Green Procurement and Fuel Switching in the U.S. Cement Industry

• In Event: Toward the Energy Transition: Policy Design and Challenges in Energy Use and Infrastructure

Abstract

Cement production accounts for roughly 8% of global CO₂ emissions, with a large share arising from fossil fuel combustion in clinker production. In the near term, emissions reductions depend on switching from coal to cleaner fuels such as natural gas. However, supply-side policies, such as carbon taxes, often face political constraints. As a result, policymakers are increasingly turning to demand-side tools, including green procurement, to incentivize cleaner production. The recent Buy Clean Initiative, which introduces embodied-carbon standards in public procurement, prioritizes low-emissions suppliers and reshapes competition for public contracts. This paper studies how green procurement policies affect firms’ fuel-switching decisions and market outcomes in the cement industry. Using plant-level panel data and spatial data from 2005 to 2022, I develop a two-stage model of investment and procurement competition to quantify how policy impacts vary across regions with different fuel costs, infrastructure access, and market structures. In the first stage, plants decide whether to incur a fixed cost to switch fuels. In the second stage, firms compete in procurement markets, where buyers consider both prices and transportation costs, and green procurement restricts demand to eligible low-emissions suppliers. The results show that green procurement operates primarily through a competition channel. By limiting the set of eligible suppliers, the policy increases markups for compliant firms while intensifying competition among others. These equilibrium effects generate heterogeneous investment incentives, leading to uneven adoption of cleaner technologies across plants. The findings suggest that demand-side policies reshape market structure and production decisions, rather than simply shifting demand toward cleaner products. Finally, the paper highlights an important trade-off in the energy transition. While switching to natural gas reduces emissions, it often requires access to pipeline infrastructure. Plants are more likely to adopt natural gas when pipeline access is available and fuel costs are favorable, but expanding such infrastructure may impose environmental pressures on local communities. These results underscore the importance of considering both market responses and infrastructure constraints in designing effective and equitable climate policy.

Author

• Yixin Yang, University of Maryland, College Park
  Presenting Author