Displaying items by tag: Emissions Trading Scheme

UAE: Emirates Steel Arkan (ESA) has appointed consultancy A³&Co. to help plan and implement decarbonisation initiatives at its 5.7Mt/yr Al Ain cement plant in Abu Dhabi. The collaboration will focus on reducing CO₂ emissions and costs, in line with the Science-Based Targets Initiative (SBTi)’s 1.5° Pathway for Net Zero and in conformity to the EU’s Carbon Border Adjustment Mechanism (CBAM).

ESA is committed to reducing its CO₂ emissions by 40% between 2018 and 2030, and to achieving carbon neutrality by 2050.

Chile/Germany: The governments of Chile and Germany are reportedly preparing to launch a so-called ‘climate club’ to help developing nations invest in technologies to decarbonise sectors such as cement and steel production. The partners will set up a platform to connect countries with funding and technical support from governments and the private sector, according to a draft statement seen by Reuters. The statement is expected to be published at the United Nations’ Conference of the Parties (COP) 28 event on 1 December 2023 set to take place in Dubai.

"On hard-to-abate sectors, starting with steel and cement, we will advance conducive policy frameworks for accelerating decarbonisation," the statement said. It added that this will include attempting to coordinate international green industry standards, such as counting the emissions in industrial products.

A website for the club lists 33 members including the US, Argentina, Australia, Canada, Colombia, Egypt, the European Union (EU), Indonesia, Japan, Kenya, Mozambique, Morocco, Ukraine and the UK. It has been viewed, in part, as an attempt to reconcile countries annoyed by the EU’s Carbon Border Adjustment Mechanism (CBAM), which started in October 2023. However, neither China nor India appears to have joined the ‘climate club’ so far.

UK: The Mineral Products Association (MPA) has called on the UK government to publish its promised response paper to consultations over a proposed UK carbon border adjustment mechanism (CBAM) for imports of goods produced by heavy industries, including cement. This follows the failure of the government’s latest budget for 2023 to commit to the development of a national CBAM. The MPA said that it was ‘deeply disappointed’ with the outcome.

MPA executive director for energy and climate change Diana Casey said “The delay in committing to a CBAM sends the signal that the UK is not the place to invest. Cement is essential to our everyday lives. The construction of our homes, hospitals, offices and much more depend on it. We cannot take its supply for granted and neither can we put ourselves at risk of unstable international trading markets. Levelling the carbon cost between domestic production and imports is vital to attract the investment required to decarbonise and ensure our long-term security of supply. The UK government must urgently commit to a CBAM on cement.”

Egypt: Arabian Cement Company has hired consultancy A³&Co. to help develop a decarbonisation roadmap for its 5Mt/yr Sokhna cement plant. The roadmap will include the implementation of an integrated environmental, social and governance (ESG) business model, Science-Based Targets Initiative (SBTi)-verified targets, carbon market trading and EU carbon border adjustment mechanism (CBAM) registration. Arabian Cement Company will execute projects to achieve its goals via a strategic partnership with A³&Co and the European Bank for Reconstruction and Development (EBRD).

Arabian Cement Company CEO Sergio Alcantarilla said “We are excited about this partnership with EBRD and A³&Co., which showcases our commitment to environmental stewardship and sustainable development. By embracing cutting-edge solutions and adopting greener processes, we are not only reducing our carbon footprint but also setting new benchmarks for the industry.”

A³&Co. CEO Amr Nader said “Through our collective expertise, we are confident that we can drive meaningful progress towards decarbonisation and the production of green cement, setting a precedent for responsible business practices in the region. The renewed cooperation between Arabian cement and A³&Co. is an additional milestone in our successful collaboration over the past two years. A³&Co. will also develop a Climate Corporate Governance (CCG) framework for Arabian Cement Company, which is the cornerstone for a fully-functioning ESG system in line with international norms.”

UltraTech Cement approved a US$1.5bn capacity expansion plan this week. The initiative intends to add 21.9Mt/yr in production capacity by setting up four new cement plants, four upgrades and four new terminals. It will also add 39MW in waste heat recovery (WHR) units and alternative fuels feeding and handling investments. Commercial production at the new sites is scheduled to start from the 2026 financial year onwards.

The company is India’s largest cement producer by production capacity and the third biggest globally outside of China. Yet it is still growing as this latest announcement shows. Kumar Mangalam Birla, the chair of parent company Aditya Birla Group, revealed the ambition earlier this year, that UltraTech Cement wants to reach a production capacity of 200Mt/yr in the near future. This is likely to be ordinary Portland cement (OPC) capacity from both integrated and grinding plants. It reported a figure of 132Mt/yr in its annual report for the 2023 financial year. This latest capacity investment is its third in recent years. In December 2020 it announced investment of just below US$560m to add 12.8Mt/yr of capacity with commissioning by around the end of the 2023 financial year. It later confirmed that most of this had been completed on schedule. Then another US$1.55bn investment was ordered in June 2022 to add 22.6Mt/yr. This tranche of new plants and terminals is planned to be completed by the end of the 2025 financial year.

Graph 1: UltraTech Cement’s OPC production capacity and utilisation rate, 2017 - 2023 financial years. Source: Company annual reports.

The graph above shows how the company’s capacity has grown since 2017. This is the year in which it acquired 21Mt/yr of capacity from Jaiprakash Associates for US$2.5bn. These plants then show up in the capacity figure for 2018. The next big bump to capacity arrived in 2019 when UltraTech Cement was able to complete its purchase of Century Textiles & Industries, adding another 15Mt/yr of capacity. Since then though it has mainly been newly built plants or upgrades. It is also worth noting the capacity utilisation figures the company has reported. There has generally been an upward trend since 2017 with a dip during the Covid-19 pandemic years in 2020 and 2021. This has also been happening despite adding more capacity through both acquisitions and building new plants. The other point to note is that the cement company is mostly a wholly India-based one. It has presences in the UAE, Bahrain and Sri Lanka but these are small compared to the operations back home. In the 2023 financial year, 23 of its 24 integrated plants were domestic, 25 out of 29 grinding plants were and seven out of eight terminals were too.

UltraTech Cement’s current nearest rival, Adani Group, appeared on the scene in 2022 when it bought Holcim’s subsidiaries in India. The timing may have been coincidental but, after Holcim agreed to sell to Adani Group in May 2022, UltraTech Cement announced its US$1.55bn capacity drive in June 2022. A year later in June 2023 Adani Group targeted a capacity of 140Mt/yr by 2028. To give an idea of the market both of these companies are competing in, Ratings Agency ICRA’s last forecast in September 2024 predicted that cement volumes would grow by 9 - 10% in the 2024 financial year. Capacity expansion by all cement producers was expected to be driven by “steady demand for housing and increased government investments in infrastructure.”

UltraTech Cement may be the fastest expanding cement company in the world at the moment. India certainly needs the cement as its population overtook China’s in April 2023. The Aditya Birla Group company is not taking any chances with its competitors by maintaining its lead in capacity. One risk it may want to watch out for though is India’s nascent Carbon Credit Trading Scheme. Some form of carbon trading for the petrochemicals, steel, cement and paper sectors looks set to start in the second half of the 2020s. However, any such scheme is likely to favour incumbent manufacturers with newer plants. With the country’s net zero target set at 2070, UltraTech Cement has plenty of room to manoeuvre.

EU: The EU launched the transitional phase of its carbon border adjustment mechanism (CBAM) on 1 October 2023. Parties that import cement - and five other commodities - into the EU must now show the embodied CO₂ emissions of their products.

The transition comes ahead of the full implementation of the CBAM in January 2026. At this point, those importing cement into the region will have to pay for the embodied CO₂ of their products in order for them to enter the EU Common Market. Producers within the EU already pay for a proportion of emissions under the auspices of the EU Emissions Trading Scheme (ETS).

The intention of the CBAM is to reduce the risk of 'carbon leakage' as the costs of making cement rise in the EU due to changes in the ETS. While cement producers, as heavy CO₂ emitters, are currently shielded from the full cost of their emissions, the number of free allowances they receive is set to fall substantially by 2026. At the same time, the cost of emitting a tonne of CO₂ under the ETS, currently Euro80-90/t on the open market, is widely expected to rise.

Europe: The Environmental Coalition on Standards (ECOS) has welcomed the EU’s new Empowering Consumers Directive. Under the directive, EU member states must enact laws preventing companies from labelling their products with climate claims based on offsetting. ECOS called the law a ‘significant measure against greenwashing.’ It called on the EU to further ensure that products neither rely on carbon credits, nor on contributions to sustainability projects, in calculating their impacts.

ECOS programme manager Elisa Martellucci said “The EU has taken aim at greenwashing. Climate neutrality claims based only on carbon offsetting are ambiguous and misleading for consumers because they are not linked to concrete efforts to combat the climate crisis. Instead, they rely on flawed carbon accounting practices that ‘write off’ greenhouse gas emissions. The amazing carbon emissions vanishing act is many companies’ dream – but emissions do not magically disappear. Policymakers have taken a strong stance against this deceptive practice.”

The Hungarian government recently enacted Emergency Decree 320/2023, taxing all CO₂ emissions from the country’s 40 or so largest industrial enterprises. The government used emergency powers to set up a new taxation scheme, which undercuts existing free allowances under the EU emissions trading scheme (ETS). The scheme additionally penalises the trade in ETS credits. Cement producers announced that the new regulations will make it impossible for them to keep operating.¹

With regard to Hungary’s six active cement plants, the scheme comprises:

1 – A Euro20/t tax on CO₂ emissions, effective retroactively from 1 January 2023, payable by any large enterprise that uses EU Emissions Trading Scheme (ETS) free allowances to cover the majority of its CO₂ emissions. Plants that decrease their production, or that carry on non-CO₂-emitting activities at over 10% of their operations, will pay a higher rate of Euro40/t of CO₂.

2 – A 10% transaction fee for the sale of free allocations under the EU ETS, payable to the Hungarian Climate Protection Authority.

Less than three years ahead of full implementation of the EU carbon border adjustment mechanism (CBAM), the Hungarian government has seemingly moved unilaterally against cement production – this in a country surrounded by seven other cement-producing countries. Multiple foreign cement producers connected to the major market of Budapest by rail, river and road will be watching developments with interest. These include CRH, which, besides two smaller plants inside Hungary, operates the 800,000t/yr Cementáreň Turňa nad Bodvou plant, immediately over the border in Slovakia.

This comes at a time when the domestic cement industry is facing historically high costs and low demand, with a 30% year-on-year decline in construction activity in July 2023, following double-digit inflation throughout 2022 and the first half of 2023.

Catastrophising may be a common symptom of environmental regulation in industry associations, but one can understand on this occasion. The Hungarian cement and lime industry association, CeMBeton, backed its members’ gloomy announcement about their future with an estimate for extra annual taxes of ‘several billion forints’ (1bn forint = US$2.84m), in a statement following the decree. Assuming annual CO₂ emissions of 565kg/t across its 5.4Mt/yr cement capacity, the sector might expect to pay US$61m/yr in CO₂ rates alone.^{2, 3} According to analyst ClearBlue, the government will raise additional tax revenues worth US$278m/yr across all of the 40 aforementioned heavy emitters in Hungary.⁴

It may seem surprising that CeMBeton did not even draw up a projected tax bill during consultations over the new tax scheme – but, in fact, no such consultations took place. In its most recent statement, the association said “We do not know the government’s intentions.” Outside of official releases, Hungary’s cement producers have not always been so reserved about the government’s perceived aim.

Global Cement reported in April 2023 that the Hungarian government was allegedly interfering in the cement sector to make producers sell up – as per accusations by an anonymous industry executive.⁵ There is arguably a course of action on the government’s part which, more or less, appears consistent with this aim:

October 2020 – The Hungarian Competition Authority (GVH) starts competition supervision proceedings against CRH, Duna-Dráva Cement and Lafarge Cement Magyarország.

July 2021 – Emergency Decree 2021/404 imposes a 90% tax on producers’ ‘excess’ profits, based on threshold cement sales revenues of Euro56/t. Additionally, producers must report their exports.

September 2021 – GVH finds insufficient evidence to support the initiation of competition supervisory proceedings in the cement industry.

January 2023 – (Retroactive) entry into force of CO₂ emissions tax.

May 2023 – The government of Hungary reportedly initiates negotiations to acquire Duna Dráva Cement and Holcim Magyarország, according to the Hungarian builders’ association, National Professional Association of Construction Contractors (ÉVOSZ). Duna Dráva Cement owners Heidelberg Materials and Schwenk Zement state that they have entered into no such negotiations, while Holcim declines to comment.

July 2023 – The Act on Hungarian Architecture lets the government dictate producers' volumes and prices and require them to supply cement to National Building Materials Stores (a proposed state-owned construction materials retail monopoly).⁶ Additionally, the government gains a right of first refusal over the divestment of any asset by the cement industry’s foreign owners.

20 July 2023 – The government enacts Emergency Decree 320/2023. ETS transaction fees enter into force.

The government can now expect a legal challenge to its latest move. CeMBeton’s first ally may be the font of all emissions legislation – the EU itself. Within the EU ETS framework, tax rates are down to member states to determine. However, the introduction of a transaction fee may constitute an illegal restriction to free allowances, OPIS News has reported. The association has also indicated its readiness to mount a constitutional challenge, specifically with regard to the legislative retrofit involved in the CO₂ emissions tax. The Fundamental Law of Hungary does not generally permit legislation to apply retroactively, though how courts will balance this consideration against the rights of the government is untested.

The government amended the constitution to provide for new emergency powers, and subsequently adopted them in May 2022, in response to the ‘state of danger’ created by Russia’s war in Ukraine – though its actions on the international stage suggest careful neutrality, if not ambivalence. At home, the war has brought a consolidation of the government’s control over various areas of life, including the economy, according to Human Rights Watch.⁷

Climate protestors around the world might be glad to see governments wield emergency powers against their own heavy industries. In Hungary, however, the wider sustainability goals are not yet clear with regard to a policy that seems, at least partly, politically motivated.

References

1. CeMBeton, Sajtónyilatkozat, 21 August 2023, https://www.cembeton.hu/hirlevel/2023-08-21/202308-mozgalmas-osz-ele-nezunk/116/sajtonyilatkozat/668

2. Heidelberg Materials, ‘Energy and climate protection,’ 2022, https://www.heidelbergmaterials.com/en/energy-and-climate-protection

3. Global Cement, Global Cement Directory 2023, https://www.globalcement.com/directory

4. OPIS News, ‘Hungary's New Carbon Tax Unlikely to Set EU Precedent, Say Analysts,’ 16 August 2023

5. Global Cement, 'Update on Hungary,' April 2023, https://www.globalcement.com/news/item/15572-update-on-hungary-april-2023#:~:text=Heidelberg%20Materials'%20subsidiary%20Duna%2DDr%C3%A1va,the%20country's%20active%20national%20capacity.

6. Daily News Hungary, ‘Hungarian government’s new nationalising plan could violate EU law,’ 27 February 2023, https://dailynewshungary.com/hungarian-govts-new-nationalizing-plan-could-violate-eu-law/

7. Human Rights Watch, ‘Hungary’s New 'State of Danger',’ 8 June 2022, https://www.hrw.org/news/2022/06/08/hungarys-new-state-danger

New Zealand: Fletcher Building says that its subsidiary Golden Bay cement is waiting to embark on a US$119 – 178m course of capital expenditure (CAPEX) investment. However, the group said that it will first require ‘clarity from the government’ on any upcoming changes to industrial CO2 emissions allocations or border adjustments.

CEO Ross Taylor said “Until we get certainty there, we really can’t pull the cord.” He added “There’s a good pipeline of existing stuff which will really start maturing in two or three years, but there’s another really sizeable pipeline beyond that.”

Fletcher Building invested a total of US$182m across its businesses during the 2023 financial year, which ended in June 2023. The Bay of Plenty Times newspaper has reported that the investments are part of the group’s growth strategy for the four-year period up to the end of the 2027 financial year. Planned areas for investments include adding value to the group’s wood products by developing its alternative fuel (AF) capacity. The growth strategy has a budget of US$474m.

Europe: The EU has enacted the implementing regulation for the carbon border adjustment mechanism (CBAM) under its emissions trading scheme (ETS). Under the CBAM, importers of cement to the EU will eventually pay taxes for its embedded CO₂ emissions, equivalent to those levied against EU-based producers. Importers must begin to collect emissions data from 1 October 2023, and submit a report for the fourth quarter of 2023 to EU authorities by 31 January 2024. No financial adjustment will yet be payable during the transition period to full CBAM implementation from the start of 2026.

The Asset newspaper has reported that dedicated IT tools and training materials for importers affected by the CBAM are currently in development, according to the European Commission.