Alternative Fuels for Industrial Use in the US: Decision Time

The use of alternative fuels, a critical lever for decarbonizing the cement and lime industries, is an area where the U.S. is lagging behind most other developed countries. In order to reach the meaningfully higher thermal substitution rates (TSRs) necessary from alternative fuels, cement and lime operators will increasingly need to turn to high-quality refuse-derived fuels (RDFs) and municipal solid waste.

But the availability of these fuels — particularly economically viable RDFs — is not high. That’s why cement and lime operators should make evaluating those opportunities a priority in the short term. Moreover, they should be looking to external waste management companies for the RDF sourcing and pricing expertise they will need when it comes to making the necessary, and not insignificant, investment required.

Lagging substitution rates, growing interest

As of 2023, U.S. TSRs were just 15%-17% compared to more than 50% in both Europe and Japan. According to L.E.K. Consulting’s estimates, 60 of the 87 cement plants in the U.S. have TSRs of less than 20%, including 39 that are believed to have TSRs of less than 5% (see Figure 1).  

Hazardous waste and tire-derived fuels (TDFs) have historically been the main sources of alternative fuels in the U.S., while Europe and Japan show much higher levels of use of industrial and commercial waste — also known as RDFs — and municipal solid waste, or MSW. Together, RDFs and MSW were estimated to account for some 60% of alternative fuel consumption in Europe in 2023 versus roughly 23% in the U.S. The combination of TDFs and hazardous waste, on the other hand, was estimated to account for nearly 60% of alternative fuel use in the U.S. compared to just 15% in Europe (see Figure 2). 

While lower energy prices and the wider availability of landfilling space create a more challenging environment for the adoption and use of alternative fuels, interest in them is rapidly increasing. A recent study we conducted showed that among a sample representing approximately 25% of U.S. cement plants, half of those without alternative fuel feeding systems as of 2023 were slated to install one in 2024 or 2025 in anticipation of using alternative fuels. This is likely the highest rate of conversion to alternative fuels ever seen in the U.S. cement industry.  

The promise of RDF

As demand rises and pressure to increase TSRs continues to build, many plants are expected to run up against the limitations of the main fuel types currently being used: Hazardous waste permitting has become highly difficult, TDF use typically maxes out around 20%-25% of fuel substitution due to sulfur content, and biomass with low-energy density often puts a meaningful strain on clinker production capacity.  

As a result, cement and lime operators will increasingly need to turn to higher-quality RDFs — and potentially high-quality MSW-derived fuels — in order to reach the meaningfully higher TSRs that they target. Properly selected and processed RDF can achieve energy density levels consistently close to that of coal, with extremely low and predictable chlorine and sulfur content (e.g., less than 500ppm for chlorine) (see Figure 3).

Supporting this trend toward high-quality RDFs is the increasing number of commercial and industrial waste generators adopting landfill reduction targets or zero-landfill policies. The existence of no-landfill policies has a significant impact on the economics of RDFs, as they typically render incineration the next-best alternative for waste generators.  

A 2023 study by Veolia found that 52% of U.S. corporations with revenues in excess of $500 million already had zero-waste-to-landfill goals (although they may be long-term), and that another 22% plan on developing such goals in the next two years. As incineration rates are often twice as high as landfill tipping fees, this meaningfully improves the economics of RDF and the volumes of RDF that will need new outlets (see Figure 4).

That said, the availability of high-quality RDF, particularly RDF that comes from generators with no-landfill policies, is not unlimited. In many U.S. markets that we analyzed, the volumes of RDF generated by companies with more than 50 employees — which are the easiest to collect from — are insufficient to replace even 20% of traditional fuels used by local cement players.

The operating model of RDF and/or MSW sourcing should also be part of the alternative fuel agenda. A number of cement companies have been successful in creating waste management divisions that generate robust returns on capital, but they have done so over long periods of time, and when competition for feedstock was less intense than it is now. Several have faced steep learning curves in the ramp-up of their operations.  

Meanwhile, as the competition for feedstock rapidly increases, industry players that do not currently have internal waste management arms may find the use of third-party suppliers to be the fastest and lowest-risk way of reaching the meaningfully higher TSRs that are quickly becoming the industry norm.

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