Project: Pull Finance Mechanism for Green Cement
State of development: Current
Stage of development: Early stage
Stage notes: Early-Stage Design
Type of instrument — Impact Bond: No; Outcomes Fund: No; Social Impact Incentives (SIINC): No; Social Impact Guarantee: No; Payment-by-results (no pre-financing): No; Technical Assistance and Market-building program: No; Other: Yes
Rationale for using outcome-based finance: With an extensive track record in the health sector, AMCs are an innovative OBF mechanism in climate and have a big potential to showcase their cost-effectiveness. This AMCâs success would have a demonstration effect to attract more interesting parties âlike outcomes fundersâ to participate in OBF in climate. The proposed AMC focus on technological innovation by incentivizing the use of clinker-substituted cement in Nigeria. It is also scalable because it provides strong financial sustainability from a one-time incentive to cement producers that show the long-term benefits of using clinker-substituted cement and creating a market of clinker-substituted cement which eventually will lead to a further reduction in production costs. In other words, it triggers a sustained market shift. While this design applies to Nigeria, with the intention to show the AMC's potential to decarbonize the cement industry, it can be scaled to other countries with large domestic cement production. 
Key challenges to launch: The early-stage design project is constructed based on desk research and expert interviews. Their input was very useful to understand the main challenges for decarbonizing the cement industry, and the potential alternatives, and to estimate pricing alternatives âvalue-for-money and sufficiency for producersâ behavior changeâ. Now, for the refinement and to come up with an impactful design the project could benefit from:
1)More extensive expert engagement particularly with locals to better grasp the implementation context and market-shaping experts to learn about how to produce a sustained market shift, in which the Outcomes Acceleratorâs support could make a big difference.
2)Further outcome payer engagement to complement the funding already defined by DESNZ, where the Outcome Accelerator market facilitator product could be very useful.
3)Validating the predefined outcomes and their payment structure in a market engagement process, where the Outcomes Accelerator funding, match-making function, and market facilitator product would be of great value.
Social/developmental challenge: LMICs (excluding China) represent 30-40% of cement consumption, which is projected to increase rapidly as these countries experience economic and population growth. Around 90% of the global population growth occurs in ODA countries. As these countries urbanize and invest in more infrastructure, the global production of cement is projected to increase up to 5 billion tonnes in 2030, having a significant climate change impact since the cement industry contributes nearly 7-8% of the global CO2 emissions. There are alternatives available to reduce the emissions from cement. Clinker substitution is not only climate-smart, but also cost-effective, with alternatives being cheaper. However, these are not being picked up by the market. The market failures behind this dynamics include 1) cement prices do not account for negative carbon externalities, 2) a lack of awareness about clinker substitutesâ advantages and few incentives to change, and 3) risk aversion due to safety and quality standards. 
Expected intervention model: The project consists in developing pull finance applications to promote the adoption of clean technologies in ODA countries. To meet SDG 13, there is an urgent need to rapidly catalyze the development and use of new climate technologies. However, many of these technologies are predominantly developed and adopted in high-income countries with limited adoption in ODA countries. The projects show how Advanced Market Commitments (AMC) in particular, hold promise in steering changes in producer behavior, thus enabling a market shift towards a cleaner new equilibrium. Moreover, they can do it cost-effectively and generate a positive impact on socioeconomic development, health and well-being, and climate outcomes. The full project includes three early-design case studies developed for the UK Department for Energy Security & Net Zero (DESNZ) 1) clean transport: promotion of electric two-wheelers in Kenya and Colombia, 2) energy storage: adoption of behind-the-meter solar batteries in Nigeria, and 3) industrial decarbonization: increased use of clinker-substituted cement in Nigeria. This submission focuses on point 3, an AMC to encourage clinker substitution among Nigerian cement producers, through premium co-payments for clinker-substituted cement payments.
Policy sectors — Employment and private sector development: No; Education: No; Social protection: No; Criminal justice: No; Health: No; Agriculture: No; Environment and climate change: Yes; Water, Sanitation and Hygiene: No; Energy: No; Humanitarian: No; Early Childhood Education: No; Other: 
Primary SDG goal: 9,12,13
Country income classification of beneficiaries — Low-income: No; Lower-middle-income: Yes; Upper-middle-income: No; High-income: No
Notes: Data for this pipeline project was last updated in May 2024
Delivery location: Nigeria