The transition to a more sustainable society must be accelerated to tackle climate change in line with the ambition of the Paris Agreement and the SDG’s, and European leaders have committed to reduce domestic CO2 emissions by 80-95% until 2050, against the 1990 baseline. This will require deep emission reductions from the energy intensive industries (EIIs), since almost 20% of EU greenhouse gas emissions are generated through industrial production and energy consumption. On corporate level, previous research suggests that business model innovation can play an important role in increasing the sustainability performance of the EIIs. New, more sustainable business models could potentially mitigate CO2 emissions and at the same time provide companies with a way to capture new, emerging business opportunities. However, successful implementation of such business models will require the ability to put new sustainable products to market, which in turn requires a customer willingness to pay. The EIIs have long and complicated value chains, which causes low end consumer and end customer involvement and awareness. This research aspires to study customer willingness to pay for sustainable products, through a case study on the EU cement and concrete industries. Cement is not a self-standing product, but the binding agent (around 10-15% of volume) in concrete, but generates up to 90% of the cost and greenhouse gas emissions of the final concrete product. The study will investigate if increased end customer low-carbon demand can enable increased sustainability efforts upstream in the value chain, with the following research question: “How much more must the end customer be willing to pay, for it to be profitable to use sustainable cement as raw material?” A case study will analyse three product groups of a firm producing cementitious products. Firstly, producers of concrete products will be interviewed on their view on customer demand for sustainable products. The interviewees will be sales managers with insight in customer preferences, who can share their view on a potential market gap for sustainable concrete products. The purpose of the interviews will be to access sales data, for example sales prices and sales quantities for sustainably branded concrete products (including their correspondent cement content), versus high-carbon alternatives. The data will be analysed with the ambition to estimate the customer un/willingness to pay extra for sustainable products. Next, the studied concrete products will be traced back along the value chain, to gather evidence of the production cost of the more sustainable products (e.g. concrete produced from low-carbon cement), versus their high-carbon equivalents. Data gathering in this phase includes primary data from companies as well as secondary data from literature. Finally, the findings in the two previous phases will be jointly analysed, in order to estimate if the willingness to pay for sustainable products is enough to generate profit for the producer. Also the practical implications thereof will be discussed, including an estimation of the emission mitigation potential. A second round of interviews with the same interviewees will be carried out, to retrieve feedback on the calculated estimations and the viability of such business model innovations. Through this approach, this research aspires to quantify the economic impact along the value chain of market entry of a sustainable product, and to investigate customer willingness to pay for increased sustainability in a sector with low customer involvement.
#Decarbonisation #EnergyIntensiveIndustries #WillingnessToPay #Cement #BusinessModelInnovation
5d. Value chains & trade
