) Cementos Moctezuma S.A. de C.V. 2008; (f) National Cements and Concretes 2008.

1.16 Emissions forecast for 2020 and 2030

The index was obtained from the analysis of 20 plants operating in Mexico and it shows that the lowest CO2 index in the country is 0.6 tons of CO2 per produced ton for the case where fuels are diversified and the plant operates with high-efficiency mills (horizontal roller mills) which consume less energy per metric ton of cement produced.

This paper defines two CO2 emissions forecasts that assume the production growth stated above, but with two different GHG emission indexes:

The BAU scenario considers the emissions index established for Mexico´s cement industry by the National Institute of Ecology (INE) of 0.73 tons of CO2 per produced ton of cement and

21

assumes that the production to the year 2030 will be under the same technology and the same fuel-mix use.24

The alternative scenario considers more efficient technology, specifically using a multistage dry process, reducing electricity intensity (9%), and producing blended cement (up to 30% reduction in GHG emissions) and a growth in the use of alternative fuels as biogas (10%) as predicted by the INE. In light of these expectations, the proposed index could be 40% lower than the one described before (0.437 tons of CO2 per ton of produced cement).

In the BAU scenario, CO2 emissions would reach 41 million tons by the year 2020 and 56 million tons by 2030 (figure 25). In the alternative scenario, CO2 emissions would reach 25 million tons in 2020 and 33 million tons by 2030.

Figure 25. GHG emissions forecast in the cement sector 2007 2030

Source: Elaborated with projection made in Instituto Nacional de Ecología 2007.

1.17 Technology shift needed to significantly reduce GHG emissions in a 2020/2030 horizonThe iron and steel industry

IS production results from a combination of different intermediate processes, and steel production efficiency is closely related to a number of elements, including technology, production capacity, plant size, fuel used, and raw materials.

Over the past 25 years, the IS industry worldwide has optimized the use of energy and achieved significant efficiency improvements.

As mentioned in the previous section, the Mexican IS industry has not been the exception and most of the companies operating in Mexico already incorporate up-to-date technologies in their production processes.

In this direction, the IS industry of developed countries, together with a number of governmental and nongovernmental organizations, has undertaken several studies, reports, and

24 Instituto Nacional de Ecología 2007.

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assessments to record and disseminate conventional and cost-effective GHG emission reduction best practices and mitigation measures in steelmaking processes.

It is important to note, however, that in order to make a significant further reduction in CO2 emissions, fundamentally new processes are required. Therefore, international organizations and research institutions are already investing in R&D into the next generation of steelmaking technology. Nevertheless, these technologies are not available in the market yet because most of the breakthrough processes they consider are not cost-effective or are still in the pilot phase of testing.

Therefore, two categories of technologies should be considered to mitigate GHG emissions in the steel industry:

Conventional measures, which refer to the technological options to reduce fossil fuel energy consumption and to improve energy and process efficiency in the most commonly used steelmaking processes, mainly EAF and BOF. These measures include best practices and improved technology that have proven to be cost-effective in the main steel-producing countries.

Breakthrough technologies, which are still in a pilot phase or are being recently developed in terms of commercial and economic feasibility. These technologies are expected to meet long-term mitigation objectives. Examples of new technologies include use of carbon capture and storage and use of hydrogen to reduce iron and nonferrous metal ores.

Conventional measures

Overall mitigation measures

Several studies provide details on the technologies required to reduce GHG emissions from steel production and energy use.

The IPCC recently published its fourth Assessment Report, which provides an overall approach of the technology shift required to reduce GHG emissions in several industrial sectors.25

Chapter 7 of the Assessment Report focuses on the mitigation of GHGs from energy-intensive industries such as iron and steel and provides an overall sampling of the mitigation technologies. Table 5 shows selected examples of technologies in several areas, including energy efficiency, fuel switching, power recovery, renewable energy use, feedstock and product change, and material efficiency.

This list of measures indicates the mitigation technologies that are currently in place in several countries but does not provide details on estimated GHG emission potential of such technologies. The IPCC mentions that associated costs of implementation depend on the advances that steelmaking processes make in the different countries.

25 Bernstein et al. 2007.

23

Table 5. Selected examples of mitigation technologies in the steel sector

Area Mitigation technology

Energy efficiency

Smelt reduction

Near net shape casting

Scrap preheating

Dry coke quenching

Fuel switching Natural gas

Oil or plastic injection into the blast furnace

Power recovery Top-gas pressure recovery

Byproduct gas combined cycle

Renewable energy Charcoal

Feedstock change Scrap

Product change High-strength steel

Material efficiency

Recycling

High-strength steel

Reduction process losses

Source: Bernstein et al.

The International Energy Agency recently published a study outlining the existing opportunities to undertake energy-saving opportunities and GHG emission reductions in several steelmaking processes.26 This study shows how the steel industry can achieve higher efficiency through best practices which include systematic improvements to motor systems, including variable speed drivers, efficient steam systems, and recycled raw materials. Table 6 shows the estimated energy savings and GHG emission reductions from the adoption of best practices in the steel industry.

26

International Energy Agency 2007.

24

Table 6. Energy saving estimates from the adoption of best practices in the steel industry

Technical energy savings potential estimates

(low high)

Improvements by system

EJ/year Mtoe/year Mt CO2/year

Motors systems 6–8 143–191 340–750

Combined heat and power 2–3 48–72 110–170

Steam systems 1.5–2.5 36–60 110–180

Process integration 1–2.5 24–60 70–180

Increase recycling 1.5–2.5 36–60 80–210

Energy recovery 1.5–2.3 36–55 80–190

Source: International Energy Agency 2007a. Notes: EJ = exajoule; Mtoe = megatonne of oil equivalent; Mt CO2 = megatons of carbon dioxide.

Specific measures: Energy-savings potential of motors in Mexico’s IS industry

According to several studies developed for industrial sectors in the European Union (EU), close to 70% of energy consumption in industrial activities results from motors.27 In the Mexican IS industry, electricity consumption is 8,000 gigawatt-hours (GWh). According to these figures, the estimated electricity consumed by motors in the IS industry was 5,700 GWh.

Also, given electricity consumption in the IS and the information provided by the EU figures, it is estimated that the IS industry has a little more than 100,000 electric motors operating.

Energy-savings potential

The energy-savings potential of the replacement of these motors with high-efficiency motors that comply with National Electrical Manufacturers Association premium regulations is estimated at 380 GWh per year (table 7).

27

University of Coimbra, Portugal 2000.

25

Table 7. Estimated energy-savings potential resulting from the replacement of conventional electric motors with high-efficiency motors in Mexico’s IS industry

Electricity consumption (GWh)

Electric motors consumption (GWh)

Number of electric motors in the IS

industry

Estimated energy savings (GWh/year)

8,191 5,733 105,341 381

Breakthrough technologies

Several projects to identify and apply (at a pilot phase) advanced GHG emission mitigation technologies for the next two decades are under way in Europe through the ULCOS consortium28 that is funded jointly by the European steel industry and the EU.

These technologies seek to provide a significant shift in terms of new steelmaking processes, fuel switching, and the introduction of technologies that apply to several GHG-emission-intensive industries such as carbon capture and storage.

The four breakthrough technologies being evaluated, including carbon capture and storage, biomass, and hydrogen reduction, show a potential for controlling emissions to 0.5 to 1.5 tonCO2/ton (0.14 to 0.41 tonC/ton) steel. Details of these technologies are provided below:

Top Gas Recycling. The concept of the Top Gas Recycling Blast Furnace relies on separation of the off gases so that the useful components can be recycled back into the furnace and used as a reducing agent. This would reduce the amount of coke needed in the furnace. In addition, injecting oxygen (O2) instead of preheated air into the furnace removes unwanted nitrogen (N2) from the gas, facilitating CO2 capture and storage.

This technology was tested during the ULCOS229 pilot phase over a six-week campaign at the LKAB experimental blast furnace in Lulea, Sweden. The facility was adapted specifically for the trials (including the erection of a Vacuum Pressure Swing Adsorption plant) and considered two steps:

o Decrease of carbon consumption by recycling most of the top gas after CO2 removal, which requires operating the blast furnace with pure oxygen; and

o Underground storage of CO2.

Initial findings based on monitoring of the operating conditions and taking into account underground storage show that CO2 emissions at the blast furnace were reduced by up to

28 The ULCOS (Ultra-Low CO2 Steel-making) consortium of 48 European companies and organizations has an

important initiative in place to analyze the introduction of advanced steelmaking GHG mitigation technologi es R&D, with the goal of developing a steelmaking technology that reduces CO 2 emissions by at least 50%.

29 ULCOS2 refers to the EU Commission-funded project under Seventh Framework Program (FP7), which is

intended to allocate resources for the ULCOS pilot phase of the four breakthrough technologies. ULCOS3 stage will

mean the construction of a full -scale plant with the support of the European Steel Technology Platform.

26

76%. For the steelmaking plant, preliminary data resulting from the testing indicated that it could result in a net CO2-savings of 65% at the level of the hot rolled coil.

Other potential benefits of this technology include

– 25% less carbon usage;

– 50% CO2 reduction if CO2 storage is applied; and

– 35% coke rate reduction.

No information on costs associated with this measure is available.30

ISARNA smelter technology. ISARNA is a technology based on bath-smelting. It combines coal preheating and partial pyrolysis in a reactor, a melting cyclone for ore melting, and a smelter vessel for final ore reduction and iron production. It requires significantly less coal usage and thus reduces the amount of GHG emissions. It is a flexible process that allows partial substitution of coal by biomass, natural gas, or even hydrogen (H2).

A pilot plant rated at 65,000 tons per year is under construction at Saarstahl (an ULCOS participant) in Völklingen, Germany, under the ULCOS2 pilot phase. This unit is due to start operations in early 2010, and a three-year pilot testing phase is anticipated. The estimated cost of the plant is €25 million.

Potential benefits of this technology include

– 20% reduction of CO2/ton Heavy Residue Conversion

– Well suited for CO2 storage;

– 80% reduction with CO2 storage; and

– Use of biomass.

Advanced Direct Reduction. DRI is produced from direct reduction of iron ore (in form of lumps or pellets) by a reducing gas produced from natural gas. The reduced iron is in solid state and electric energy is required to melt the iron. This is carried out in an EAF. The ULCOS project development is under way to reduce natural gas consumption needed to produce DRI. This is partly achieved by replacing the traditional technology, reforming, with partial oxidation of the natural gas. This will also substantially reduce capital expenditure. In the new layout there will be a single source of CO2. This CO2 will be sufficiently clean for geological storage.

Details of the potential GHG emissions reduction and operational costs are still under development.

Alkaline Electrolysis. Electrolysis of iron ore is the least developed process route currently being studied in ULCOS. This process would allow the transformation of iron ore into metal and gaseous O2 using only electrical energy. Producing iron by electrolysis would mean that coke ovens and the reactors used for reducing the iron ore, such as a blast furnace, would no longer be required. The CO2 created during these processes would also be eradicated, resulting in a CO2-lean process of ironmaking.

30

G. Danloy et al. 2009.

27

The application of these technologies in Mexico will probably come as a result of corporate decisions at a global level and once the implementation phase of the ULCOS initiative is under way, as more than 50% of the industry is not local.

1.18 The cement industry

The cement industry in the world represents the third largest global source of GHG emissions. Although this industry has achieved significant energy-efficiency improvements and implemented a number of innovation processes, there are still several opportunities and technology options to reduce its contribution to global GHG emissions.

Currently the production of 1 ton of cement commonly results in the release of 0.65 to 0.95 tons of CO2 depending on the efficiency of the process, the fuels used, and the specific type of cement product.31 Under this perspective, Mexico’s cement industry is on the low CO2 emissions side.

The international literature indicates that mitigation opportunities for the cement sector consider a number of measures, which include the use of more efficient kiln design and operating practices; fuel switching from coal to fuel oil, natural gas, and biomass; and partial substitution of clay and shale by alternative raw materials such as fly ash.

GHG mitigation options described below were obtained from several studies developed by the International Energy Agency, the IPCC, and a report prepared under the WWF International –La Farge Partnership.

Also, it is important to note that, just as in the IS industry, there is a clear differentiation between state-of-the-art-technologies that are currently in use in cement enterprises worldwide (conventional technologies) and advanced measures that are either in pilot-phase testing or are near commercialization (breakthrough technologies).

Process energy-efficiency improvements and modify energy-efficient processes

A better energy performance in cement production processes can be achieved by using high-efficiency process equipment and systems and improved production facilities. Energy-efficiency improvements include

Improved thermal efficiency of kilns. The most efficient solution regarding the production of clinker in new kilns (new rotary kilns with precalciner and suspension preheaters) is widely applied already today, including in China.

As stated above, cement companies in Mexico have made important investments to modify their processes, to include the use of preheaters and preburners to increase the thermal efficiency of the ovens.

Improved electrical efficiency of plants. Large improvements can be achieved regarding electricity consumption and efficiency. Less than 40 kWh is consumed per ton of cement using waste heat recovery and very efficient equipment.

31

International Energy Agency 2008a.

28

Replacement of high-carbon-content fuel

Low-carbon fuels can be used in the cement industry in order to significantly reduce GHG emissions. An example of this is the use of natural gas to replace coke.32

In the case of Mexico, the shift in the opposite direction, from fuel oil to oil coke as natural gas, has been a more expensive option.

Blended cements

Clinker production is the most energy-consuming stage in cement production and the average energy consumption per ton of clinker is the most important indicator from an energy-efficiency viewpoint. The indicator shows that most countries experienced a downward trend in the energy intensity of clinker production between 1990 and 2004.

This has largely been due to the shift from wet- to dry-process cement kilns, coupled with the replacement of older dry kilns by the latest technology using preheaters and precalciners.33

Cement production in Mexico is based in modern plants operating with dry-process technology.

The use of blended cements refers to the substitution of a portion of clinker by other products such as fly ash (residues of burning coke) or slag (residues of iron production). The use of blend ed cements varies on the availability of raw materials for the mix and legal requirements of each country. Estimated GHG reduction potentials are approximately 5%.34

The previous section described several projects that incorporate clinker substitution measures and the use of alternative fuels in CEMEX plants in Mexico.

Cogeneration

Cogeneration systems represent an important opportunity to improve thermal efficiency and to reduce GHG emissions compared to other power and heat generation systems.

Other energy-efficiency improvement opportunities

A report recently prepared by a consortium of organizations and experts participating in the International Energy Agency’s Greenhouse Gas R&D Program provides information on the energy savings, costs, and carbon dioxide emissions reductions associated with implementation of a number of technologies and measures applicable to the cement industry. The technologies and measures include both state-of-the-art measures that are currently in use in cement enterprises worldwide and advanced measures that either are only in limited use or are near commercialization.

The analysis of cement kiln energy-efficiency opportunities is divided into technologies and measures that are applicable to the different stages of production and various kiln types—raw materials

32

Martin et al. 1999.

33 International Energy Agency 2008a.

34 International Energy Agency 2008a.

29

(and fuel) preparation, clinker making (applicable to all kilns, rotary kilns only, vertical shaft kilns only), and finish grinding—as well as plantwide measures and product and feedstock changes that will reduce energy consumption for clinker making. Table 8 lists the technologies and measures considered in the report, including their potential for GHG emission reduction and estimated costs.

Table 8. Energy-efficiency improvement options for cement production processes

Technique Description Emission reduction / energy improvement

Economics

Process Control and Management Systems

Automated computer control may help to optimize the combustion process and conditions

Typically 2.5 5%

Economics of advanced processes very good (payback time as short as 3 months)

Raw Meal Homogenizing Systems

Use of gravity-type homogenizing silos

Reduction in power use

(1.4 4 kWh/ton clinker)

No information available for this study

Conversion from dry to multistage preheater kiln

Four- or five-stage preheating reduces heat losses, and sometimes reduces pressure

Drop

Depending on original process. In one example reduction from 3.9 to 3.4 GJ/ton

Estimated at

U.S.$30 40/ton annual capacity

Conversion from dry to precalciner kiln

Increase of capacity, and lowering specific fuel consumption

Depending on original process. Estimated at 12% (0.44 GJ/ton)

Estimated at U.S.$28/ton annual capacity

Conversion from Cooler to Grate Cooler

Large capacity and efficient heat recovery

Reduction of 0.1 0.3 GJ/ton (increase in power by 3 kWh/ton)

Probably only attractive when installing a precalciner simultaneously

Improved Preheating (LEPOL Kiln)

Raw meal preheated in a two-stage grate preheater

Fuel saving of 6.3% (to 3.3 GJ/ton). 1% less power use

Payback time reported to be satisfactory

Optimization of Heat Recovery in Clinker Cooler

Heat recovery improved by reduction of excess air volume, control of clínker bed depth, and new grates

Estimated at 0.5 GJ/ton in the United States, and 0.2 GJ/ton in India

No specific cost information available for this study

High-efficiency Motors and Drives

Variable-speed drives, improved control strategies, and high-efficiency motors

Estimated power savings ranging from 3 to 8%.

High-efficiency motors cost about the same or only a little bit more than regular motors

Adjustable Speed Drives Reducing throttling and coupling losses by replacing fixed-speed

Estimated at 10 kWh/ton cement

Depends strongly on size of system. Estimated at about

30

AC motors U.S.$1/ton cement

Efficient Grinding Technologies

High-pressure mills (like the Horomill) have improved grinding characteristics

Estimated at 16 19

kWh/ton (40 50%)

Estimates ranging from U.S.$2.5 to US$8/ton annual capacity. Operation costs may be

reduced by 30 40%

High-efficiency Classifiers

Material stays longer in the separator, leading to sharper separation, thus reducing overgrinding.

Estimated at 1.7 2.3 kWh/ton cement (8%)

Costs are estimated at

U.S.$2.5 3/ton cement

Fluidized Bed Kiln

Rotary kiln replaced by stationary kiln leading to lower capital costs, wider variety of fuel use, and lower energy use

Fuel use of 2.9 to 3.35 GJ/ton clinker (also lower NOx emissions)

Lower investment and maintenance costs expected

Mineral Polymers

Mineral polymers are made from alumino-silicates leaving calcium oxide as the binding agent

Preliminary estimates suggests 5 to 10 times lower energy use and emissions

No specific cost information was available for this study

Source: International Energy Agency’s Greenhouse Gas R&D Program 2008.

Breakthrough technologies: Carbon capture and storage

GHG emissions from combustion, “dry” calcination, and compression processes can be recovered and then stored in nonproductive oil fields, coal mines, and so on. However, according to a recent study undertaken by Ecofys Germany for WWF International, reducing the CO2 generated from the cement sector on a scale and in a timeframe compatible with the mitigation scenario is difficult. The sequestration of the CO2 produced can be a solution for a low-carbon future as this technology could cover a majority of the cement emissions by 2050.

31

2. Elements that favor and hinder the technology shift needed to significantly reduce GHG emissions

The adoption and implementation of conventional and breakthrough mitigation technologies in Mexico’s IS and cement industry is influenced by a number of factors. These factors are related not only to the contribution of these sectors to GHG emissions and the technology advances to improve mitigation standards, but to a number of economic, political, and geostrategic factors, which include the positioning and role of Mexico’s steel and cement sectors in the Mexican economy and in the world.

2.1 Elements that favor the technology shift needed to significantly reduce GHG emissions

Elements that favor technology shift to reduce GHG emissions in the steel and cement industry in Mexico include the following:

o High energy prices

The main driver for a technology shift in Mexico’s energy-intensive industries has been and will continue to be the cost of energy, particularly natural gas and electricity.

Over the past few years, energy prices for energy-intensive heavy industries in Mexico have increased significantly. Natural gas and electricity prices for industrial end-use in Mexico have historically ranked among the highest in the world.

In the case of natural gas, which is intensively used both as an energy source and as a raw material for the steel industry, prices since 1996 have dramatically increased in some cases from U.S.$1 to almost U.S.$12 per million Btu (figure 26). For Mexico, the average Henry Hub35

natural gas price increased from less than U.S.$3 to almost U.S.$7 in the 1996 2007 period.

Figure 26. World average natural gas prices for industrial use (1996 2007)

† Price is for NBP Day-Ahead Index. Source: Heren Energy Ltd. ‡ Source: Natural Gas Week. Note: Btu = British thermal units; cif = cost+insurance+freight (average prices); LNG = Liquified Natural Gas; NBP = National Balancing Point; OECD = Organization for Economic Cooperation and

Development.

35

Natural gas prices in Mexico are determined based on the USA Henry Hub reference price.

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. dolla

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Electricity prices for the industrial sector in Mexico rank among the highest in the world. In the past 8 years, electricity prices for industrial users in Mexico have almost doubled, and are even higher than the prices in certain developed countries (figure 27).

Figure 27. Average electricity prices in selected countries (1999-2007)

Sources: EIA, 2008; International Energy Agency, 2008b.

Increased energy costs have become an incentive to use lower energy-intensive and low-carbon technologies in the steel and cement industries in Mexico and have been a decisive factor to explain the reduction of the energy intensity determined by the more efficient use of energy in these industries and the stabilization of its GHG emissions.

o The international nature of the largest companies with production in Mexico

As reported above, the IS and the cement industries in Mexico have a large participation of international companies that compete in global markets.

Mexico’s steel and cement industries are among the most important in Latin America. Also, Mexico plays an important role as an exporter of steel products and cement to other countries, and most steel and cement companies in Mexico sell their products globally. Therefore, the demand for products and goods in these industries drive them to have production processes in line with competitiveness criteria and efficiency in the use of energy and better raw materials.

2.2 Elements that hinder the technology shift needed to significantly reduce GHG emissions

Several factors may hinder the introduction of new GHG mitigation technologies in the steel and cement industries. These elements have to do mainly with the current world economic crisis and competitiveness issues that may arise from the adoption of GHG mitigation technologies.

o High prices of natural gas

The use of natural gas as a low-carbon fuel has been limited by its high price in Mexico.

o Uncertainty in energy prices

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0.070

0.080

0.090

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0.120

1999 2000 2001 2002 2003 2004 2005 2006 2007

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. dolla

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The recent dramatic shifts in energy prices (beyond the economic downturn) have introduced a large element of uncertainty for investments that involve fuel shifts and the adoption of energy conservation technologies.

o Undesired effects: An expected long-term recession in the global economy

The current economic situation worldwide and the expectations of Mexican steel and cement companies pose a possible hindrance to the adoption of GHG mitigation technologies.

o Concerns about distortions in competition

The Mexican steel and cement industries have growing concerns about the competition from low-cost, high-carbon and high-energy-intensity steel and cement production from China and other developing countries over the past few years. The concerns are heightened by the possibility that some companies or sectors are faced with cost increases that leave their competitors in an advantaged position. In that sense, a country’s or company’s ability to produce certain items at low cost provides it with greater benefits and a competitive advantage.

o Lack of second-hand steel (scrap)

In the case of the IS sector, limited availability of a steady supply of scrap metal hinders a larger use of EAF steel production.

2.3 Other elements to consider in the adoption of technologies and strategies to significantly reduce GHG emissions in Mexico’s steel and cement industries

Sectoral approaches for GHG mitigation

The sectoral approach analysis being undertaken in the UNFCCC negotiations is an important element to consider in the discussion and definition of a financing and/or policy mechanism to include GHG emission-intensive heavy industries. In particular, sectoral approaches are considered to be a new set of options to enhance the effectiveness of GHG reduction policies and to engage emerging economies on a lower emission path and a post-Kyoto agreement beyond 2013.

Though the term “sectoral approach” appeared recently in international climate policy debates, some international sectoral approaches have been in place for years and already contributed to GHG reductions. Pledges on GHG emissions and performance have been initiated by the steel and cement industries. An example of this kind of initiative is the World Business Council on Sustainable Development’s Cement Sustainability Initiative, which is being developed with the aim to influence policy. The World Steel Association issued a statement along these lines earlier this year and, as mentioned in this document, has been coordinating a set of R&D programs on low-CO2 steelmaking (the CO2 breakthrough program).36

Sectoral approach analyses are particularly important to consider whenever discussing strategies and measures to reduce industrial GHG emissions, as Mexican steel and cement industries are characterized for their composition in terms of multinational corporations that operate worldwide and

36

International Energy Agency 2007a.

34

are being pressured to adopt mitigation technologies and/or have to comply with aggressive GHG emission reduction regulations in developed countries, such as those in the EU.

In Mexico, several studies have been undertaken to analyze the introduction of sectoral mitigation measures and policies in the cement, steel, and electricity sectors. A first analysis was undertaken in early 2008 by Ecofys, a European-based company, with the support of the INE, to determine the feasibility of the adoption of bottom-up sectoral policies by the Mexican government in the cement, transport, and electricity sectors.

This work developed by Ecofys and INE was then continued as of mid-2008 by the Ministry of Environment in collaboration with the U.S. Center for Clean Air Policy to explore the proof -of-concept for sectoral approaches. This study’s objective is to help define mitigation policies beyond voluntary actions and facilitate participation by developing countries in international climate change actions.

The study, which is still under way, considers a practical data-gathering and capacity-building exercise in certain industry sectors, an analytical component to model the benefits of sectoral approaches, and a policy element to determine what would be needed to make sectoral approaches operational as part of a post-2012 climate framework. This work will consist of a country-specific dimension with studies and workshops being carried out in China, India, Mexico, and Brazil, with a focus on the electric power, aluminum, cement, and IS sectors.

These studies, however, have concentrated on the technical and economic potential of specific mitigation measures and, beyond having faced a general lack of detailed data to have country-specific evaluations of a wide spectrum of technologies and limited interaction with the industry chambers, have not gone into more structural and institutional aspects that may be equally or more important in terms of the institutional feasibility and process to implement the measures that have been identified.

It is very evident, though, that mitigation technology adoption and the sectoral policy standpoint for the cement and steel industries in Mexico are in most cases determined by a company’s global decision making bodies, based on the fulfillment of emission reduction regulations or GHG emissions cap schemes, or in response to market competition conditions.

This is a key point as it is highly possible that companies that have plants in Mexico but have global operations will take their negotiations on measures and strategies for CO2 mitigation to the multinational context rather than the national level.

In this direction, the Commission of Studies for Sustainable Development of the Private Sector is undertaking a study with the support of the British government to identify mitigation measures and sectoral strategies for the cement and steel industries, working closely with the industrial chambers and representatives of these Mexican industries.

How could an international mechanism that transfers funds and technology from the north help accelerate the transition?As has been shown and discussed above, the most important IS and cement firms (in terms of production and CO2 emissions) in Mexico are international companies with global operations. This means, as has also been shown, that neither technology availability nor access to financial resources has hindered the adoption of low-carbon technologies.

Also, it has been shown that the levels of CO2 per ton of production of Mexico’s IS and cement industries are on the low side and the potential for mitigation may be on the higher side, not including economically feasible measures.

35

Nevertheless, given their importance as local economic actors, these industries may use their local influence to benefit from nationally oriented advantages that could have an origin on “north to south” initiatives. This type of initiative, though, may favor the smaller, less competitive installations that have the largest individual potential but limited aggregated effect on emissions, a direction that the largest firms may not favor.

In the case of Mexico, small firms appear only at the end of the value chain of the steel industry and they represent an insignificant fraction of the sector’s CO2 emissions.

However, the final approach to CO2 mitigation in the IS and cement industries will depend on individual evaluations and collective negotiations of the international firms that will probably lead to a global negotiation that may be related, in the short term, to financial help to deal with the economic downturn.

36

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