And in the case of Europe, we have Rudolf in Germany and Alcanar in Spain. The projects are in development as we speak. We are forming or we have formed consumptions for each one of them in order to have the full solution or the full spectrum from the very capture to how to store or convert this bad carbon into good carbon. So we don’t have specific amounts to share yet. And also because these four industrial level projects, we are participating and potentially we will be getting grants that will reduce our investments in those projects. And so that’s the specific answer to the specific question. Now let me add something else. If we sort of, it’s kind of an arbitrary definition, but if we divide the CO2 or the transition towards carbon neutrality in our industry, I see two steps or two phases.
The first one is when we can implement and apply all the practices, processes, materials, technologies, fuels that we know will reduce materially the CO2 generation in the case of cement. Our 2030 targets which is a reduction of 47% of CO2 generation per ton of cement using 1990 base is not considering a ton of carbon capture. We are pretty sure, and I will explain why, that we can achieve that level of reduction by increasing in our portfolio blended cements with lower clinker factor, using much more alternative fuels with much higher contents of biomass, using alternative decarbonated raw materials to produce ready mix, electrifying as much as possible our production process, meaning using more electricity and reducing the use of fuels, increasing the amount or the proportion of renewable electricity that we are using in the process.
So perhaps I’m not mentioning all the variables, but maybe those are the most relevant. So by doing that, we will be able to make a reduction of 47% by 2030, that according to our strategy and according to the 1.5-degree scenario we are subscribed and certified by SBTi, that will be able to be done. Now, why is it that I feel confident that that will be done? Because three years ago, we redefined our climate action strategy. We started developing plant-specific roadmaps on the transition. And that is why in the last two years and nine months, we have reduced the CO2 generation per ton of cement by 12%. Easy to say, 12 — the reduction of 12% in CO2 production is what it took us 15 years before the strategy we put in place in 2020 and started executing in 2021.
Now I mentioned that our 2030 targets does not include CO2 capture. That doesn’t mean that we are not decisively acting and developing these projects. As I mentioned, we have, we have seven, and we are developing the seven projects with different objectives, each one, because we want to include additional CO2 reduction by 2030 through these projects. And we want to be sure that we will properly prepare for the additional capture in all our cement plants, after 2030. So that’s the general context in our CO2 or our transition towards a carbon neutral production in our products.
Lucy Rodriguez : Thank you very much, Fernando. The next question comes from the webcast from Francisco Chávez from BBVA. My question is regarding cement prices. Consolidated quarter over quarter prices declined 1%. Is this a change in trend? What can we expect in coming quarters?
Fernando Gonzalez : Well, let me refer to what I commented in a previous question regarding prices. Again, inflation started declining materially in the first quarter of 2023. There was a reduction of three percentage points sequentially when compared to fourth quarter 2022. And then in second quarter 2023, inflation was 12%, which is a decline of six percentage points when sequentially compared to first quarter 2023. So a 1% decline in prices I think is a consequence and it’s natural, it’s not ringing a bell to me because as I mentioned our pricing strategy is and has been for the last couple of years in this period of very high inflation, is to recover input cost inflation. So if inflation is receding, inflation is much more moderate than what it was, you can expect our prices to follow the same trend.
Is that negative? Not at all. I think it is just that we are accommodating this same strategy, but with different levels of inflation. Now, having said that, what I’m saying applies in general terms. If, because in different markets we have different pricing levels, and in some cases we of course try to increase prices beyond the levels of inflation when we believe that the prices are not in a given market, are not enough or are not reflecting a reality and they are not enough for us to get reasonable returns. But what I explained before, I think it explains the general or the idea or the spirit of the pricing strategy. So my, at least in my opinion, if inflation is moving from 22% to 11%, half of it, price increases will follow the same trend.
And that shouldn’t be interpreted in a negative manner.
Maher Al-Haffar : Maybe if I could just also add on Fernando, if you look at sequential prices regionally, pricing for cement is either flatter up in Mexico, U.S., and Europe. And really the very slight decline that we have at the sequential level is due to the Philippines, which was down 4%, and it primarily relates to the competitive situation in the Philippines, just to put that into place, but it is fairly isolated.
Lucy Rodriguez : We have time now for one last question from the website, and the next question comes from the webcast from Marcelo Furlan from Itaú. My question is related to capital allocation. The company has a healthy financial leverage, strong liquidity position, and solid free cash flow generation. Thus, I would like to know what are the main strategies for capital allocation for 2024?
Fernando Gonzalez : If I may, I can start, making a few comments, and please, Lucy and Maher, feel free to compliment. I think the answer to the question, I think we’ve been commenting and guiding for something very similar to the question you are making. As I mentioned, we’ve been for years with a strategy of gaining back investment grade, meaning using all our resources to reduce debt and bring back our financial health. That was achieved at around 2020, of course depending on how you define that. In our definition, that was achieved in 2020. That’s why we started using part of our cash flow in EBITDA growth investments. That’s what bolt-on type of investments and that’s what we’ve been doing and that’s what we will continue doing.
What might be different for next year because the leverage ratio now, again, it’s going to be around or close to two times by year-end, and that is giving us additional flexibility. So maybe the difference of what we’ve been doing in the last couple of years compared to 2040s that once we get investment grade, we will start allocating capital in the form of dividends. As know we’ve been commenting that what we want to do is to start paying dividends and doing it systematically. So maybe that’s something that is going to be different on capital allocation next year. And I don’t know if Lucy or Maher do want to add any comment to the question.
Maher Al-Haffar : Yes, Fernando, I would just like to add, I think it’s very important, to say that we have this investment muscle now in, very well trained. We have an approved pipeline that is close to two and a $0.5 billion. We’ve already invested a fairly significant portion of that. The contribution of the growth investments for the full year is probably going to be close to 10% of the EBITDA of the company for this year. And the return or the IRRs of those projects, as Fernando mentioned, they’re close to about 40%. Now, of course, it’s very difficult at infinitum to continue to get 40% investments. We would like to, but that’s not what we’re guiding to. Our internal hurdle is above 20% and within an acceptable period.
