Why we need to decarbonise the construction value chain – and how it’s going to be harder than it may seem

Decarbonising the construction value chain

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“Many major economies have committed to become net zero by 2050, but none appears to have a coherent plan to fully decarbonise their construction markets.”

Achieving net zero depends on the success of decarbonising the construction value chain. And with the built environment responsible for 39% of the world’s carbon emissions, and the total global floor area of buildings expected to double by 2060, we can’t afford to wait.

By improving the energy efficiency of buildings, we are now reducing the built environment’s operational carbon (c.70% of 2019 emissions). But there’s been relatively little done to tackle the embodied carbon (the remaining c.30%) in construction materials and processes.

Using modern construction methods, re-using legacy buildings (instead of demolishing them), recycling more materials and products, and using ‘greener’ materials like cross-laminated timber will all help.

However, actions like this won’t be nearly enough. The uncomfortable truth is that much of the embodied carbon in construction comes from the notoriously ‘hard to abate’ steel and cement sectors. To achieve net zero in embodied carbon, this is where we’ll have to focus our efforts.

“Steel and cement, responsible for 7% and 7-9% of global emissions respectively, are the largest contributors to the construction value chain's embodied carbon.”

Demand for these materials will continue to grow, and lower-carbon replacements (like cross-laminated timber) are not available at the scale we need, giving us no alternative but to find ways to decarbonise steel and cement production.

How can we decarbonise the ‘hard-to-abate’ steel and cement industries?

We can decarbonise steel production by switching to EAF steel, which uses scrap steel as its key input. But there isn’t enough scrap steel available for the world to move away entirely from blast-furnace steel production.

So, while we should maximise EAF steel production, we also need to improve blast furnace steelmaking by investing in hydrogen DRI steelmaking and CCUS.

Unlike steel, there is currently no process for making zero-carbon cement. There are alternative cementitious materials, but not in the scale required to replace the standard Portland cement process. Around 50% of CO2 emissions in cement production is a waste product from heating the limestone and turning it into clinker, so the only way to decarbonise the cement industry would be to adopt CCUS solutions globally.

The investment needed to decarbonise the steel and cement industries is vast - most likely hundreds of billions of dollars. And these industries rely on additional investment from other sectors to develop the supporting decarbonisation infrastructure, which is expected to cost trillions of dollars.

Who is going to pay for this, particularly in today's gloomier macro-economy?

“There is a major disconnect between stakeholder incentives along the value chain, as the person that builds the building will never live in it - so their main concern is minimising cost, not maximising its sustainability.”

Given the scale of investment needed to decarbonise the value chain, initially low-carbon products will cost more than traditional ones. Consumers, developers, and investors are unlikely to willingly pay these premiums. So, there will have to be a stronger regulatory push that skews the economics in favour of low-carbon products (through grants or taxes). Without it, there’s no economic incentive to reduce embodied carbon (unlike operational carbon) and that is inhibiting investment in decarbonisation. This is particularly true for the many low-margin firms in the construction value chain, who base investment decisions primarily on price and safety.

The recent US Inflation Reduction Act (IRA) offers financial incentives to firms along the construction value chain - at almost $400bn, it’s the biggest climate and energy investment in American history. In response, the EU is considering increasing its investment while the UK Government is expected to announce funding to decarbonise its steel industry.

“Although Europe is seen as the leader in sustainability, the recent Inflation Reduction Act will draw investment away from Europe and towards the US.”

Taxes will also help generate government income, and the EU's world-first carbon border tax, is expected to come into effect in 2026, if it can overcome a series of complexities.

What should we do next?

For economies to reach their net zero targets by 2050, we need urgent action and investment to reduce embodied carbon. This will mean more government support to enforce industry-wide guidance, and more collaboration between industry stakeholders to develop a connected vision and roadmap to decarbonise the construction value chain.

Net zero will be the biggest disruption the construction value chain has ever seen. We don’t know how this will play out, but we do know, from past experience, that the innovators will be at an advantage, while the laggards will face uncertainty as the pace of change accelerates closer to 2050.

“We need to work together now to build a more productive and sustainable value chain - we can’t let the perfect be the enemy of the good.”

Contact us

Paul Sloman

Paul Sloman

Engineering & Construction sector leader and Industrial Manufacturing, Aerospace & Defence and Automotive consulting leader, PwC United Kingdom

Tel: +44 (0)7725 633353

Christopher Temple

Christopher Temple

Net Zero Transformation Leader, PwC United Kingdom

Daryl  Walcroft

Daryl Walcroft

Capital Program Excellence Practice Leader, PwC US

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