Displaying items by tag: European Union
European Commission set to block HeidelbergCement and Schwenk purchase of Cemex Croatia
29 March 2017Croatia: The proposed acquisition of Cemex Croatia by HeidelbergCement and Schwenk is set to be blocked by the European Commission according to sources quoted by Reuters. The commission started investing the deal in October 2016 following plans by HeidelbergCement and Schwenk to buy Cemex Croatia via their jointly owned subsidiary Duna Drava Cement (DDC). The deal would see the largest producer in the area merged with the largest importer. However, a final decision on the transaction has not been made yet and the European Competition Commissioner Margrethe Vestager could still rule in favour of it. The commission is expected to make a final decision by 18 April 2017.
The Global Cement Weekly column of 22 February 2017 entitled ‘European Union (very) slowly tightens the screws on its Emissions Trading Scheme,’1 bears witness to the misconception that we must choose between protecting the cement industry OR the climate. Quite the opposite is true: the objective is the cohesion between economic prosperity, meeting cement market demand AND lowering CO2 emissions.
It is undisputed that, if climate protection is aspired to, there needs to be an adequate regulatory incentive that supports, perhaps even strengthens, industry’s profitability when companies act to lower their CO2 emission. Some companies have tried selling low CO2-cement at a price premium, marketing their lower embedded carbon. In a commodity market of a grey powder where low prices are a decisive purchasing point, this obviously doesn’t fly.
The only sustainable business incentive is to pass on the full cost of CO2 not only in production but also in consumption of products. This would effectively result in higher cement sales prices for high-CO2 cement and lower prices but higher margins for low-CO2 cement, without losing competitiveness to producers that do not face regulatory CO2 constraints. Hence, a win-win-win situation for low carbon cement producers, consumers and the environment. This is after all the purpose of the sectoral ETS mechanism with inclusion of importers and no free allowance allocation.
The studies undertaken by Boston Consulting Group (BCG) for CEMBUREAU simulated the potential gross margin for the domestic cement industry in case of different leakage prevention mechanisms. While this may sound shocking for some, there is nothing wrong with aiming at maximisation of gross margin. Quite the opposite, gross margin maximisation is absolutely necessary for the cohesion between economic prosperity and climate protection and the effectiveness of an ETS.
The BCG studies led to the conclusion that in case of a tightening CO2 allowance cap and under certain market conditions the importers’ inclusion mechanism can yield the best margin for the industry. Since however, as the Global Cement Weekly column mentions, the EU only very slowly tightens the screws on the supply of emission allowances, there will be sufficient free allocation for industry and there remains little need to lower emissions and thus little need for an importers’ inclusion mechanism.
CEMBUREAU called into doubt the representativeness of the technology penetration reported by the Cement Sustainability Initiative’s Getting the Numbers Right database. It is a well-established fact that the penetration of modern preheater precalciner kilns in most emerging countries is higher than in Europe, because the industry is younger outside of Europe and hence most installations have been built with more recent, more energy-efficient technology. Besides the CSI database, cement CO2 inventories exist for about 10 emerging countries. They all confirm the same.
Beyond the comparison with other regions however, an emissions trading system that after 12 years still enables one fifth of production being made using the most energy-intensive technologies objectively misses its purpose.
Despite consuming up to 50% more energy than the Best Available Technology, such installations can survive thanks to free allocation and the revenues from waste derived fuels. The industry legitimately highlights the environmental benefits of using waste as a fuel. However, it is questionable whether keeping energy-intensive installations alive thanks to cheap energy from waste is consistent with this environmental narrative.
The proposed changes to the EU ETS will not improve its effectiveness for the cement industry. Quite the opposite, it will make it even less effective because the introduction of a dynamic allocation based on a clinker benchmark completely nullifies the need for the industry to lower the clinker content in cement.
CEMBUREAU indeed has the right to protect the industry it represents, but is probably short sighted and ill informed when it does so to the detriment of society’s necessity to mitigate climate change. The rejection of the importers’ inclusion mechanism is a missed opportunity for the European Union to make the ETS effective and for the cement industry to maintain its competitiveness in a carbon constrained world.
Eric Olsen, CEO of LafargeHolcim, the largest global cement company, and chairman of the Cement Sustainability Initiative, has called for a meaningful and increasing carbon price that can be passed through the whole product value chain and for trade policy to be included in the ETS.2
Lakshmi Mittal, Chairman of ArcelorMittal, the largest global steel company, has also called for a border adjustment measure and inclusion of consumption in climate policies.3 High quality research by leading economists exists on this topic.4 Now that the reform of the EU ETS enters the trilogue negotiation between European Council, Commission and Parliament, these industry leaders should step forward with a concrete and workable solution to combine industrial, trade and climate policies by 2020.
1. http://www.globalcement.com/news/item/5836-european-union-very-slowly-tightens-the-screws-on-its-emissions-trading-scheme
2. WEF, Davos: https://www.youtube.com/watch?v=O_mhqcNR0uA
3. Financial Times: https://www.ft.com/content/8341b644-ef95-11e6-ba01-119a44939bb6
4. Climate Strategies, UK: http://climatestrategies.org/?s=consumption
UK: The Mineral Products Association (MPA) has outlined key points that the UK government should consider ahead of its anticipated triggering of Article 50 of the Treaty of Lisbon later in March 2017 as it moves towards leaving the European Union (EU). Following consultation with its members the association wants the government to focus on six areas including: investment; growth; access to markets; access to labour and skills; maintaining equivalent regulations and standards; and rebalancing regulation after Brexit.
"More needs to be done, both politically and economically, to give the clarity needed by businesses to sustain investment confidence beyond the triggering of Article 50. The economy has remained resilient in the short term, but the issue always was, and remains, what will happen post-Brexit in the medium and longer term? Given that the public political conversation in the UK has not yet involved the other 27 EU member states, we are currently no wiser as to the likely outcome of negotiations. We must therefore contemplate the possibility that no deal may mean a clean break in 2019 and trading arrangements under WTO rules,” said MPA chief executive officer Nigel Jackson.
The MPA has urged the government to build confidence in the short and long term performance of the UK economy and maintain stability. It also wants it to seek the fullest access to European and non-European markets using comprehensive free trade agreements in preference to adopting World Trade Organisation (WTO) rules.
The association also highlighted that, on average, 3% of the Mineral Products industry's workforce comes from the EU, increasing to 9% for activities directly related to freight transport by road. It noted that at present there is no guarantee that EU citizens now resident in the UK will have a continuing right to reside in and work in the UK following Brexit.
Other issues include a desire for the government to confirm its commitment to existing regulatory initiatives and to hold and improve on the international competitiveness of energy intensive industries such as cement and lime. However, it also asked the government to mind the impacts of regulation of taxation on these industries in order to protect investment. Lastly, the MPA wants the government to retain influence in European product technical standards development via the British Standards Institution (BSI), the European Committee for Standardisation (CEN) and design codes.
HeidelbergCement appeals against investigation by European Commission into purchase of Cemex Croatia
28 February 2017Croatia: HeidelbergCement has appealed against an investigation by the European Commission into the proposed joint purchase with Germany’s Schwenk Zement of Cemex Croatia. The cement producer asserts that by considering Schwenk and itself rather than Duna-Dráva Cement (DDC), a subsidiary that both companies own equally, the commission has given the transaction a ‘Union dimension,’ according to the Official Journal of the European Union. Although DDC is based in Hungary, within the European Union (EU), it imports cement into Croatia (in the EU) from Bosnia & Herzegovina, a country outside of the union. The appeal was made in late December 2016 but only reported in late February 2017.
The European Commission revealed that it was investigating the proposed acquisition of Cemex Croatia by HeidelbergCement and Schwenk in October 2016. The commission was concerned that the transaction would merge the biggest producer in the area with the biggest importer, potentially reducing local competition.
It looks like Cembureau, the European Cement Association, got its own way on the proposal to amend the European Union's (EU) Emissions Trading Scheme (ETS) that the European Parliament voted on last week. The system has been tightened but not enough to make the cement industry suffer, for now. Naturally, the environmentalists are outraged.
The key reform was that the carbon credits reduction rate (the linear reduction rate) will increase and the market stability reserve (MSR) will double its capacity to absorb excess allowances on the market. However, the big battle was fought over whether to include an importer inclusion scheme (or Border Adjustment Measure) or not. Lots of political 'horse-trading' took place right up to the vote on 15 February 2017 to adopt the draft proposal, with particular battles over the importer inclusion scheme. Negotiations will now continue with the Council of the European Union before the proposal returns to the European Parliament for a final vote.
Cembureau seemed pleased with the outcome. It supported the proposal principally for maintaining competitiveness and for not ‘deliberately discriminate between sectors.' It also liked the inclusion of dynamic allocation, a benchmark based on what it said was real data, a flexible reserve in relation to the allowances available for free and those designated for auctioning and an impetus towards funding carbon capture and storage. It also singled out its pleasure that an amendment for an importer inclusion scheme had not been accepted.
This last point caused a spat between Cembureau and Bruno Vanderborght, a former executive at Holcim, at the end of January 2017 in the lobbying frenzy before the vote. In robust language Vanderborght accused the European cement industry of using the ETS for negative leakage. His argument was that the free allocation of carbon credits given to the cement industry had been used to 'maximise gross margin.' Instead of spending the money on upgrading inefficient units, the industry had used its same inefficient units to increase exports of clinker to outside the EU, to places like Africa. Cembureau countered that it had been taken out of context by Vanderborght and that arguments he levelled, such as data from the Cement Sustainability Initiative (CSI) suggesting that the EU has the highest share of clinker production in old, energy-intensive installations worldwide, were misleading since CSI reporting may not be as thorough outside of Europe.
Predictably, the proposal didn't please the environmental lobby, which denounced the deal as toothless. Environmental campaign group Sandbag has been on the case of the cement industry for several years, pointing out that its own research shows that cement producers have 'abused' the free allocation scheme for profit and that emissions have actually increased under the ETS so far. Its headline figure in the wake of the vote was that the cement sector was set to rake in a surplus of allowances worth Euro2.8bn by 2030.
Following the vote Sandbag took no time to point out that the ETS carbon price had sunk below Euro5/t. In its assessment, a carbon price of least Euro50/t is required to stimulate low carbon investment. However, the carbon price soon rose back up. Little impartial analysis is available on whether the amended proposal will actually deliver its aims, although a Thomson Reuters analyst did describe the outcome as one that 'significantly tightens the market balance.'
In a final twist, the lead rapporteur for the reforms to the EU ETS is a UK member of the European Parliament (MEP). Depending on how the Brexit negotiations go, the guy marshalling the amendments to the EU ETS won't be subject to its eventual implementation.
The EU ETS is slowly starting to improve through reforms such as those voted on last week but it remains very much in doubt whether it will be able to deliver solid meaningful reductions in carbon emissions. Cembureau is rightly protecting the industry it represents but at present the price of coal appears to be a better driver of measures such as increased use of alternative fuels than the ETS. The ETS has had the misfortune in operating for the last few years throughout a market depression in Europe where it has been propping up some cement producers and now it’s helping them get back on their feet as they export their products out of the continent. In a world awash with excess clinker the policy makers are eventually going to have to decide how much they want to damage industry in order to meet their environmental aims. We need cement and we need to cut carbon emissions. Someone is always going to be unhappy in this situation.
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.
France: The French government has confirmed that it is investigating Lafarge over alleged illegal activities in Syria following European Union (EU) sanctions that were imposed in 2012. The Paris prosecutor's office said that a probe was opened in October 2016 after the French Ministry of Economy and Finance filed a complaint against the cement producer, according to the Associated Press. LafargeHolcim, the company formed from a merger between Lafarge and Holcim in 2015, said that it was, “in the process of establishing the facts concerning our activities in Syria.”
A group led by the non-government organisation (NGO) Sherpa filed a complaint in Paris against Lafarge for allegedly ‘financing terrorism’ in November 2016. The complaint accused it of maintaining commercial relations with the Islamic State group in Syria in 2013 and 2014 so it could continue operating a cement plant in the country.
At the time, Lafarge denied ‘financing so-called terrorist groups.’ The company said it had launched a ‘thorough and independent investigation’ into the allegations to determine whether its internal code of conduct had been properly followed and if procedures needed to be adapted. It said it would implement ‘any remediation measures required.’
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