Could low-carbon cement and steel be cheaper than we think?

Green cement and steel costs 25% to 75% extra. But this increases the cost of final products – like a house or car – by just 1%.

The world will only move to low-carbon products if they can compete on price.

Solar, wind, batteries, electric vehicles are either already there or are closing in. But there are some sectors — like aviation, meat substitutes, cement, and steel production — where the price gap is still big. 

By “big,” I mean at least 25% more expensive, often much more. This can make our prospects for decarbonisation seem bleak. 

But, the impact of this additional cost on consumer prices varies by sector. It depends on how important that low-carbon ingredient is to the cost of the final product. Steel makes up a relatively small percentage of the cost of a car. That means that the cost of a car might not be affected much by an increase in the price of steel. The same is true for cement and the cost of a house.

Imagine it this way. If a meat substitute patty is 50% more expensive than the beef one, then the plant-based burger is going to be much more expensive. If the salt is 50% more expensive, the consumer would barely notice a difference. That’s because the salt makes up a tiny fraction of the final cost of the burger. You could double or triple its cost, and the burger price would barely change.

Here I want to run through some numbers on cement and steel. Using low-carbon equivalents in final products might be cheaper than we’d expect.

These are crucial sectors to tackle: they each account for 7% to 8% of the world’s carbon emissions.¹

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The green premium adds less to the final cost of many products than you might think

The difference between the cost of the current carbon-intensive product and the low-carbon equivalent is often called the “green premium”. I first heard this term from Bill Gates’ book How to Prevent a Climate Disaster — I’m not sure how far it goes back.

There is no universal figure for the “green premium” for cement or steel. These are emerging technologies, and we don’t have lots of scaled, working prototypes to look at.

I’ve included a range of estimates of the premium in the footnote.² For the following calculations, I’ve assumed that:

• Low-carbon cement is around 75% more expensive;

• Green steel is 25% more expensive

What’s surprising is that the final outcome is not that sensitive to the assumptions here. It doesn’t make a huge difference if cement is 50% or 100% more costly or if steel is 10% or 40% more expensive.

Again, these green premiums seem huge. No one is paying 75% extra for a house made of low-carbon cement.

In reality, they wouldn’t have to. Even if the cement were 75% more expensive, the cost of a house would only increase by around 1%. That’s because cement makes up a relatively small percentage of the final cost of a building.

Let’s run through some examples to see how this works. In the footnote, I’ve included all of my basic workings: the cost of cement or steel; its low-carbon cost; how much you would need; and how this affects the final cost of the product.³

⚠️ I am not a builder or structural engineer but have tried my best to find reasonable estimates for how much of this stuff you need for a house, car, or wind turbine. I’ve put some uncertainties around these estimates; even if I’m off by a factor of 2 or 3, the main conclusion is the same.

Cement

I estimate that a 75% increase in the price of low-carbon cement increases the cost of a house by around 1%. The low-carbon cement costs a few thousand dollars extra, which is around 1% of the cost of a $250,000 house. 

This is in line with estimates from the World Economic Forum and Rocky Mountain Institute, who expect a 1% to 3% increase.

Steel

A 25% increase in the cost of green steel increases the cost of a house by a quarter to half a percent.

Low-carbon steel would increase the cost of a car by a few hundred dollars. That’s 0.5% to 1% of the cost of a $25,000 car.

The cost of a large offshore wind turbine would increase by 0.5% to 2%.

These figures are in line with estimates from Bloomberg, ING, and the scientific literature.

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Some sectors will be more willing to pay the green premium than others

These premiums might be higher for some engineering projects and in lower-income settings. If cement makes up a larger share of the final cost, it’ll be more sensitive to changes in the price.

Still, it looks like there could already be a market ready for low-carbon cement and steel. If someone is buying a $25,000 car, then $200 extra for low-carbon steel might not make a big difference.

Housing prices can swing by more than 1% from one year to the next. In competitive housing markets, bidders often offer far more than 1% above the asking price.

Closing the green premium for cement and steel is still important. We want them to be as cost-competitive as possible. But the prospects for these technologies look less daunting when we convert them into the increased cost of the final product. A 25% or 75% premium is unfeasible. A 1% one is more manageable.

Note that this doesn’t apply to sectors like aviation or food. Fuel makes up a massive chunk of the cost of a plane ticket. That means expensive low-carbon fuel makes a big difference to the ticket price. The same applies to a plant-based burger: a premium on the patty matters a lot to the final cost of the burger.

Getting the cost of these innovations down will be crucial to their success.

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1. Chaudhury, R., Sharma, U., Thapliyal, P. C., & Singh, L. P. (2023). Low-CO2 emission strategies to achieve net zero target in cement sector. Journal of Cleaner Production.

IEA (2023), Emissions Measurement and Data Collection for a Net Zero Steel Industry, IEA, Paris.

2. For cement, we’ll focus on the extra cost of carbon capture and storage (CCS). Cement manufacturing directly produces CO₂ in the process, but we can capture and store it safely so it isn’t emitted into the atmosphere. This is pretty expensive. 

• Gates’s Breakthrough Energy estimates the premium is between 75% and 140%. 

• The Rocky Mountain Institute: 40% to 120%. 

• The World Economic Forum: 60% to 100%.

For the calculations in the next section, I’m going to assume low-carbon cement has a premium of 75%.

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There are a number of options for low-carbon steel. Most are expected to increase the cost by around 25%. That’s the assumption I’m going to make.

• Gates’s Breakthrough Energy estimates the premium for carbon capture and storage is between 16% and 29%.

• Bloomberg New Energy Finance assessed a range of options, including CCS and hydrogen, and came up with an average of 40%.

• The Rocky Mountain Institute: 20% to 30%.

H2 Green Steel – a company producing low-carbon steel from hydrogen – says its green steel will be 25% more expensive.

Cement

3. I’m assuming the cost of cement is $125 per tonne. The “green premium” for low-carbon cement is 75%, so the cost of green cement is $219.

House

I’m assuming:

• We need around 20 tonnes of cement for a 1000 square feet house. That’s 400 bags of 50 kilograms.

• The cost of cement for the house would be $2500 (20 tonnes * $150 per tonne).

• The cost of low-carbon cement is $4375 (20 tonnes * $219 per tonne).

• That means the “green premium” is $1875 ($4375 - $2500 = $1875).

• If a house costs $250,000 then the premium is 0.8% of the total (1875 / 250,000 * 100 = 0.8).

• You can vary the cost of the house, and the amount of cement needed, and you’ll still get something in the 1% to 2% range.
  

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Steel

I’m assuming the cost of steel is $650 per tonne. The “green premium” for low-carbon steel is 25%, so the cost of green steel is $813.

House

I’m assuming:

• We need around 2.5 tonnes per 1000 square feet (a similar estimate here).

• The cost of steel would be $1625 (2.5 tonnes * $650 per tonne).

• The cost of low-carbon steel would be $2031 (2.5 tonnes * $813 per tonne).

• That means the “green premium” is $406 ($2031 - $1625 = $1875).

• If a house costs $250,000 then the premium is 0.2% of the total (406 / 250,000 * 100 = 0.2).

Car

I’m assuming:

• We need around 1 tonne for a car (estimate of 900 kilograms here).

• The cost of steel would be $650 (1 tonnes * $650 per tonne).

• The cost of low-carbon steel would be $813 (1 tonnes * $813 per tonne).

• That means the “green premium” is $163 ($813 - $650 = $163).

• If a car costs $25,000 then the premium is 0.7% of the total (163 / 25,000 * 100 = 0.7).
  

Wind turbine

I’m assuming:

• We need around 1000 tonnes for a large offshore turbine.

• The cost of steel would be $650,000 (1000 tonnes * $650 per tonne).

• The cost of low-carbon steel would be $813,000 (1000 tonnes * $813 per tonne).

• That means the “green premium” is $163,000 ($813,000 - $650,000 = $163,000).

• Assume the offshore wind turbine costs around $33 million ($2.2 million per MW * 15MW turbine).
  
  The premium, then, is 0.5% of the total (33 million / 163,000 * 100 = 0.5%).