Circular economy and financial risk in cement manufacturing: A path toward SDG 7

Achieving Sustainable Development Goal 7 (SDG 7) in carbon-intensive cement manufacturing requires balancing cleaner production with financial affordability. This paper develops a down-and-out call (DOC) option model to assess the equity of the cement company. This model investigates how pollutant emissions, environmental taxes, and two facets of circular efficiency-namely, the incremental efficiency of cement output and the efficiency of emission reduction-shape both the scale of emissions and default risk embedded in a cement company's equity returns, across alternative multiproduct production technologies. The findings are that (i) increasing pollutant output in a multiproduct setting erodes pollutant-specific economies of scale and elevates default risk. (ii) A steeper environmental tax expands pollutant scale and default risk, yet neither effect remains significant once technology shifts from superadditive to subadditive. (iii) Enhancing the circular efficiency of additional cement output raises pollutant scale and default risk. (iv) Improving efficiency in cutting emissions increases pollutant scale while reducing default risk. Lower pollution costs and higher default risk both discourage cement firms from investing in clean-energy solutions, undermining SDG 7. Policymakers could subsidize cement producers so they can adopt CCUS (carbon capture, utilization, and storage), reducing emissions and financial risk while boosting circularity in cement and power generation.