Displaying items by tag: Emissions Trading Scheme
Belgium: Cembureau has issued it support for the decision by the European Parliament to amend the Emissions Trading Scheme (ETS). The European cement association has welcomed the decision that its says does not ‘deliberately discriminate between sectors and to apply a fact-based approach to policymaking.’ It added that the changes would make European industry more CO2 efficient, while maintaining its competitiveness.
Particular parts of the decision it welcomes include the inclusion of dynamic allocation, a benchmark with a minimum reduction of 0.25%, the introduction of a 5% flexible reserve in relation to the allowances available for free and those designated for auctioning and the impetus given to funding for carbon capture and use. It added that it was pleased to see that the amendments for an importer inclusion scheme, which it viewed were targeted at the cement sector, were not accepted. Finally, it reinforced its call for a ‘sector-neutral’ policy that does not differentiate between industries.
European Parliament votes to reduce carbon credits for Emissions Trading Scheme by 2.2% each year
15 February 2017France: The European Parliament has voted to approve a proposal by the European Commission to reduce carbon credits by 2.2%/yr from 2021 in its Emissions Trading Scheme (ETS). This is an increase from the 1.74% reduction specified in existing legislation. It will also double the capacity of the 2019 market stability reserve (MSR) to absorb the excess of credits or allowances on the market.
Members of the European Parliament (MEP) want to review the so-called ‘linear reduction factor’ with the intention to raising it to 2.4% by 2024 at the earliest. In addition MEPs want to double the MSR’s capacity to mop up the excess of credits on the market. When triggered, it would absorb up to 24% of the excess of credits in each auctioning year, for the first four years. They have agreed that 800 million allowances should be removed from the MSR as of 1 January 2021. Two funds will also be set up and financed by auctioning ETS allowances. A modernisation fund will help to upgrade energy systems in lower-income member states and an innovation fund will provide financial support for renewable energy, carbon capture and storage and low-carbon innovation projects.
The draft measures were approved by 379 votes to 263, with 57 abstentions. MEPs will now enter into negotiations with the Maltese Presidency of the European Council in order to reach an agreement on the final shape of the legislation, which will then come back to Parliament.
Environmental campaign group Sandbag has complained that the new proposal fails to hold to the European Union’s (EU) emissions reduction targets by 2030 that were signed as part of the Paris Agreement in 2016.
“Unless the Council intervenes to substantially strengthen the System, the EU ETS will now become simply an accounting mechanism, leaving meaningful climate action to happen elsewhere. The fact that the carbon price is unchanged as a result of the vote, still at a paltry Euro5, speaks volumes. Without being realigned with real emissions levels in 2020, the EU ETS may well end up existing for 25 years by 2030 without giving the any substantial impetus to decarbonisation,” said Rachel Solomon Williams, Managing Director at Sandbag.
Cembureau lobbies for revised European emissions trading scheme
07 February 2017Belgium: Cembureau, the European cement association, has lobbied members of the European Parliament with its opinion that the European Union (EU) Emissions Trading Scheme (ETS) must maintain free allowances at the level of best-performers in order to achieve real emission reductions whilst maintaining a competitive industry in Europe. It expressed its views ahead of a scheduled vote in the plenary session of the Parliament in February 2017. One of its key demands was that fairness should be a key principle of policy making and that jobs in one sector are just as important as those in other sectors.
Cembureau called for the proposal to amend the EU ETS to ensure that all energy-intensive industries are on the carbon leakage list and all installations receive a free allocation based on ‘ambitious but realistic’ benchmarks, and benefit from free allocation based on actual production. It wants a sufficient number of free allocations for energy intensive industries at risk of carbon leakage to be made available, hence the auction share should not be higher than 52%. It also wants no further burden to be imposed on EU-ETS sectors. The 43% reduction objective and the 2.2% linear reduction factor for phase IV should not be further increased. Lastly, it has asked for support for innovation focus on energy intensive industries with an extension to cover the whole range of low carbon technologies including industrial carbon capture and utilisation (CCU). The Innovation Fund should be fully financed from the auctioning share.
In response to an amendment made by the Environment, Public Health and Food Safety committee (ENVI) the cement association said that it did not believe that this proposal could work. Its main concerns were: that introducing such a mechanism with a consequential loss of free allowances could create legal uncertainty and hamper further investments by the cement sector in Europe; that it would be impossible to measure the CO2 performance of third country producers; an overall lack of clarity as to how such scheme would operate; serious concerns about World Trade Organisation (WTO) compatibility; that application to a few sectors would only lead to discrimination in the downstream market where cement competes with other building materials (steel, glass, wood, asphalt) that are not subject to such a scheme; and that the suggested scheme would lead to a competitive disadvantage for European cement producers on export markets where local cement players are not subject to similar CO2 constraints.
Cembureau also used the opportunity to highlight some of the research projects the local sector is undertaking to improve its environmental performance, reduce CO2 emissions and improve energy efficiency.
New EU border tariffs will boost low-carbon cement
07 February 2017Belgium: Environmental campaign group Sandbag says that research it has conducted has shown that proposed tariffs can protect European Union (EU) cement from ‘dirty’ competition and reward EU companies that produce low-carbon cement. It has released its data ahead of the a vote by the European Parliament in mid-February 2017 to decide on whether to adopt a new border adjustment mechanism (BAM) proposed by the Parliament’s Environment Committee.
The non-government organisation says that a BAM would require importers of cement and clinker into the EU to surrender emissions permits corresponding to the embedded carbon in their products, in the same way that domestic EU cement manufacturers are required to do at present. At the same time, cement, would no longer receive free allocation.
Previous research carried out by Sandbag suggests that the EU Emissions Trading Scheme (ETS) has driven cement emissions higher, whilst other European and national regulations and product standards discriminate against low-carbon cement companies. Over the last decade, the EU carbon market may have delivered more than Euro4.7bn in ‘windfall’ profits to cement companies. However, Sandbag say that border taxes could set cement producers on a level playing field by harmonising incentives to reduce product emissions within the EU.
“The EU can now implement a pragmatic and politically feasible solution for boosting low-carbon cement in Europe, and ending the scandal of enormous windfall profits to cement companies. However, this isn’t simply about cement. In a world of developing carbon markets with no unified set of rules, it is necessary to account for discrepancies in order to avoid offshoring of production,” said Wilf Lytton, an analyst at Sandbag.
2016 in cement
21 December 2016As a companion to the trends based article in the December 2016 issue of Global Cement Magazine, here are some of the major news stories from the industry in 2016. Remember this is just one view of the year's events. If you think we've missed anything important let us know via LinkedIn, Twitter or This email address is being protected from spambots. You need JavaScript enabled to view it..
HeidelbergCement buys Italcementi
Undeniably the big story of the year, HeidelbergCement has gradually acquired Italcementi throughout 2016. Notably, unlike the merger of Lafarge and Holcim, the cement producer has not held a party to mark the occasion. Instead each major step of the process has been reported upon incrementally in press releases and other sources throughout the year. The enlarged HeidelbergCement appears to be in a better market position than LafargeHolcim but it will be watched carefully in 2017 for signs of weakness.
LafargeHolcim faces accusations over conduct in Syria
The general theme for LafargeHolcim in 2016 has been one of divestments to shore up its balance sheet. However, one news story could potentially sum up its decline for the wider public. In June 2016 French newspaper Le Monde alleged that Lafarge had struck deals with armed groups in Syria, including so-called Islamic State (IS), to protect its assets in 2013 and 2014. LafargeHolcim didn’t deny the claims directly in June. Then in response to a legal challenge on the issue mounted in November 2016 its language tightened to statements condoning terrorism whilst still allowing some wriggle room. As almost all of the international groups in Syria are opposed to IS, should these allegations prove to be true it will not look good for the world’s largest cement producer.
China and India balance sector restructuring with production growth
Both China and India seem to have turned a corner in 2016 with growing cement production and a generally more upbeat feeling for the industries. Both have also seen some high profile consolidations or mergers underway which will hopefully cut inefficiencies. China’s focus on its ‘One Belt, One Road’ appears to be delivering foreign contracts as CBMI’s recent flurry of orders in Africa attests although Sinoma’s equipment arm was losing money in the first half of 2016. Meanwhile, India may have damaged its own growth in the short term through its demonetisation policy to take high value Indian rupee currency notes out of circulation. In November 2016 cement demand was believed to have dropped by up to half as the real estate sector struggled to adapt. The pain is anticipated to carry on until the end of March 2017.
US industry growth stuck in the slow lane
The US cement industry has failed to take off yet again in 2016 with growth lagging below 5%. The United States Geological Survey (USGS) has reported that clinker production has risen by 1% in the first ten months of 2016 and that it fell in the third quarter of the year. In response, the Portland Cement Association (PCA) lowered its forecasts for both 2016 and 2017. One unknown here has been the election of President-elect Donald Trump and the uncertainty over what his policies might bring. If he ‘goes large,’ as he said he wants to, on infrastructure then the cement industry will benefit. Yet, knock-on effects from other potential policies like restricting migrant labour might have unpredictable consequences upon the general construction industry.
African expansion follows the money
International cement producers have prospered at the expense of local ones in 2016. The big shock this year was when Nigeria’s Dangote announced that it was scaling back its expansion plans in response to problems in Nigeria principally with the devaluation of the Naira. Since then it has also faced local problems in Ghana, Ethiopia and Tanzania. Its sub-Saharan competitor PPC has also had problems too. By contrast, foreign investors from outside the continent, led by China, have scented opportunity and opened their wallets.
Changes in store for the European Union Emissions Trading Scheme
A late entry to this roundup is the proposed amendment to the European Union (EU) Emissions Trading Scheme (ETS). This may entail the introduction of a Border Adjustment Measure (BAM) with the loss of free allowances for the cement sector in Phase IV. Cembureau, the European Cement Association, has slammed the changes as ‘discriminatory’ and raised concerns over how this would affect competitiveness. In opposition the environmental campaign group Sandbag has defended the changes as ones that could put a stop to the ‘cement sector’s windfall profits from the ETS.’
High growth shifts to Philippines and other territories
Indonesia may be lurching towards production overcapacity, but fear not, the Philippines have arrived on the scene to provide high double-digit growth on the back of the Duterte Infrastructure Plan. The Cement Manufacturers Association of the Philippines (CEMAP) has said that cement sales have risen by 10.1% year-on-year to 20.1Mt in the first three quarters of 2016 and lots of new plants and upgrade projects are underway. The other place drawing attention in the second half of the year has been Pakistan with cement sales jumping in response to projects being built by the China-Pakistan Economic Corridor.
Global Cement Weekly will return on 4 January 2016
Europe: Cembureau, the European Cement Association, has raised concerns that amendments submitted by the European Parliament’s Environment Committee, which foresee in an introduction of a Border Adjustment Measure (BAM) with the loss of free allowances for the cement sector in Phase IV of European Union (EU) Emissions Trading Scheme (ETS), starting in 2020, will be detrimental to the local cement industry. The association is concerned that the changes unduly affect the cement industry, although lime, brick and tile industry have been included also.
The association described included that a BAM against certain but not all sectors as 'discriminatory and legally flawed.' It raised the problems that the policy would bring for the competitiveness of the cement industry both globally and internally. It also blamed the influence of reports by non-government agencies upon policymakers.
Environmental campaign group Sandbag defended the changes as ones that could put a stop to the, ‘cement sector’s windfall profits from the ETS.’ It argued that the proposed import inclusion carbon mechanism would expand the scope of the ETS to
include imported materials for a number of sectors, meaning that products sold in the EU would face the same costs for carbon compliance, regardless of their origin.
"In a number of ways, this proposal marks a huge step forward in the evolution of the ETS. The proposed border adjustment measures are a good starting point for levelling the playing field for all cement producers," said Wilf Lytton, Industrial Carbon Researcher at Sandbag.
Belgium: Data from the Cement Sustainability Initiative (CSI) suggests that the carbon intensity of European Union (EU) cement increased from 2008 to 2014, according to analysis by the environmental campaign group Sandbag. It adds that the sector made greater strides in reducing emissions in the years prior to the EU Emissions Trading System (ETS). Since 2011, the EU cement sector has increased exports of cement clinker outside the EU, demonstrating that the EU ETS has not made the sector globally uncompetitive.
“EU policymakers have overprotected the cement sector in the EU ETS to such an extent that companies have not taken any action to reduce their greenhouse gas emissions. The EU’s approach is killing with kindness; by maintaining the status quo on free allocation of allowances they are making their own climate targets undeliverable,” said Wilf Lytton, analyst at Sandbag.
Sandbag say that this highlights the inability of the EU’s climate policy, as currently designed, to address European cement sector emissions. Meanwhile, low-carbon new entrant cement companies operating outside of the EU ETS have commercialised technologies to dramatically reduce the carbon footprint of cement, yet are struggling to scale-up as they fight through a mass of regulation and product standards that support the high-carbon status quo.
Research by Sandbag revealed in March 2016 that incentives in the design of the EU ETS have driven higher greenhouse gas emissions emissions in the cement sector.
Austria: The Federation of Austrian Cement Industry (VÖZ) has reported that its national cement market volumes grew by 4% year-on-year to 4.6Mt in 2015. Overall sales turnover increased by 4.3% to Euro388m. Alongside this, the use of alternative fuels by the cement industry increased to 76.1% in 2015 from 75.5% in 2015.
Rudolf Zrost, CEO of VÖZ, lauded the growth in cement volumes despite a ‘difficult’ year. Looking ahead to 2016 he expected that a turnaround in housing investment and hopes for infrastructure spending in 2016 would aid the market.
He also warned against emissions trading describing it as ‘bureaucratic’, as stifling innovation and as having no basis in reality.
Sandbag, a climate policy think tank, published its report on the European cement sector entitled ‘Cement - The Final Carbon Fatcat’ last week on 16 March 2016. Amongst its findings the report accused the European Union (EU) Emissions Trading Scheme (ETS) of pushing up emissions created by the cement industry. Unsurprisingly, Cembureau, the European Cement Association, took exception to some of the content of the report and issued a rebuttal. Notably, it said that ‘allegations that the ETS has incentivised overproduction are based on thin air.’
Here we present a section of the executive summary of Sandbag’s report that describes the current situation with the EU ETS and how Sandbag argue this has distorted the European cement industry.
The depressed carbon price under the EU ETS has done little to effect a reduction in emissions from the European cement sector. A surplus of more than 2bn EU allowances (EUAs) has built up in the European carbon market since 2008 with no expectations for the situation to change significantly over the medium term. Industry sources cite that the costs of upgrades to best available technology are tantamount to greenfield investments. The current low carbon price alone is not enough to render such investments economic, especially in the context of a depressed cement market. This applies even more so in the case of capturing and storing/using direct emissions (CCUS) which at this stage seems to be an expensive technology merely in the development stages across Europe.
Figure 1: Expected development of allowance surpluses for major industrial sectors until the end of Phase 3. Source: EUTL (Sandbag calculations).
The rules governing free allocation of allowances have failed to incentivise abatement in the cement sector. In particular, the sector’s inclusion on the list of sectors exposed to the risk of carbon leakage, as well as insensitivity to production changes, will cause its over-allocation to balloon. As we reveal in Figure 1, if activity levels continue at 2014 levels, by 2020 this surplus will be larger than 2.5 years’ worth of emissions. This is more than would be the case for almost any of the other major industrial sectors, practically all of whom expect to lose all or most of their earlier surpluses by the end of this decade.
The chronic oversupply of EUAs to the cement sector is partly due to the fact that cement firms are able to optimise their production of different products across different facilities to maximise their free allocation. Free allocation to cement installations is based on benchmarks relating only to the manufacture of clinker, an intermediate product. Many firms have been able to retain maximum free allocation, corresponding to peak production, by keeping a range of their facilities operating at just above 50% of their historic activity levels – the level required to retain 100% free allocation.
Figure 2: EU net clinker trade. Source: UN COMTRADE (Sandbag calculations).
This free allocation loophole has resulted in both windfall profits and a de facto production subsidy for highly carbon-intensive clinker. This clinker is then either blended in higher than necessary shares into cement or, as we show in Figure 2, actually exported, as EU cement subsidised by free allowances has a competitive advantage compared to manufacturers outside the ETS. This creates a net import of emissions to the EU – the complete reverse of the carbon leakage threat that many industry groups have emphasised. As we show in Figure 3, this stimulation of clinker exports to countries outside the EU has been the single most damaging factor to the decarbonisation of this sector, pushing 2013 emissions nearly 15Mt higher than they could have been.
Figure 3: Different factors’ contribution to cutting the cement sector’s emissions EU-wide during 2005 - 2013. Source: Cement Sustainability Initiative ‘Getting the Numbers Right’ database (Sandbag calculations).
As well as causing a surge in emissions, the insufficiently responsive free allocation rules leave cement companies strongly over-allocated. Table 2 shows the surpluses we estimate that the five cement majors have accumulated (or monetised) since the beginning of Phase 2.
Company | 2008 - 2014 surplus | Value | 2014 emissions |
(Million EUAs) | (Million EURO) | (Mt) | |
Lafarge-Holcim | 49.8 | 299.7 | 18.2 |
Heidelberg-Italcementi | 45.8 | 275.5 | 28.1 |
CRH | 31.9 | 191.8 | 10.3 |
Cemex | 26.2 | 157.5 | 8 |
Buzzi Unicem | 10.4 | 62.5 | 7.3 |
Table 2: Largest cement companies’ surpluses and emissions (millions of EUAs, euros and tonnes). Source: EUTL (Sandbag calculations).
These five companies from the cement sector have collectively received nearly Euro1bn worth of spare EU allowances (EUAs) for free between 2008 and 2014. As the number of free allowances available to all industry is fixed, over-allocation to cement companies reduces the allowances available to other sectors that might really need protection.
The ETS therefore provides few incentives for these firms to invest in decarbonisation technologies. Given widespread expectations for an over-supplied carbon market well in to the 2020s and, consequently, a low carbon price, the opportunity cost of holding onto allowances is negligible when compared to the high cost of investment in abatement technologies.
Thanks to Alex Luta and Wilf Lytton at Sandbag for letting Global Cement publish this extract of their report. The full version of ‘Cement - The Final Carbon Fatcat: How Europe’s cement sector benefits and the climate suffers from emissions trading flaws’ is available to download from Sanbag’s website.
Belgium: Cembureau has taken exception with a report published by Sandbag on the emissions trading scheme and European cement sector entitled ’ Cement - The Final Carbon Fatcat - How Europe’s cement sector benefits and the climate suffers from emissions trading flaws.’ The European Cement Association alleged that the report contains factual and numerical errors. It also criticised the conclusion that the European Union (EU) emissions trading scheme (ETS) has incentivised overproduction.
“The allegations that the ETS has incentivised overproduction are based on thin air and do not acknowledge the strides the cement sector has made through investments in the reduction of its CO2 emissions. The ever-recurring mantra on over-allocation ignores that the cement industry has always called for an allocation closer to production and will continue to do so,” said Cembureau in a statement. It pointed out efforts by the cement industry to reduce the clinker content of cement and the presence of cement at the start of the building supply chain.
Cembureau also disagreed with the concept of a tiered approach as suggested by Sandbag. It has lobbied for a revision of the auctioning/free allowance of shares so as to allow the best performers to receive full free allocation, in line with the European Council Conclusions of 23 October 2014. It pointed out risks of a tiered approach to include unclear and unverifiable criteria to distinguish between sectors that could be discriminatory and open to legal challenge.
Despite its complaints Cemburea did partly agree with Sandbag’s views on the need for innovation funding to stimulate breakthrough technologies, a closer alignment between allocation and production in the form of a dynamic allocation and a stronger recognition of the role of alternative fuel and raw material use in emission reductions, with the inclusion of a landfill ban on recoverable and recyclable raw materials.
In its report Sandbag suggested that the EU ETS may have caused emissions in the cement sector to have risen beyond ‘business as usual.’ It estimated that emissions may have risen by more than 15Mt due to the scheme. It also flagged up five ‘Carbon Fatcat Companies’ from the cement sector who have collectively received nearly Euro1bn worth of spare EU allowances for free between 2008 and 2014. The cement producers cited by Sandbag were LafargeHolcim, HeidelbergCement and Italcementi, CRH, Cemex and Buzzi Unicem.