Construction Industry Value Chain

CONSTRUCTION
INDUSTRY
VALUE CHAIN
How Companies Are Using Carbon Pricing to
Address Climate Risk and Find New Opportunities
About IFC
IFC—a sister organization of the World Bank and member of the World Bank
Group—is the largest global development institution focused on the private sector
in emerging markets. We work with more than 2,000 businesses worldwide, using
our capital, expertise, and influence to create markets and opportunities in the
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in long-term financing for developing countries, leveraging the power of the private
sector to end extreme poverty and boost shared prosperity. For more information,
visit www.ifc.org
About CPLC
A unique initiative, the Carbon Pricing Leadership Coalition (CPLC) brings together
leaders from national and sub-national governments, the private sector, academia,
and civil society with the goal of putting in place effective carbon pricing policies
that maintain competitiveness, create jobs, encourage innovation, and deliver
meaningful emissions reductions. The Coalition drives action through knowl-
edge sharing, targeted technical analysis and public-private dialogues that guide
successful carbon pricing policy adoption and accelerate implementation. The
Coalition encourages private sector climate leadership through sector-specific task
teams, including for the construction industry and the banking sector.
The Coalition was officially launched at COP21 in Paris in December 2015. As of

2018, CPLC comprises 32 national and sub-national government partners, 150 pri-
vate sector partners from a range of regions and sectors, and 67 strategic partners
representing NGOs, business organizations, and universities. More information:
https://www.carbonpricingleadership.org/
CONSTRUCTION
INDUSTRY
VALUE CHAIN
How Companies Are Using Carbon Pricing to
Address Climate Risk and Find New Opportunities
© International Finance Corporation 2018. All rights reserved.
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Contents
Acknowledgements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
What is the Construction Value Chain?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Sustainability Along the Construction Value Chain. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
The Business Case for Pricing Carbon. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Approaches to Implementing an Internal Carbon Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Construction Industry and Carbon Pricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Current Carbon Pricing Practices by Companies across the Construction Value Chain. . . . 20
Common Considerations across Companies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
The Role of the Carbon Pricing Leadership Coalition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
iiiiii
Acknowledgements
This paper was prepared by the Climate Business Department (Alzbeta Klein, Director)
through its Climate Finance and Policy team (Vikram Widge, Head) for the Carbon Pricing
Leadership Coalition (CPLC). The authors were Ayesha Malik and Aditi Maheshwari. Isabel
Saldarriaga Arango and Sona Panajyan led the communications and dissemination strategy
for the paper.
This work could not have been completed without the support and insights from CPLC
Partners who agreed to be interviewed: Rocio Fernandez Flores (Acciona); Alexander Roeder
(Cemex); Anupam Badola (Dalmia Cement); Andrew Bowerbank (EllisDon); Jeanne Michon-
Savarit (Groupe ADP); Cedric de Meeus and Elodie Woillez (LafargeHolcim); Hitesh Kataria and
Janhavi Parab (Mahindra & Mahindra); Mark Crouch, Dominika Nowosinska, and Madeleine
Rawlins (Mott MacDonald); Sergey Chestnoy and Dinara Gershinkova (Rusal); Nicolas Baglin
(Saint-Gobain); Volker Hessel and Dieter Vollkommer (Siemens); and Abhishek Goyal and Alka
Upadhyay (Tata Group).
In addition, many World Bank Group colleagues and experts provided invaluable insights and
feedback to shape the paper. Sector expertise was provided by IFC industry specialists Michel
Folliet, Prashant Kapoor, Rozita Kozar, Ommid Saberi, Stefan Johannes Schweitzer, Henri
Rachid Sfeir, Jigar Shah, and Alexander Sharabaroff. Overall guidance was provided by Angela
Naneu Churie Kallhauge and Tom Kerr.
This study reflects the views of the authors and does not necessarily reflect the views of the
companies covered by the paper. The findings would, thus, not be binding on the companies
studied.
ACKNOWLEDGEMENTS vv
EXECUTIVE
SUMMARY
T
he global construction industry is the
world’s largest consumer of raw materi-
als, and constructed entities account for
between 25 and 40 percent of total carbon
emissions in the world.1 The industry is projected to
grow at 4.2 percent annually between 2018 and 2023
in terms of market value,2 with expansion opportuni-
ties in residential, nonresidential, and infrastructure
projects. This expected growth and the impera-
tive toward decarbonization3 signaled by the Paris
Agreement have created the impetus for sustainable
construction. Construction companies are becom-
ing increasingly accountable for their contribution
to global emissions and are facing pressure from
investors, banks, regulators, contracting authorities,
and consumers to mitigate their climate risk and
find new solutions to reduce their carbon footprint.
In response, the industry is making inroads toward
addressing these concerns.
What is the Construction
stakeholders, incentivizing low-carbon alter-
natives, and providing a revenue stream for
Value Chain?
investment in clean innovations.
Companies in the construction industry are

The value chain for any construction project recognizing the role of carbon pricing in
is composed of specific variations within a managing climate risk and carbon exposure,
fixed framework of distinct stages—design, revealing opportunities for climate-smart
production and conversion of raw materials business, and acting as a transition tool to
into manufactured products, and construction incentivize low-carbon activities.5 In addition,
itself. Each of these comprises its own internal companies along the construction value chain
stages, processes, stakeholders, and aspects need to manage their Scope 3 emissions by
that interact to bring a project to fruition. The engaging with their supply chains on carbon
distinctness of these processes, as well as the pricing and emissions reduction tools. The
fixed-term, project-based nature of relation- high level of fragmentation and the disconnect
ships along the supply chain, results in a highly between decision makers along the value chain
fragmented industry structure. necessitates the development of an integrated
approach to carbon pricing for it to be most
Sustainability Along the

effective in enabling companies to achieve
climate goals and reduce risk. That is, without
Construction Value Chain

industrywide support and coordination, the
production of green products is not linked to
the demand and valuation of these products
Companies across all sectors of the construction further down the chain. Construction sector
value chain are using methods such as internal companies acting alone represent great initia-
carbon-reduction targets, development of inno- tive but would be significantly more effective
vative green products, advocacy for sustainabil- at helping the industry meet climate targets
ity standards, and integration into the circular with the support of and linkages to their coun-
economy to embed sustainability into their terparts along the value chain.
operations and products. While the momentum
Current Carbon Pricing

toward sustainability is ubiquitous across the
industry, it manifests differently in each sector
Practices by Companies
along the value chain, as explored in this paper.
Construction Industry and across the Construction

Carbon Pricing Value Chain
Internal carbon pricing has emerged as a pre- Twelve companies from sectors across the
ferred tool for businesses to measure, manage, construction value chain, including aluminum,
and mitigate their climate risk to prepare for cement, glass, steel, infrastructure, construction
a future in which carbon pricing is a regula- services, and equipment manufacturing were
tory mandate, as well as reduce their carbon interviewed for this paper. Their attitudes,
footprint. In 2017, almost 1,400 companies used existing initiatives, and future plans for carbon
an internal carbon price or planned to within pricing were documented to reveal common
two years, from only 150 in 2014.4 This is due to concerns and themes surrounding carbon pric-
the effectiveness of carbon pricing in quantifying in the value chain:
ing climate risk exposure, communicating it to
2 CONSTRUCTION INDUSTRY VALUE CHAIN

●● Using carbon pricing to reduce the industry’s ●● The challenge of “socialization” faced
carbon footprint will work only if compa- by early movers has eased because of a
nies can remain competitive. change in culture brought about by recent
advances such as the Paris Agreement and
●● Companies would prefer to operate on a
the Financial Stability Board’s Task Force on
level playing field and seek the universal
Climate-related Financial Disclosures (TCFD)
application of an external carbon price
recommendations.
across their sectors, applicable to all actors.
●● Companies lack clarity on how to operational-
●● The challenges faced by companies in the
ize and standardize the implementation of an
construction value chain differ by geogra-
internal carbon price. Businesses are inter-
phy and jurisdiction. No one solution is
ested in learning from the experiences of
applicable across all business units or stages
other companies.
of the value chain.
●● All the companies surveyed advocated for
●● Companies seek assistance with managing
the development of an integrated carbon
Scope 3 emissions and engaging with their
pricing mechanism (additional Carbon
supply chain, and they need standardized
Pricing Leadership Coalition [CPLC] analysis
and comparable frameworks for scenario
forthcoming in Fall 2018).
analysis.
EXECUTIVE SUMMARY 3
Introduction
T
he global construction industry is the world’s largest consumer of raw materi-
als, and constructed objects account for between 25 and 40 percent of total
carbon emissions in the world.6 The industry is projected to grow at 4.2 per-
cent annually between 2018 and 2023 in terms of market value, with expan-
sion opportunities in residential, nonresidential, and infrastructure projects.7 In parallel,
the Paris Agreement and its well-below-2 degrees Celsius target for global temperature
increase8 has signaled an imperative toward decarbonization in the public and private
sectors,9 including creating the impetus for a sustainable construction industry. With
increasing populations, urbanization, and the fact that almost 75 percent of the infrastruc-
ture that will exist in 2050 has yet to be built,10 the construction industry is expected only
to expand, thus providing a significant opportunity to improve its efficiency and transition
toward a low-carbon future.
Governments are taking their own steps to The International Financial Corporation (IFC)
manage such opportunities, with 66 of the Paris estimates an investment opportunity in green
Agreement signatories mentioning buildings as buildings totaling more than $16 trillion by
a key sector for mitigation targets.11 Similarly, 2030 tied to meeting the Paris Agreement and
over 80 percent of all Nationally Determined domestic policy targets in 21 key emerging
Contributions (NDCs) include a focus on markets.14 Similarly, McKinsey estimates that
resilient infrastructure, also corresponding to annual investments of $3.3 trillion in infra-
Sustainable Development Goal (SDG) 9’s inter- structure are needed worldwide to support the
section of infrastructure, energy, and housing,12 projected growth in GDP until 2030, of which
and SDG 11 on sustainable cities.13 At the 60 percent will be in emerging markets.15 These
same time, the private sector is also assuming trends provide an enormous opportunity to
responsibility. green the future construction of buildings and
infrastructure through innovative low-carbon
The construction industry is already mak- technologies, policies, and processes.
ing inroads toward addressing its emissions,
in response to these trends and the growing Companies have a growing sense of account-
demand for green, low-carbon construction. ability for their contribution to global emis-
Consumers of newly constructed buildings and sions, and they increasingly understand the
infrastructure increasingly require the industry risks that climate change and carbon exposure
to meet standards of energy efficiency, respon- pose to businesses and the potential oppor-
sible resource management, and resilience. tunities that exist for low-carbon solutions.

Companies along the construction value chain and providing revenue for investment in clean
face pressure from investors, banks, regulators, innovations. It is even more effective when sup-
and consumers to respond to concerns to miti- ported by and used in collaboration with other
gate their own carbon risk and find new solu- financial and nonfinancial incentives to lower
tions. To meet these demands, forward-thinking companies’ carbon footprints. However, given
companies are exploring a variety of methods the fragmented nature of the construction
including, science-based targets, public and industry, there is a need for companies along
private procurement standards, standardized the value chain to align their approaches to sus-
tools and measurements, building codes, certifi- tainability, and develop an integrated approach
cation systems for infrastructure, and lifecycle to carbon pricing.
analysis of projects.
This paper provides a framework for consider-
One approach that has gained significant ing the construction value chain and explores
momentum and prominence is carbon pricing. existing attitudes and initiatives toward carbon
As of now, 51 carbon pricing initiatives includ- pricing along it, with the objective of enabling
ing 15 in emerging markets, have been imple- companies to identify possible synergies and
mented or are scheduled for implementation. align their approaches to sustainability. Twelve
These include 25 emissions trading systems, of the Carbon Pricing Leadership Coalition’s
mostly located in subnational jurisdictions, (CPLC) partner companies representing sectors
and 26 carbon taxes applied at a national level, across the construction value chain, including
generating a total collective value of US$82 aluminum, cement, glass, infrastructure, equip-
billion in 2018.16 In addition, internal carbon ment manufacturing, construction services,
pricing is also increasingly being used as a key and steel were interviewed to understand their
part of their low-carbon transition strategy by motivations and experiences as they attempt
a growing number of businesses across sectors to implement carbon pricing and transition
to prepare for imminent future regulations toward low-carbon construction. This paper
mandating carbon pricing. Internal carbon seeks to supplement forthcoming analysis
pricing has become a preferred part of compa- under the CPLC, expected in Fall 2018, on how
nies’ toolkits to measure, manage, and mitigate to bring together all decision makers along the
their climate risk because of its effectiveness construction value chain to develop an inte-
in quantifying risk exposure; communicating grated approach to carbon pricing that will
it to relevant stakeholders, including investors; allow companies to achieve their climate goals,
incentivizing low-carbon alternatives by pricing and reduce their risk exposure and carbon
out carbon-intensive projects and investments; footprint.
INTRODUCTION 5
What is the Construction
Value Chain?
T
o accurately allocate risk and align sustainability approaches, it is important to
identify the actors that can assess, inform, and adapt their decision making to
most effectively implement an integrated carbon pricing mechanism. However,
construction projects differ by location and vary by type, from buildings to
civil engineering projects to large-scale infrastructure, and they are directed by local
conditions, purpose, regulations, codes, and resources that evolve with time. As such, the
specific contexts of construction projects also have an impact on the requirements, compo-
sition, and significance of different stages and actors in the value chains for those projects.
A holistic approach is needed to define the construction value chain so all relevant stake-
holders can jointly develop a strategy for integrated carbon pricing and, more broadly,
achieve their climate goals.
As the industry is integral to both national and the broader construction industry. The opera-
global economic flows, several definitions of tion of each phase as silos results in delays,
the construction value chain have been put missing information, and miscommunication,
forth, reflecting changing trends in technolo- which is reflected in the fragmented nature of
gies, processes, and projects. A review of the the construction value chain with its separate,
literature shows commonalities in definitions unaligned sectors.
of construction supply chains. One definition17
considers the value chain as a process that Others define the construction industry in
transforms raw construction materials into terms of its distinction from manufacturing
manufactured materials that are made into a supply chains,19 characterizing the industry’s
final product. Another reflects the specialized structure and function as one where the value
nature of each project, with new technologies chain converges all materials at the construc-
helping the construction industry evolve into tion site to set up a de facto “construction fac-
an “engineer-to-order” format where each tory” around a single, final, constructed project.
product is made specifically in accordance The project is produced by repeatedly recon-
with customer preferences and requirements.18 figuring its organization and making use of
Despite the relatively niche use of engineer-to- temporary supply chains typified by instability,
order construction to date, it offers lessons for

fragmentation, and separation of design and bricks/clay, cement, glass, plastics, and steel—
construction stages. are supported by the ancillary activities of com-
panies working with construction financing,
This analysis considers the value chain for legal firms, and the like. The final stage, on-site
any construction project as variations arising construction, may be for residential or commer-
within the fixed framework of three distinct cial use and includes infrastructure, buildings,
stages: design, production and conversion of and industrial sites. The distinctness of these
raw materials into manufactured products, processes, as well as the fixed-term, project-
and on-site construction. Each stage comprises based nature of relationships along the supply
internal phases, processes, and stakeholders chain, result in a highly fragmented industry
that interact to bring a project to fruition. The structure. 20
major sectors in this industry—aluminum,
FIGURE 1: CONSTRUCTION VALUE CHAIN: ACTORS AND INTERACTIONS20
Local Authorities
Financiers Developers Owners Users
Architects &
Contractors
Engineers
Materials &
Equipment
Suppliers
Manufactured
Products
Raw Regulators
Materials Services
Inputs
WHAT IS THE CONSTRUCTION VALUE CHAIN 7

Absent from all the above definitions, is the to ensure sustainability across the lifecycle of
deconstruction of a built structure. Despite its the project. Strong policy signals in this direc-
scope for sustainability and role in the circular tion are being provided by upcoming regula-
economy and global decarbonization, decon- tions such as France’s Thermal Regulation
struction is not included in the analysis of the 2020.24 This imposes low-carbon mandates
value chain in this paper. This is due to the throughout the lifecycle of buildings including
long lifetimes of buildings and infrastructure, energy consumption targets and end-of-life
with deconstruction coming anywhere from activities.25
20 to 100 years later depending on the type
of construction.21 Given the contractual and As companies at different stages of the con-
project-based nature of relationships along the struction value chain develop sustainability
value chain, the deconstruction process would initiatives, they need to identify which part of
have its own value chain, with an entirely their operations account for the majority of
independent set of firms, suppliers, custom- their emissions, namely Scope 1 (direct emis-
ers, and linkages as it takes place decades sions from owned or controlled sources), Scope
after the initial completion of the construction 2 (indirect emissions from the generation of
project. 22 The firms interviewed confirmed purchased energy), or Scope 3 (all indirect
that the industry supply chain does not include emissions that occur along their value chain,
the deconstruction stage in either business or both upstream and downstream).26 Scope 1
design considerations. and 2 emissions are relatively straightforward
to measure and manage. Estimating Scope 3
While the framework for this analysis considers emissions is much more complex because of
the value chain extending only to the comple- variations in reporting and metrics along value
tion of the construction process, a significant chains that are frequently fragmented and
proportion of a building’s emissions arise from often draw from the informal sector in emerg-
its lifecycle use after construction, especially ing markets, where there is a significant lack
from energy consumption for electricity, heat- of information.27 Since the largest source of
ing, and cooling in buildings. 23 It is imperative emissions are often Scope 3,28 it is important
to consider emissions from both use, as well as for companies to work to manage these value-
end-of-life deconstruction and recycling of con- chain-related indirect emissions as part of their
struction materials as early as the design stage overall efforts to reduce their carbon footprint.

Sustainability Along the
Construction Value Chain
C
onstruction companies are championing sustainability initiatives across the
world. For example, through the Sustainable Housing Leadership Consortium
leading companies from the industry have pledged to work together to make
at least 20 percent of new housing developments in India go green by 2022.29
The Cement Sustainability Initiative(CSI), launched by the World Business Council for
Sustainable Development (WBCSD), brought together 25 major cement producers, account-
ing for 30 percent of global cement production, to pursue sustainable, business-positive
development.30 CSI is being succeeded by the Global Cement and Concrete Association
(GCCA), which will continue to reflect and support the industry’s commitment to sus-
tainability.31 The Aluminium Stewardship Institute (ASI) is a global standards setting and
certification organization, that unites more than 60 members in the aluminum value chain
to maximize the sector’s contribution to a sustainable society.32 The Global Alliance for
Buildings and Construction has almost 100 members, ranging from national governments
to private companies, trade associations, and research organizations committed to meet-
ing the Paris Agreement targets.33 Green buildings with a certification from Leadership
in Energy and Environmental Design (LEED),34 Building Research Establishment
Environmental Assessment Method (BREEAM),35 or Excellence in Design for Greater
Efficiencies (EDGE, which is especially prevalent in emerging markets)36 are already at a
premium, and demand for sustainable construction is only increasing. McKinsey has iden-
tified a huge opportunity for construction “materials of the future,” of which green materi-
als and low-carbon technologies are integral parts.37
The various sectors of the construction value economy, and others. While sustainability
chain are demonstrating their awareness of the measures have gained momentum across the
importance of embedding sustainability into industry, they manifest differently in each sec-
their operations and products. This is apparent tor. Some broader sustainability trends in select
through their use of methods such as internal sectors are outlined below.
carbon-reduction targets, development of inno-
vative green products, advocacy for sustain-
ability standards, integration into the circular
SUSTAINABILITY ALONG THE CONSTRUCTION VALUE CHAIN 9

Aluminium
Even though almost 75 percent of the aluminum ever produced is still in
circulation today,38 the demand for new aluminum continues to grow. The
construction industry has a high demand for the material due to its durabil-
ity, recyclability, flexibility, and light weight.39 Over 63 million metric tons of
primary aluminum were produced in 2017 alone.40 Perfluorocarbon emissions
from the production of primary aluminum represent the third-largest source
of fluorinated greenhouse gas emissions in the industrial sector, and baseline
emissions between 2010 and 2030 are projected to grow by 42 percent, from 26
million metric tons of carbon dioxide equivalent to 37 million metric tons.41
Investments in the production of metals and mining, including aluminum, are

inherently long-term given the nature of the projects and the longer payback
periods. Thus, investors looking to plan their investments in the industry need
to account for longer-term trends, including likely policies in the future and
consumer preference for sustainable production as well as resultant demand
for low-carbon aluminum products.42 Strategies that account for the long term,
as well as the inherent profitability of reducing costs through more energy
efficient production, have resulted in the growing demand for sustainable
production. Such strategies are also providing the stimulus for market growth
in recycled aluminum products43— annual output has quintupled from 5 mil-
lion tons to almost 25 million between 1980 and 2015.44 Recycling aluminum
saves over 90 percent of the energy that would have been needed to produce
the same amount of the metal from raw materials.45 Green production of
aluminum, made from renewable energy sources rather than fossil fuel, has
also caught on, with industrial consumer-demand for lower-carbon products
allowing producers to charge premium prices for their sustainable outputs.46
Producers of aluminum from hydro-powered smelters in Norway, Russia, and
Canada are gaining a competitive edge against producers relying on smelters
powered by coal or gas.47 Industry heavyweights such as Rusal, Alcoa, and Rio
Tinto are already developing and advertising low-carbon primary aluminum,48
while others are providing low-carbon guarantees for sustainably produced
aluminum at modest premiums.49
Despite these efforts, current sustainability trends and initiatives in the sec-
tor will have to be greatly increased to meet climate targets while keeping
up with aluminum demand from downstream industries such as construc-
tion, automobiles, and electronics.50 These industries are already facing more
pressure from regulators, investors, and consumers to engage in sustainable
production and business practices, and new policies affecting the aluminum
sector globally can be expected. The opportunity exists to meet increased
demand with low-carbon aluminum, and tools such as carbon pricing provide
an incentive for its use.
Despite such ventures, however, a study by Climate Action Tracker found that
the decarbonization of steel with currently available technologies, including a

greater shift toward a circular economy, would be insufficient to meet the tar-
gets of the Paris Agreement.51 To meet the global goal, the study found that the
industry needs to develop innovative production processes, such as electrolysis
through renewable energy, carbon capture, and materials substitution.52
Cement and Concrete

The share of global greenhouse gas emissions from the cement industry
nearly doubled between 1990 and 2010, from 2.8 percent to 5.5 percent,
driven largely by the explosion of cement production in China.53 As of 2017,
the industry represents 7 percent of global carbon dioxide emissions and is
the third largest consumer of energy. Cement is the key input for the produc-
tion of concrete, which is the most consumed manufactured substance in
the world and is integral to construction activity. 54Concrete typically has an
embodied carbon dioxide content of 50 kilograms to 150 kilograms per ton
that is fully “paid off” early in the lifetime of concrete buildings because of
gains from energy efficiency.55 The production of cement and concrete is likely
to continue rising, given the continuing economic development and growing
need for construction in markets such as South Asia and Sub-Saharan Africa.56
The International Energy Agency estimates a 12 percent increase in global
cement production by 2050.57
CDP surveyed cement companies’ exposure to high earnings risk from their
emissions and found that the poorest-performing companies were the least
supportive to carbon regulations and unprepared for a low-carbon future, and
thus, the most exposed.58 On the other hand, companies that had been reduc-
ing their emissions intensity over time were much better positioned to handle
the transition risks toward a low-carbon economy, although the industry as a
whole needs to seek longer-term solutions, such as carbon capture and low-
carbon cement products.
The cement and concrete industry is coming together to meet this challenge
through forums such as the GCCA, which seek to explore the role of cement
and concrete in sustainable construction. Concrete is helping to reduce life-
cycle emissions from buildings, as its use can reduce energy consumption from
heating and cooling by up to two-thirds.59
Individually, too, companies are applying increasingly stringent sustainability

standards to themselves and engaging in the production of low-carbon cement,
concrete, and related products. Large firms are making efforts to create effi-
ciencies and sustainable policies. For example, LafargeHolcim has among the
lowest emissions intensities and most robust reduction targets and Cemex has
one of the highest utilization rates of alternative fuels in the industry.60 The
cement companies surveyed by CDP had reduced their emissions intensity by
SUSTAINABILITY ALONG THE CONSTRUCTION VALUE CHAIN 11

1 percent each year over the last four years, but were still found to be incom-
patible with the commitments of the Paris Agreement.61 However, the sector
will need to more than double the rate of emissions intensity improvements
to meet the 2 degree goal, highlighting the scope for significant changes in the
industry’s business practices.62
Innovative green cement and concrete products are also reaching the market.
Some examples are high fly ash content concrete, which uses half as much
water and lasts three times longer than other substitutes;63 concrete that is
reinforced with recycled plastic instead of energy-intensive steel;64 and other
“carbon-negative manufacturing processes” that substitute clinker with a more
sustainable material.65 However, such low-carbon cement and concrete prod-
ucts have seen low uptake along the value chain thus far. Adoption of such
products can be encouraged by developing an integrated approach to sustain-
ability across the value chain, which will help boost green construction.
Glass
Glass products for buildings account for 80 percent of the float glass66 market,
and building refurbishment accounts for 40 percent of global glass consump-
tion, driven by the demand for increased energy efficiency of buildings.67 A
fully recyclable resource made from natural raw materials, glass is an inher-
ently sustainable material that provides great environmental benefit from
its ability to be recycled repeatedly in a closed loop.68 Glass manufacturing
produces extremely low quantities of solid waste, as a vast majority of glass
waste is immediately recycled and reused as raw material.69 Glass companies
are recognizing the business opportunity reflected within the sustainable
nature of their product and have come together to collectively advocate for
stronger regulations and innovative solutions to encourage glass recycling.
For example, the Glass Recycling Coalition’s70 members comprise glass manu-
facturers, processors, end-users, materials recovery facilities, and packaging
companies. In addition, the Glass for Europe trade association advocated for
a stronger mandate on building-glass recycling within the European Union’s
waste legislation.71
The biggest source of emissions from the glass sector comes from the melt-
ing process, which releases carbon dioxide through the use of fossil fuels in
the process as well as the decomposition of raw materials.72 Some of the best
opportunities for companies to reduce their carbon impact come from switch-
ing to renewable energy sources in their melting activities and developing
low-carbon, high-efficiency glass products for the construction sector. The lat-
ter is increasingly being used in buildings, with architects taking advantage of
glazed glass’s energy-saving properties that reduce energy consumption from
heating and air conditioning.73

Plastics
Now the second-largest consumer of plastics, the construction industry is using
the durable material and its derivatives with wide functionality to create more
sustainable and resilient structures.74 Plastic-reinforced concrete is increas-
ingly used to reduce carbon dioxide emissions from construction projects,
and plastic-reinforced carbon fiber is used to make buildings more resilient
against earthquakes. Recycled plastic is also sometimes blended with previ-
ously unprocessed plastic and used as a sustainable construction material for
green buildings.75 Innovations in the sector include using carbon-negative
plastics, which are made from greenhouse gas emissions converted into long-
chain polymers, to make manufactured products for the construction industry,
such as foam blocks and panels for buildings.76 In January 2018, the Plastics
Industry Association, a manufacturers trade association in the United States,
adopted its first-ever sustainability statement, following the global trend
toward responsible production.77
However, these innovative solutions and initiatives are a drop in the bucket
given that 91 percent of all plastic is still not being recycled,78 which highlights
the urgent need for significant change in the industry. With the European
Union,79 Costa Rica80 and many other countries considering bans on single-use
plastics, there is an opportunity for the plastics industry to take advantage of
its recyclable product and reposition itself as a low-carbon-intensity construc-
tion material for an increasingly sustainability-minded industry.
Steel
Conventional steel production is highly energy intensive. Each ton of steel pro-
duced, generates almost two tons of carbon dioxide.81 It is one of the highest-
emitting industries, accounting for about 7 percent of global carbon dioxide
emissions.82 The explosion of demand for green buildings and sustainable
construction has, however, encouraged the steel industry to produce cleaner
alternatives. Structural steel, for example, has one of the highest rates of
recycled content and recyclability of any construction material, and the carbon
footprint of its manufacturing process has decreased by 37 percent per ton
since 1990. Both of these factors have encouraged its use in buildings seeking
LEED certification.83
Industry-led sustainability initiatives are gaining momentum. For example,

ResponsibleSteel84—the industry’s first global multi-stakeholder standard and
certification program—involves companies at all points along the steel supply
chain. The steel industry is also developing low-carbon, sustainable products.
One example is Hydrogen Breakthrough Ironmaking Technology (HYBRIT),
SUSTAINABILITY
ALONG THE CONSTRUCTION VALUE CHAIN 13
which substitutes hydrogen for coal in the steelmaking process, producing
water instead of carbon dioxide.85 The HYBRIT collaboration aims to develop
a solution for fossil-free steel by 2035. Its initial deployment is expected to
reduce Sweden’s total emissions by 10 percent and Finland’s by 7 percent.
Design and technological improvements have increased productivity and
energy efficiency of electric arc furnaces,86 which produce steel by recycling
ferrous scrap.87 These are in use in many regions and have a significantly
lower emissions profile.88
Building Codes and Standards

The sustainability practices being adopted across sectors producing inputs for
construction are being complemented by efficiency measures in the design,
planning, and final product stages. Regulations and building codes are encour-
aging low-carbon choices early in the construction process—at the design
stage. For example, Jakarta’s government has introduced a regulation requir-
ing all large buildings, yet to be built or existing, to meet green building specifi-
cations.89 Symbolic prestige and conditional requirements for access to finance
are often drivers for achieving progressively higher sustainability standards,
inspiring low-carbon alternatives in construction projects, for example not
just a LEED Certification but a LEED Gold or LEED Platinum rating.90 Likewise,
BREEAM is an international provider of third-party certification of the sustain-
ability performance of individual buildings and infrastructure projects, which
incentivizes higher-performing assets by reflecting their impact on the built
environment’s lifecycle emissions.91 Similarly, construction companies can use
EDGE or ENERGY STAR certifications for efficiency to differentiate themselves
from their competitors and position themselves as sustainability leaders.
Firms are increasingly conforming to sustainability standards, evidenced by

over 32,500 commercial projects across 162 countries being LEED-certified by
201692 and almost 11 million square meters of BREEAM In-Use certified assets
internationally as of 2017.93 Similarly, EDGE has broadened its scope beyond
new buildings to meet a growing demand for certification.94 This trend is pro-
jected to continue, with the global sustainable construction materials market
expected to grow annually by 11.6 percent in terms of value and 12 percent in
terms of volume between 2017 and 2026.95
The construction sector is moving toward a more sustainable future, with

industries along the value chain taking steps to lower their carbon footprint.
However, even more needs to be done to align the sector’s operations and
practices with the Paris Agreement 2 degrees Celsius target. Carbon pricing can
be an innovative, effective, and business-positive tool to help incentivize this.

The Business Case for Pricing
Carbon
A
round the world and across industries, the private sector is recognizing the
relevance of and benefits from implementing an internal carbon price in
their operations and cost calculations and using it as a guide for business
decisions. The number of companies using an internal carbon price or plan-
ning to do so within the next two years has grown from 150 in 2014 to almost 1,400 in
2017.96 Implementing an internal carbon price has a clear business case. It helps com-
panies manage climate risk and carbon exposure, and reveals opportunities for climate-
smart investments while acting as a transition tool to internally incentivize low-carbon
activities.97 It links a company’s financial performance to its climate record, thus embed-
ding sustainability into profitability and mainstreaming climate-smart decision making. In
addition, external drivers, including regulatory compliance, corporate social responsibil-
ity, and preempting expected emission-control policies in jurisdictions of operation, are
prompting the adoption of internal carbon pricing.
Carbon pricing regulations currently cover 20

percent of global greenhouse gas emissions and
this coverage is expected to expand as addi-
tional jurisdictions impose prices.98 Given the
growing likelihood of becoming subject to such
regulations, companies are managing their
risk exposure by implementing internal car-
bon prices now to not be caught unprepared.
Making this transition allows companies to
measure the cost of the externality, internalize
and assign it to their emissions, and assess the
corresponding impact on their businesses.
A key hurdle remains, however, surround-

ing the impact on a firm’s competitiveness.
Companies are concerned that implementing
15
an internal carbon price when their com- streamline their emission reduction efforts.
petitors are not may result in a self-imposed Internalizing costs associated with a project’s
de facto tax that prices the company out of emissions can affect the project’s rate of return,
business. While an externally imposed carbon and hence tip the scales toward a cleaner
price from policy or regulation might partially alternative in financial terms. By assigning
resolve this issue, companies and policy makers a financial value to sustainability, a carbon
worry that such policies could lead to carbon price helps companies make more respon-
leakage, in which industries move somewhere sible, climate-friendly choices and changes the
with less stringent carbon policies. financial calculus that incentivizes the use of
fuels from high-carbon sources.100 If done cor-
Increasingly, however, companies are coming rectly, carbon pricing encourages companies
under pressure from investors to focus on man- to reward energy- and carbon-efficiency and
aging their climate risk and carbon exposure. allows companies, managers, and investors
Measuring this risk and integrating it into busi- to compare and value projects and businesses
ness planning is becoming a necessity, espe- based on their management of climate risk.101
cially after the release of the recommendations
of the Financial Stability Board’s Taskforce on If a carbon price is applied as an internal car-
Climate-related Financial Disclosures (TCFD). bon fee, the revenue generated can be funneled
Companies are voluntarily exploring the adop- toward investments in sustainable, climate-
tion of carbon pricing as a means to implement smart projects as well as research and devel-
TCFD recommendations. opment on future sources of green revenue.
The revenue can also be used as part of an
A report by S&P Dow Jones Indices found that internal incentive structure for business units
low-carbon versions of the S&P 500 and S&P to work toward achieving a company’s overall
Global 1200 outperformed their benchmarks climate and emissions targets and for encourag-
from 2012 to 2017.99 In addition to risk man- ing innovations in low-carbon processes and
agement, carbon pricing helps companies products.

Approaches to Implementing
an Internal Carbon Price
C
ompanies are exploring and implementing carbon prices in ways that best
suit their business models, climate goals, geography, and company cultures.102
Although the application of internal carbon pricing varies and is tailored to each
company’s needs, it is generally applied in the following ways:103
●● Shadow Price: By forecasting expected loss statement, highlight the cost of high
carbon prices and incorporating these carbon-intensity activities, and encour-
alongside other inputs and costs into their age lowering the emissions intensity of a
financial models, companies can stress test company’s operations. This price can also
projects against a range of carbon price be used to assess the investment required to
levels. This allows them to evaluate invest- meet climate targets.
ments, manage risks, and guide their busi-
●● Internal Tax, Explicit Price, or Carbon
ness strategy toward a low-carbon future.
Fee: These are applied as charges to the
Companies can model carbon pricing across
budgets or fees to the earnings of business
their project valuations to reveal the poten-
units for their emissions, thus providing
tial impact of risks such as stranded assets,
financial incentives that redirect cash flow
and can use the results to inform strategic
toward climate goals such as investment in
decision-decision making.
clean technologies. Some companies funnel
●● Implicit Price: Companies can augment the “taxes” generated from carbon-intensive
their decision making, capital allocation, facilities or units into a central pool whose
and assessment of economic implications purpose is to increase research and invest-
for specific climate targets by applying ment in clean alternatives.
an implicit carbon price to their financial
models. This is calculated as the marginal These104 and other methods are being tailored
cost of abatement for emissions from the and applied to the specific requirements of each
organization, such as the cost of regulatory company, taking into consideration their pur-
compliance, or as a fixed value assigned per pose, long-term goals, regulatory restrictions,
metric ton of emissions. This would reflect and other characteristics.
the cost of carbon in a company’s profit and
17
Construction Industry and
Carbon Pricing
T
he business case for internal carbon pricing also applies to the construction
industry. While companies operating along the construction value chain are
subject to external carbon regulation in some jurisdictions, such as under the
European Union Emissions Trading Scheme (EU ETS), many companies not sub-
ject to such policies are also recognizing the benefits of implementing an internal carbon
price to manage future policy risk exposure and reduce their carbon footprint.
High-carbon-intensity sectors such as cement industry. Relationships within the industry’s

and steel have significant carbon cost expo- supply chain are short-term, project based,
sure. Estimates suggest that the most carbon- and result in one-of-a-kind final products at
intensive cement companies could face risk the construction site itself.106 This project-
to their earnings before interest and tax of based fixed-term nature results in a frag-
up to 114 percent from a minimal $10 per ton mented structure and has precluded some of
carbon price, compared to as low as 10 percent the consolidation and vertical linkages seen
risk to more carbon-efficient cement compa- in other industries that result in cost and
nies from the same carbon price.105 Moreover, operational efficiencies.107 Although buildings
since a significant part of a company’s expo- and infrastructure have emissions throughout
sure to climate risk may come from its supply their lifecycle, from construction to use, it is
chain, it is increasingly important for compa- difficult for members of the value chain to be
nies to bring their suppliers into the fold and held accountable for total lifecycle emissions
manage their Scope 3 emissions through direct given the disconnect between the short-term
and indirect engagement on carbon pric- nature of their contractual relationships and
ing and other tools for emissions reduction. the long-term nature of the actual project.
Companies along the construction value chain Actors at each stage of the value chain are not
are rising to the occasion, with many at vari- only incentivized to produce at the lowest cost
ous stages of the carbon price implementation regardless of carbon impact, but they are also
process. Many such companies are engaging not held accountable for the total emissions of
with each other to learn from peers’ experi- the project or construction.
ences about how best to operationalize such
measures to maximize effectiveness. Consequently, the fragmented nature of the
construction industry necessitates an inte-
It is important to emphasize, however, that grated carbon pricing mechanism that ties
the effectiveness of sustainability measures, together different players and sectors along
including carbon pricing, is tempered by the the construction value chain. Without indus-
fragmented structure of the construction trywide support and coordination, there is a

disconnect between the manufacture of green helping the industry meet climate targets with
products and the demand and valuation for support from and linkages with counterparts
it further down the chain. Companies acting along the value chain, from beginning to end.
alone to develop sustainable construction There is thus a need to develop an effective,
practices, processes, and products are to be integrated carbon pricing mechanism that
commended and represent great initiative, but applies across the value chain to achieve tan-
they would be significantly more effective at gible results.
19
Current Carbon Pricing
Practices by Companies
across the Construction
Value Chain
O
f the 1,400 companies implementing or looking to implement a carbon price
before 2019, around 100 are from sectors along the construction value chain,
including infrastructure, materials, construction services, and materials.108
For this paper, twelve CPLC partner companies from sectors along the con-
struction value chain were interviewed regarding their experiences with carbon pricing.
Each of the companies surveyed is implementing carbon pricing per its own unique set of
conditions, and all have faced their own challenges and successes in the process:109
Raw Materials & Manufactured Products

CEMEX (MEXICO)
Cemex, a manufacturer and distributor of price applied to all investment decisions, but
cement and concrete, has introduced an rather, a risk management tool in business
internal carbon price of $30 per ton of carbon planning to give the company a better idea of
dioxide in its planning exercises to manage its its exposure to carbon risk.
climate risk and carbon exposure, align busi-
ness strategy with climate targets, and identify While Cemex’s current carbon pricing struc-
opportunities for emissions reductions. Cemex ture covers only its Scope 1 emissions, the
sees both risk and significant opportunity company has put into place other measures
in cap and trade schemes, with the expected and initiatives to reduce its Scope 2 emis-
carbon price driving the use of multiple tactics sions, including incentives to improve energy
such as improvements to energy efficiency, efficiency and increase the use of renewable
switch to clean fuels, and the substitution of energy. The company is engaging with its
materials.110 The carbon price is not a shadow suppliers to manage its Scope 3 emissions by

asking them to follow a Sustainability Code at price to be applied to cement companies and
the country level. Despite the difficulty of mea- projects worldwide. It anticipates the strength-
suring them accurately, Cemex uses the guide- ening of carbon policies across the world,
lines developed by the Cement Sustainability particularly with emerging legislation in Latin
Initiative for effectively monitoring Scope 3 America and other regions. While risk mitiga-
emissions to measure and report these to CDP. tion is done at a local level, Cemex is engag-
ing with the issue of carbon pricing globally
Cemex has been following legislative propos- through its participation in organizations such
als and advocating for a regulatory carbon as the CPLC.
DALMIA BHARAT CEMENT (INDIA)
Dalmia Cement has a production capacity of to energy from its captive coal power plant.
25 million tonnes across 12 locations in India. The application of a shadow price made the
In 2018, the group has been rated the best per- waste-heat recovery plant viable, and it was
former on low carbon transition readiness by approved with significant support from the
CDP.111 The company uses four key approaches company’s senior management and commis-
to reduce its carbon footprint and climate risk sioned in 2018. The internal carbon price has
exposure, in addition to regularly monitoring paved the way for the company to develop two
progressive targets. These include: the use of more waste-heat recovery plants and manu-
industrial waste as an alternative raw mate- facture a new line of low-carbon cement.
rial for clinker substitution; electrical energy
efficiency; thermal efficiency, and; the use of Although carbon pricing is currently applied
incinerable waste as an alternative fuel for its only to the subset of projects described above,
cement kilns. The company is keen to develop the ultimate goal is to extend it to every proj-
long term partnerships for research on tech- ect. The current price level of $11 per ton of
nologies for Carbon Capture and Utilization. carbon dioxide2, was calculated using sce-
nario analysis that took into account expected
Carbon pricing has been a key tenet of Dalmia future opportunities in carbon abatement.
Cement’s strategy for thermal and electrical Reevaluating and increasing this price level
energy efficiency improvements. Its opera- is contingent on a favorable future policy
tions in India are subject to the government’s environment that encourages a low carbon
implicit carbon pricing policies including the transition.
Perform Achieve and Trade scheme for the
trading of energy efficiency certificates in high An estimated 90 percent of the company’s
energy-use sectors,112 and a Renewable Energy raw material comes from captive mines, and
Purchase Obligation.113 These implicit mecha- Dalmia Cement uses guidelines developed in
nisms, coupled with Dalmia Cement’s member- collaboration with the CSI to engage with its
ship of the CPLC, encouraged the company to supply chain on sustainability. The construc-
announce an explicit shadow internal carbon tion industry in India comprises both the
price in 2015. The shadow price is applied on a organized and unorganized sector, and Dalmia
project-by-project basis on low-return projects Cement is conducting awareness campaigns on
with a long payback period. The carbon price climate impacts for its suppliers. They con-
was piloted on a 9.2 MW waste-heat recovery sider this sensitization as the first step towards
plant, earlier considered financially unvi- introducing carbon pricing to the value chain.
able as the company had economical access
CURRENT
CARBON PRICING PRACTICES BY COMPANIES ACROSS THE CONSTRUCTION VALUE CHAIN 21 2
Photo: © IFC / Flickr
LAFARGEHOLCIM (FRANCE/SWITZERLAND)
A leading manufacturer of building materi- LafargeHolcim is engaging with governments

als operating across 80 countries globally, to advocate for consistent, fair, effective, and
LafargeHolcim’s climate ambition is defined in level-playing field regulations while internally
its sustainable development program, of which preparing for future carbon pricing costs
climate is a key component. The company as economic pressure points.115 To do so, it
seeks to reduce its carbon emissions by 40 applies a carbon price of $31.19 per ton of
percent compared to 1990 levels and continue carbon dioxide116 in its operations as per the
to be the most efficient and least carbon-inten- requirements of the regulatory carbon price
sive cement manufacturer. It also seeks to help in the jurisdiction of operations. The company
prevent the release of up to 10 million tons of does not apply a carbon price uniformly across
lifecycle carbon dioxide emissions from build- all jurisdictions, but only in those where an
ings and infrastructure annually through the external carbon price already exists or where
use of its low-carbon products and solutions. it sees a future carbon price on the climate
policy agenda. The carbon price is used to gen-
The company recognizes that it faces signifi- erate an integrated profit and loss statement,
cant climate risk and carbon exposure as a which simulates the impact of the company
global manufacturing business and identi- on a triple bottom line of people, profit, and
fies increased carbon pricing policies as one planet. Further, instead of a blanket carbon
of the main risks for its business.114 As such, price, LafargeHolcim is developing a new

internal carbon pricing tool to ensure the sys- sequestration. For example, the company has
tematic accounting of carbon impact across a partnered with Solidia Technologies to develop
variety of scenarios for each project. The value a low-carbon cement and concrete technology
of this tool is in the assessment of different that allows concrete to harden while seques-
levels of carbon pricing for each project, with tering carbon dioxide, which replaces water as
carbon pricing acting as a variable tool for the a binder, thus capturing and reducing emis-
evaluation of carbon exposure. sions by up to 70 percent in some cases. The
company is also innovating new products that
In addition, LafargeHolcim has significantly help reduce lifecycle emissions in buildings,
invested in developing several low-carbon such as Airium, a mineral foam insulating
products, including low-carbon clinker, technology, and Ductal, an ultra high perfor-
cement, concrete, and binder technology, mance concrete.
and is exploring opportunities in carbon
RUSAL (RUSSIA)
As one of the largest aluminum companies in and divestments. The company’s operations
the world, sustainable development is a key within Europe are subject to the EU ETS, but
part of Rusal’s business strategy, which places it applies a price of $20, higher than what the
significant emphasis on innovation, modern- EU ETS mandates. In addition, some of the
ization, and improved environmental per- company’s new projects in Russia and abroad
formance. Rusal is actively assessing its own are also voluntarily implementing an inter-
climate risk and carbon exposure as well as nal carbon price. Rusal is also implementing
the opportunities for sustainable products and the Aluminium Stewardship Initiative (ASI)
low-carbon alternatives presented by climate Standard and ASI Chain of Custody Standard,
change. The company is exploring the role of to be independently audited and certified. The
aluminum in helping sectors such as construc- company recently developed and began apply-
tion and transportation improve their own ing a Business Partner Code for its suppliers to
energy efficiency and performance. engage with them on sustainability.
Rusal has been implementing an internal car- The company has also developed a low-carbon
bon price, set at $20 per ton, as a mechanism aluminum product known as ALLOW, which
to influence the decision-making process for uses clean hydroelectricity to deliver alumi-
investment in projects. This internal carbon num with a lower carbon emissions footprint,
price is applied to a new project’s financial at less than one-third of the global average
models to assess its exposure to carbon risk, for aluminum production.117 The company
including from potential carbon pricing poli- provides a low-carbon guarantee for the prod-
cies. If the internalization of this carbon cost uct, assuring customers that ALLOW’s carbon
makes a project unprofitable, Rusal intends footprint is less than four tons of carbon diox-
to either find a low-carbon alternative that ide equivalent per ton of aluminum, account-
makes the project profitable or reject it alto- ing for all Scope 1 and 2 emissions from the
gether. The carbon price is also used as a tool smelter process. Despite the higher production
in the company’s overall financial modeling to costs associated with ALLOW, Rusal has seen
evaluate strategic decisions such as expansion, customer interest in the product since intro-
acquisitions, new buildings, decommissioning, ducing it to the market.
CURRENT CARBON PRICING PRACTICES BY COMPANIES ACROSS THE CONSTRUCTION VALUE CHAIN 23
SAINT-GOBAIN (FRANCE)
Saint-Gobain manufactures and distributes development projects. The first is for capi-
building materials to create living spaces that tal expenditure projects and energy-related
combine comfort and sustainability. Its prod- investments to incentivize investment in
ucts include glass, insulation, and plasterboard energy efficiency equipment and manage the
that help improve energy efficiency in existing risk from a potential scenario where the com-
and new buildings, and the company develop pany might face carbon pricing mechanisms
lightweight solutions for construction with other than the EU ETS, which would lead to
reduced carbon content. higher operational costs.118 The second, much
higher carbon price is applicable to research
Following its 2014 Energy, Atmospheric and development projects, in a move to
Emissions and Climate Change Policy, Saint- incentivize innovation in low-carbon products,
Gobain implemented carbon pricing in its processes, and technologies. Projects are struc-
operations in 2016 in all 68 countries where tured so that their payback accounts for the
the company has a presence, many of which carbon price, which has a significant impact
do not have carbon pricing requirements. on the projects with the higher research and
Saint-Gobain’s approach has been to adopt development carbon price. The company is
two parallel carbon prices, applicable to its still receiving feedback on this initiative and
Scope 1 and 2 emissions for investments, and will evaluate it to tailor and evolve the pricing
Scope 1, 2, and 3 emissions for research and structures as required.
SIEMENS (GERMANY)
Industrial manufacturer Siemens has an Although Siemens is not yet applying an inter-
internal goal to halve the carbon footprint nal carbon price across its operations, it has
of its business operations by 2020 and be developed a framework and begun activities
climate neutral by 2030, with all production toward this end. In addition, although there is
facilities and buildings worldwide expected not yet an active price signal throughout the
to achieve net-zero carbon footprints by then. company to achieve its goal of carbon neutral-
The company has identified four pillars to ity, some activities covered by the four pillars
achieve these goals: energy efficiency, decen- named above come with a price premium,
tralized energy systems, intelligent e-mobility such as buying clean but more expensive
solutions, and the purchase of electricity from renewable energy, which is accepted as an
renewable energy sources. These pillars are implicit cost for carbon reduction.
applicable across its operations, including
for the production of construction materials, Siemens is considering a shadow price for its
equipment, and concrete solutions. Siemens is suppliers as part of its dialogue and engage-
bringing its supply chain into the fold, having ment with its supply chain, which might be
developed its Code of Conduct for Siemens applied to the purchasing volume from each
Suppliers and third-party intermediaries. supplier based on their geographic location
and regulatory jurisdiction.

Construction Services
ELLISDON (CANADA)
As a construction project management com- EllisDon is developing a Carbon Accounting

pany with few emissions from its operations, Tool to track emissions throughout the life-
EllisDon does not have an internal carbon cycle of new building as well as retrofitting
price, but it is working with governments, projects, from design to operation. This tool
companies, and coalitions such as the CPLC to will be part of the process of transforming the
advance the carbon pricing agenda. It views market without pushing it to stall during the
regulations such as the goal for all new homes transition to carbon neutrality by incentivizing
in Ottawa to be net zero carbon by 2030 as low-carbon alternatives through the valuation
indication that the construction industry is of emissions.
moving toward carbon neutrality, with carbon
pricing as an important tool to aid in the
transition.
MOTT MACDONALD (UK)
Mott MacDonald, a global engineering, man- projects—beyond simply meeting performance

agement, and development consultancy, is standards. In addition, the release of the TCFD
working with its clients to dispel myths sur- recommendations has especially urged larger
rounding carbon management while iden- companies, with longer-term planning such as
tifying it as a key focus area in the earliest five-year-plan reports, to go beyond existing
stages of a project to drive down capital and regulations and prepare for a carbon-averse
operational costs. Together with its partners, future. Companies are increasingly engaging
in 2016 Mott MacDonald coauthored PAS 2080, with their value chains along these lines, with
the world’s first carbon management standard low-carbon and sustainability clauses written
for infrastructure. A voluntary standard, PAS into contracts and procurement processes.
2080 offers a suite of tools and methodologies
to businesses in the construction sector, who Mott MacDonald is helping its clients with a
can adopt it in the manner that works best for low-carbon transition and sees a significant
them from a sustainability and competitive- scope for improvement and action ahead.
ness point of view. While attaining accredi- While Scope 3 emissions are beginning to be
tation might be difficult, PAS 2080 provides considered all along the value chain, they
guidance for businesses seeking to implement are still largely unmanaged because of the
low-carbon solutions. complexities of measuring the impact from
a company’s value chain, both upstream and
Beyond the cost implications of potential downstream. Appropriate tools to measure
carbon risk exposure, Mott MacDonald’s and manage these emissions need to be devel-
clients are recognizing the financial and oped. Construction companies, developers,
reputational benefits of sustainable operations and projects are taking lifecycle cost consid-
and decision making. Already the picture has erations more seriously, but this is slower
changed, with climate, resilience, and carbon- in those areas or projects where the builder
oriented due diligence seeing an upswing for or client is not the operator. Whereas the
company has observed that its clients and the transparency that the construction industry
market recognize the complexity of the climate needs, especially for investors and insurers. It
issue and worry about reputational and other considers carbon pricing to be the approach
impacts, there is still a lack of clarity on what that will push the construction industry
needs to be done and how to do it. The TCFD’s toward zero carbon. Mott MacDonald believes
recommendation for scenario analysis has that a shift in decision making across the value
begun to create some direction, but there is chain will require effective carbon pricing that
still a lack of understand regarding what it reflects the social cost of carbon. The com-
means in practice. pany will work with TCFD and other reporting
initiatives to create greater transparency for
The company advocates carbon pricing as an investors, insurers, and other actors on carbon
effective tool for providing the clarity and exposure and risk.

Project Developers & Construction Equipment
ACCIONA (SPAIN)
Acciona, an infrastructure and renewable Acciona established an internal offset price in

energy project developer and manager, has 2016, that ensured compliance with the com-
been carbon neutral in Scope 1 and 2 emis- pany's carbon neutrality objective. Since then,
sions since 2016 and intends to continue the company has compensated its annual non-
reducing its emissions in accordance with avoided GHG emissions through the acquisi-
science-based targets. The company estab- tion of UNFCCC certified emission reductions
lished a Sustainability Committee in 2009 and resulting from the development of social
launched a new Sustainability Master Plan in and environmentally responsible projects in
2016 that will guide its strategy until 2020. It emerging economies.
has been implementing a carbon price since
2008 and considers it to be an essential tool for The company’s carbon neutrality commitment
decarbonizing its business. Acciona has been as well as its internal carbon price initiatives
subject to the EU ETS since 2009. are enabling it to raise internal awareness
and introduce measures including: incre-
In 2015, Acciona established an additional mental emission reduction targets aligned
internal shadow price for new and future with the Science Based Targets framework,
investments to assess and mitigate its climate sourcing 100 percent of its electricity supply
risk and carbon exposure. Acciona considers from renewable energy sources in its energy
unaccounted negative externality costs from business division, and additional investments
greenhouse gas emissions to be a market fail- in social and environmentally responsible
ure, and the company expects the carbon price projects fostering low carbon innovation.
to correct this. Thus, the latest shadow price is
integral to the company’s risk mitigation strat-
egy going forward.
GROUPE ADP (FRANCE)
With an aim to achieve carbon neutrality by per ton of carbon dioxide in 2017,119 intended
2030, French airport infrastructure developer, to familiarize and comfort investors, with the
owner, and operator Groupe ADP launched implicit assumption that this price level will
an internal carbon price in early 2017 that likely evolve over time. Although initially the
it implemented as a shadow price on the carbon price was applicable only to projects
operation of three Paris airports to encourage worth over 3 million euros, it now applies to
low-carbon decision making and operational the operations of all projects with any energy
efficiency. This internalization of carbon cost impact as of March 2018. Until now, the focus
has been part of an effort to anticipate the of Groupe ADP’s carbon price has been on
risks and consequences of the trend of tight- energy efficiency in its infrastructure project
ening carbon policies, which the company operations; however, there is an ongoing inter-
expects will continue. The company is employ- nal discussion on whether an internal carbon
ing a strategy that started with a price of $23 price might also be applicable to the actual
construction of its projects and, if so, how it which has been committed since 2016 to
might be best implemented. ensuring that 60 percent of its electricity
comes from renewable sources.
Groupe ADP is managing its Scope 1 and 2
emissions by purchasing energy from Engie,
MAHINDRA & MAHINDRA (INDIA)
The Mahindra Group has implemented a premium is already embedded through energy
hybrid form of carbon pricing, with both efficiency and other sustainability measures.
shadow and explicit pricing, in its automobile Learning from its experiences with apply-
activities and is studying how this might be ing carbon pricing to its other operations,
replicated in its construction activities. The the Mahindra Group is priming its construc-
Mahindra Group considers carbon pricing to tion activities for the same by engaging with
be a useful tool to evaluate the exposure of its its supply chain on sustainability within a
projects and investments to transition risk as broader context. Suppliers and contractors
well as incentivize innovations in low-carbon are given training through workshops that
alternatives to meet the company’s broader aim to build their capabilities and help them
sustainability goals. Its current carbon price understand the business case for environ-
has been determined as an abatement cost for mentally responsible decision making, includ-
greenhouse gas emissions that would have a ing through measuring and disclosing their
material impact on decision making. The price own carbon footprints. The company is a
has been arrived at by considering the group’s founding member of the Sustainable Housing
current energy efficiency and sustainability Leadership Consortium and applies several
commitments as well as exposure to potential other initiatives to embed sustainability within
climate policies. its construction and real estate projects, such
as building resilient, energy-efficient Smart
Although its construction activities are not Cities.
subjected to a carbon price as yet, a price
TATA GROUP (INDIA)
The Tata Group has a corporationwide code of operations with the EU ETS for their European
conduct that covers sustainability and is appli- steel manufacturing.
cable to Tata Group companies, and all their
suppliers as well. The code, which is qualita- Tata Group has a federalist structure, so it
tive in nature, contains language surround- allows each company in the group consider-
ing Environmental, Social and Governance able autonomy on whether and how to apply
criteria. From 2008 to 2015, the Tata Group carbon pricing to their operations to help
held an internal carbon footprint reduction achieve their carbon reduction and abatement
exercise. This was followed by the creation of targets. The Tata Sustainability Group has
an internal task force on carbon pricing, made created and disseminated internal guidance
up of regulators, C-suite executives, and those on carbon pricing for the entire Tata Group
with experience aligning the Tata Group’s that is valid till 2020, after which the price and

structure will be reevaluated for adoption if The Tata Group’s approach to sustainability,
and as each individual company sees fit. however, takes a broader view than only
carbon pricing, and the group is attempting to
Of significant relevance to the construction educate its clients about a value-in-use con-
value chain is the adoption of carbon pric- cept. The group operates under the philosophy
ing by Tata Steel, currently priced at $15 per that sustainable products and their use can
ton. This price was calculated by estimating be justified and marketed on normal business
the required investment needed to achieve and economic grounds through, for example,
its internal emissions targets within a specific arguments for lower fuel consumption, better
time frame while still remaining competi- lifetime mileage, greater strength, and longer
tive. Tata Steel evaluates its investments and lifespan of the products. In the group’s expe-
projects based on two levels of internal rate rience, its clients are willing to pay a higher
of return, one with and one without carbon premium for such qualities, and greater
adjustment. Those projects that meet the inter- sustainability is thus embedded within rather
nal hurdle rates for both are passed immedi- than separate from business decisions, strat-
ately. Those that have a low-carbon-adjusted egy, and product choices.
internal rate of return are judged on a case-by-
case basis at the board level.
Common Considerations
across Companies
C
ompanies across all sectors of the construction value chain have had some com-
mon experiences and questions arising from their experiences of implementing
carbon pricing, despite the differences in their approaches and the fragmented
nature of the industry. These are broadly grouped in two, sometimes-overlap-
ping, areas of concern. The first, covering carbon pricing as a regulation that is externally
imposed, and the second surrounding the obstacles faced when implementing a voluntary
internal carbon price.
The challenges faced by companies in the to operate in jurisdictions with high carbon
construction value chain differ by geography pricing regulations, and potentially mov-
and jurisdiction. The variance in the degree ing their operations to regions without such
of strictness of carbon policies across jurisdic- regulations that eat into profits. Similarly, com-
tions has a material impact on methods and panies also hesitate to voluntarily implement
measurement. Even in areas without carbon high internal carbon prices that could price
pricing mandated by regulation or policy, the themselves out of the market, resulting in the
success that a company has in implementing application of internal carbon prices that are
an internal carbon price varies by location. too low to have material impact on decision
This is because jurisdictions have more or less making. The incentive for companies to imple-
organized supply chains, different levels of ment an internal carbon price depends on its
maturity in their markets of operation, varying impact on business. Although carbon pricing
access to new technologies and less carbon- has been acknowledged as an effective risk
intensive resources, and ranging degrees of management tool, the costs begin to outweigh
consumer awareness. As a result, the same the benefits in areas with small margins and
methods and approaches that are effective high price sensitivity.
for a company in some of its business units
might not be as successful in others. Similarly, In a similar vein, although companies are
what works for a company in one part of the using carbon pricing as an internal risk miti-
value chain in the same jurisdiction will not be gation tool, they would prefer the universal
equally applicable for a company operating at application of an external regulatory carbon
another stage of the process. price across their industries. Consistent,
predictable, and fair regulation that is appli-
Achieving sustainability goals through carbon cable to all firms operating in the sector or
pricing will only work if companies are able jurisdiction, would create a level playing
to remain competitive. Carbon leakage is a field, and address some of the concerns about
significant concern, with companies reluctant competitiveness.

While these companies are at various stages of
implementing an internal carbon price, almost
all of them identified the need for assistance
in managing their Scope 3 emissions and
engaging in structured and effective ways with
their supply chains. Measuring, monitoring,
and evaluating Scope 3 emissions were identi-
fied as common challenges across the compa-
nies and will be an essential next step toward
decarbonization. Targets and levels for judging
contractors will need to be developed, as well
as supplier codes of conduct that can be quan-
titatively evaluated. In addition, the companies
identified the need for standardized and com-
parable frameworks for scenario analysis as
well as for rating suppliers by their low-carbon
credentials.
For early movers, one of the biggest challenges

faced by the proponents of carbon pricing has
been the “socialization” of the concept among
the finance and business executives. However,
the Paris Agreement, the successful applica-
tion of carbon pricing policies across several
national and subnational jurisdictions, and,
most recently, the release of the TCFD recom-
mendations have all helped bring about a
change in culture. The private sector is now
aware and accepting of the business case for
carbon pricing and is increasingly enthusias-
tic about mainstreaming it as a tool for risk
management.
The biggest missing link for companies is the

lack of a clear idea about how to operation- Photo: © IFC / Flickr
alize and standardize the implementation

of an internal carbon price. Businesses are
interested in learning from the experiences
of other companies, both from within their come together and develop an integrated car-
sector and across the construction value chain, bon pricing mechanism that could be applied
of implementing and institutionalizing carbon along the value chain to cover lifecycle emis-
pricing. This includes lessons in integrating sions from construction projects. The compa-
carbon pricing into business models as well as nies also acknowledged the need for a strong
in communicating the benefits of carbon pric- and holistic climate-policy approach. While
ing to stakeholders and investors concerned carbon pricing provides a policy push, market-
about competitiveness. led sustainability initiatives must be incentiv-
ized by creating conducive policy and business
Finally, the companies surveyed unanimously environments, such as through procurement
advocated for the construction value chain to standards.
COMMON CONSIDERATIONS ACROSS COMPANIES 31

The Role of the Carbon
Pricing Leadership Coalition
C
ollaboration between companies along the construction value chain is essential
for helping the industry meet its sustainability goals and support low-carbon,
high-resilience transformation. An analysis by the Boston Consulting Group and
World Economic Forum found that companies in the highly fragmented con-
struction industry rely on a “seamless interplay of all participants along the value chain
and throughout a project’s life cycle,”120 belying the need for greater cooperation and coor-
dination along the value chain to enhance productivity and achieve common goals such as
reducing their collective carbon footprint.
Despite a traditionally fragmented structure and maritime industries. These efforts are
comprising different sectors with strong play- supported by developing targeted knowledge
ers, the construction industry has recently products, including guidance to assist compa-
seen a number of large, consolidating mergers nies with implementing and institutionalizing
and acquisitions because of a strong global best practices and webinars for companies to
economy and housing market.121 Analysis by share their experiences on carbon pricing.
PWC suggests that this trend is driven by the
increasing size and complexity of construction In a recent webinar, as part of a series on
projects, which create a premium for techni- internal carbon pricing hosted by the CPLC
cal expertise and capacity, resulting in higher and Yale University, it was observed by pre-
average transaction values that incentivize senters from Unilever that one company’s
industry players to continue to seek value and Scope 3 emissions are another company’s
win such contracts.122 This is a clear indication Scope 1. That is, if at every stage along the
that companies are coming together in the construction value chain, every company
industry, be it through mergers or by collabo- manages its direct Scope 1 and 2 emissions, the
rating in forums such as the CPLC to achieve added complexity of measuring and mitigating
their climate objectives. Given that climate indirect Scope 3 emissions is greatly reduced.
change poses a risk globally and across all Doing so makes the industry’s collaborative
sectors, there is a need to bring together the effort to decarbonize itself significantly more
entire construction industry value chain to effective.
collaborate on issues of sustainability, decar-
bonization, and carbon pricing. The CPLC is well placed to help companies
along the construction value chain address
Through the CPLC, companies are collaborat- some of the key concerns identified. It has
ing on sector-specific approaches to carbon convened a Construction Value Chain Task
pricing, including in the construction, banking, Team, comprising of companies from various

sectors in the industry as well as relevant As part of this function, the CPLC is support-
strategic partner organizations to help shape ing the launch of a High-Level Commission on
the agenda of carbon pricing along the value Carbon Pricing and Competitiveness, which
chain. This includes an effort to develop an will be a platform to discuss the concerns
integrated approach to applying carbon pric- voiced by companies on the implications
ing and assess its impact on decision-making for their competitiveness if they stand alone
processes across the value chain through a in implementing an internal carbon price
lifecycle analysis of a variety of construction (therein effectively taxing themselves). The
projects. Commission will comprise global business and
thought leaders and be supported by an expert
As a coalition that includes members from Advisory Group. The work will involve wide
business, government, and civil society, it is consultation with industries on the impact of
uniquely positioned to convene organizations carbon pricing on their competitiveness and
representing all stakeholder interests. The will help to demystify the issue through an
CPLC facilitates companies’ sharing of experi- evidence based approach.
ences and best practices for operationalizing
internal carbon pricing with others that are Finally, the CPLC provides a forum for pri-
looking to learn and apply these lessons to vate companies to engage with governments
their own efforts. It also provides a forum for to ensure the development of well-designed
private companies to engage with govern- carbon pricing policies to help create a level
ments to ensure the development of well- playing field.
designed carbon pricing policies to help create
a level playing field.
THE ROLE OF THE CARBON PRICING LEADERSHIP COALITION 33

Endnotes
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3 See http://deepdecarbonization.org/
4 CDP. 2017. Putting a Price on Carbon https://b8f65cb373b1b7b15feb-
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5 CDP 2017
6 WEF 2016
7 Business Wire 2018
8 See https://unfccc.int/process-and-meetings/the-paris-agreement/the-paris-agreement
9 See http://deepdecarbonization.org/
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12 See https://klimalog.die-gdi.de/ndc-sdg/sdg/9
13 See https://klimalog.die-gdi.de/ndc-sdg/sdg/11
14 IFC 2016
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24 See http://climateobserver.org/country-profiles/france/

25 ADEME (French Environment & Energy Management Agency). 2017. Towards Environmental
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26 See https://ghgprotocol.org/sites/default/files/standards_supporting/FAQ.pdf
27 Economic & Social Research Council. 2013. Informal Economy Missing from Climate Change Debate
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28 See https://ghgprotocol.org/sites/default/files/standards_supporting/FAQ.pdf
29 Bharucha, Nauzer. 2017. “Housing Consortium Launches Greenhomes Campaign.” Times of India,
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30 See https://www.wbcsdcement.org/index.php
31 WBCSD (World Business Council for Sustainable Development) & GCCA (Global Cement and
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32 See https://aluminium-stewardship.org/about-asi/
33 See https://www.globalabc.org/about-gabc/declaration
34 See http://leed.usgbc.org/leed.html
35 See http://www.breeam.com/
36 See https://www.edgebuildings.com/
37 McKinsey & Company. 2016. Imagining Construction’s Digital Future https://www.mckinsey.com/
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38 See http://www.aluminum.org/industries/production/secondary-production
39 Stacey, Michael. 2015. “Aluminium and Durability: Towards Sustainable Cities.” International
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40 See http://www.world-aluminium.org/statistics/primary-aluminium-production/#histogram
41 See https://www.epa.gov/global-mitigation-non-co2-greenhouse-gases/
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43 Greenbiz. 2006. Climate and the Aluminium Industry https://www.greenbiz.com/research/
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44 See http://recycling.world-aluminium.org/review/industry-structure/
45 See http://www.aluminum.org/industries/production/secondary-production
46 Hobson, Peter. 2017. “Hydro-powered Smelters Charge Premium Prices for ‘Green’ Aluminum.
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47 Hobson 2017
48 Williams, Melanie. 2017. Low Carbon Aluminium Gets Motoring http://www.melaniewilliamsconsulting.
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49 Hobson 2017
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52 Ibid
53 Ibid
35
54 IEA (International Energy Agency). 2018. Technology Roadmap - Low-
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55 See www.theconcreteinitiative.eu
56 Climate Action Tracker 2017
57 IEA 2018
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60 CDP 2016
61 CDP 2016
62 CDP 2016
63 Majcher, Kristin. 2015. “What Happened to Green Concrete?” MIT Technology Review. https://www.
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65 Nandy, Utpal. 2017. “Is Green Cement the Future of Sustainable Construction?”
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66 Float glass, manufactured through a process whereby molten glass is floated on a bed of metal, is
used to make windows and glass doors for buildings.
67 See http://www.glassforeurope.com/en/industry/market-for-glass.php
68 See https://www.glassallianceeurope.eu/en/environment
69 See https://www.glassallianceeurope.eu/en/environment
70 See http://www.glassrecycles.org/about
71 See https://glassforeurope.com/eu-waste-legislation-building-glass-recycling/
72 See http://www.agc-glass.eu/en/sustainability/environmental-achievements/environmental-impact
73 See http://www.glassforeurope.com/en/issues/glazing-solutions.php#
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76 Architect Magazine. 2017. The Materials Industry is Pitching In to Reduce
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81 Chandler, David L. 2013. “One Order of Steel; Hold the Greenhouse Gases.” MIT News. http://news.
mit.edu/2013/steel-without-greenhouse-gas-emissions-0508
82 See https://www.ssab.com/company/sustainability/sustainable-operations/hybrit

83 See https://www.aisc.org/why-steel/sustainability/#29351
84 See https://www.responsiblesteel.org/working-group/
85 See https://www.ssab.com/company/sustainability/sustainable-operations/hybrit
86 Pistorius, Chris P. 2017. Higher-Quality Electric-Arc Furnace Steel https://www.cmu.edu/engineering/
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87 EPA (United States Environmental Protection Agency). 2012. Available and Emerging Technologies
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88 See http://ietd.iipnetwork.org/content/electric-arc-furnace
89 IFC 2016
90 See https://new.usgbc.org/leed
91 See https://www.breeam.com/
92 USGBC (US Green Buildings Council). 2016. LEED By the Numbers: 16 Years of Steady Growth
https://www.usgbc.org/articles/leed-numbers-16-years-steady-growth
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94 See https://www.edgebuildings.com/edge-for-existing-buildings/
95 BIS Research. 2017. Global Construction Sustainable Materials Market Analysis and Forecast,
2017-2026. https://bisresearch.com/industry-report/global-construction-sustainable-materials-
market-2026.html
96 CDP 2017
97 CDP 2017
98 World Bank Group. (2018). State and Trends of Carbon Pricing https://openknowledge.worldbank.
org/bitstream/handle/10986/29687/9781464812927.pdf?sequence=5&isAllowed=y
99 March, Rochelle. 2017. Carbon Pricing: The Business Case for Low-Carbon Innovation http://www.
indexologyblog.com/2017/11/28/carbon-pricing-the-business-case-for-low-carbon-innovation/
100 See https://www.carbonpricingleadership.org/
101 CDP. Business Case for Pricing Carbon. https://b8f65cb373b1b7b15feb-
c70d8ead6ced550b4d987d7c03fcdd1d.ssl.cf3.rackcdn.com/comfy/cms/files/files/000/000/284/
original/business-case-for-carbon-pricing.pdf
102 CDP. Business Case for Pricing Carbon. https://b8f65cb373b1b7b15feb-
c70d8ead6ced550b4d987d7c03fcdd1d.ssl.cf3.rackcdn.com/comfy/cms/files/files/000/000/284/
original/business-case-for-carbon-pricing.pdf
103 IFC. 2017. Climate Investment Opportunities in South Asia. https://www.ifc.org/wps/wcm/connect/
be4dacbd-18d1-4159-b9e9-e6a95e094d7a/Climate+Investment+Opportunities+in+South+Asia+-
+An+IFC+Analysis.pdf?MOD=AJPERES
104 CDP 2017
105 CDP 2016
106 Fulford, Richard & Standing, Craig. 2014. Construction Industry Productivity and the Potential for
Collaborative Practice https://www.sciencedirect.com/science/article/abs/pii/S0263786313000641
107 The Economist. 2017. Efficiency Eludes the
108 CDP 2017
109 The information in this section has been collected largely from conversations with representatives of
the companies. Where other sources have been used, they are cited accordingly.
110 Cemex. 2017. Climate Change 2017 Information Request https://www.cemex.com/
documents/20143/11025391/InvestorCdpCemex2017.pdf/1f4fc007-f4d8-9d8a-6790-8375071a5012
111 CDP. 2018. Building Pressure. https://6fefcbb86e61af1b2fc4-c70d8ead6ced550b4d987d7c03fcdd1d.
ssl.cf3.rackcdn.com/cms/reports/documents/000/003/277/original/Cement_Report_Ex_Summary.
pdf?1523261813
112 See http://iepd.iipnetwork.org/policy/perform-achieve-trade-scheme-pat-scheme
37
113 See https://mnre.gov.in/renewable-energy-regulatory-framework
114 See https://www.lafargeholcim.com/Sustainability-reports
115 See https://www.lafargeholcim.com/Sustainability-reports
116 CDP 2017
117 Aluminium Insider. 2017. Rusal Sets New Standard in Low-Carbon Aluminium with ALLOW. https://
aluminiuminsider.com/rusal-sets-new-standard-low-carbon-aluminium-allow/
118 CDP. 2016a. Embedding a Carbon Price into Business Strategy. https://b8f65cb373b1b7b15feb-
original/CDP_Carbon_Price_2016_Report.pdf?1474269757
119 CDP 2017
120 WEF 2016
121 PwC (PricewaterhouseCoopers). 2018. Global Engineering and Construction Deals Insights Year-
End 2017 https://www.pwc.com/us/en/industrial-products/publications/assets/pwc-engineering-
construction-industry-mergers-acquisitions-q4-2017.pdf
122 Ibid

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CONSTRUCTION

The Coalition was officially launched at COP21 in Paris in December 2015. As of

What is the Construction Value Chain?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Sustainability Along the Construction Value Chain. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

The Business Case for Pricing Carbon. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Approaches to Implementing an Internal Carbon Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Construction Industry and Carbon Pricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Common Considerations across Companies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

The Role of the Carbon Pricing Leadership Coalition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Companies in the construction industry are

Sustainability Along the

Construction Value Chain

Current Carbon Pricing

Construction Industry and across the Construction

2 CONSTRUCTION INDUSTRY VALUE CHAIN

4 CONSTRUCTION INDUSTRY VALUE CHAIN

6 CONSTRUCTION INDUSTRY VALUE CHAIN

FIGURE 1: CONSTRUCTION VALUE CHAIN: ACTORS AND INTERACTIONS20

Financiers Developers Owners Users

WHAT IS THE CONSTRUCTION VALUE CHAIN 7

8 CONSTRUCTION INDUSTRY VALUE CHAIN

SUSTAINABILITY ALONG THE CONSTRUCTION VALUE CHAIN 9

Investments in the production of metals and mining, including aluminum, are

10 CONSTRUCTION INDUSTRY VALUE CHAIN

Cement and Concrete

Individually, too, companies are applying increasingly stringent sustainability

SUSTAINABILITY ALONG THE CONSTRUCTION VALUE CHAIN 11

12 CONSTRUCTION INDUSTRY VALUE CHAIN

Industry-led sustainability initiatives are gaining momentum. For example,

Building Codes and Standards

Firms are increasingly conforming to sustainability standards, evidenced by

The construction sector is moving toward a more sustainable future, with

14 CONSTRUCTION INDUSTRY VALUE CHAIN

Carbon pricing regulations currently cover 20

A key hurdle remains, however, surround-

16 CONSTRUCTION INDUSTRY VALUE CHAIN

High-carbon-intensity sectors such as cement industry. Relationships within the industry’s

18 CONSTRUCTION INDUSTRY VALUE CHAIN

Raw Materials & Manufactured Products

20 CONSTRUCTION INDUSTRY VALUE CHAIN

DALMIA BHARAT CEMENT (INDIA)

A leading manufacturer of building materi- LafargeHolcim is engaging with governments

22 CONSTRUCTION INDUSTRY VALUE CHAIN

24 CONSTRUCTION INDUSTRY VALUE CHAIN

As a construction project management com- EllisDon is developing a Carbon Accounting

MOTT MACDONALD (UK)

Mott MacDonald, a global engineering, man- projects—beyond simply meeting performance

26 CONSTRUCTION INDUSTRY VALUE CHAIN

Acciona, an infrastructure and renewable Acciona established an internal offset price in

GROUPE ADP (FRANCE)

MAHINDRA & MAHINDRA (INDIA)

TATA GROUP (INDIA)

28 CONSTRUCTION INDUSTRY VALUE CHAIN

30 CONSTRUCTION INDUSTRY VALUE CHAIN

For early movers, one of the biggest challenges

The biggest missing link for companies is the

alize and standardize the implementation

COMMON CONSIDERATIONS ACROSS COMPANIES 31

32 CONSTRUCTION INDUSTRY VALUE CHAIN