Memorandum submitted by the British Cement
Association
EXECUTIVE SUMMARY
— Early action has been taken by the cement
industry to tackle climate change. Between 1990 and 2007, the
BCA member companies have reduced direct CO2 by 27%. 2007 emissions
were 3.7MtCO2 lower than 1990.— The current policy mix is
complex and further regulation and taxation are not necessary.—
International emission trading is needed on a global scale to
avoid imbalance in the market bought about by the asymmetric carbon
tax from emissions trading.
— The prospects for Phase III of the EU
ETS could be disastrous for the UK cement industry if the sector
is not listed as competitively impacted and provided with sufficient
free allocation.
— The most recent research puts the loss,
to non-carbon constrained economies, of UK cement manufacturing
in 2020 at 100%, at a carbon price of €25/tCO2 with no free
allocation and no equalisation measures.
— The international agreement due to be
negotiated in Copenhagen (COP15) needs to provide equivalent measures
in the signatory countries.
— The international agreement on climate
change should include criteria to ensure an equal carbon price
is applied to those activities regulated by the EU ETS. Criteria
should include penalties, monitoring/reporting and implementation
and enforcement of regulation.
— Encourage best practice by using benchmarking
because positive measures are more likely to be accepted in a
globally linked trading system.
— Benchmarking provides the least cost
optimal method for promoting technological change and development
of cleaner technologies within the manufacturing industry.
1. THE UK CEMENT
INDUSTRY
2. The British Cement Association is the
trade and research organisation that represents the interests
of the United Kingdom's cement industry in its relations with
Her Majesty's Government, the European Union and relevant organisations
in the United Kingdom. The members of the BCA (Castle Cement,
Lafarge Cement UK, CEMEX UK and Tarmac Buxton Lime and Cement)
are the major domestic manufacturers of Portland Cement, producing
over 90% of the cement sold in the UK. Additionally, BCA supplies
services concerning climate change issues to Quinn Cement.
3. Energy represents an increasing proportion
of the variable costs of cement manufacture (35% to 40%) and it
is therefore a primary concern of the industry to take all cost
effective measures to improve energy efficiency and thereby reduce
its emissions of carbon dioxide.
4. Through their parent companies, Lafarge
Cement UK, Castle Cement, and CEMEX are committed to carbon reductions
through the World Business Council for Sustainable Development
Cement Sustainability Initiative, (WBCSD CSI). In addition, Tarmac
Buxton Lime and Cement has undertaken to adopt the commitments
within the WBCSD CSI.
5. Through considerable early action involving
significant expenditure on new plant, BCA's member companies have
reduced their direct carbon dioxide emissions by over 27% between
1990 and 2007.[17]
In 2007 the annual CO2 emissions were 3.7 million tonnes lower
than in 1990.
6. SPECIFIC INQUIRY
ISSUES/QUESTIONS
7. Potential contribution of international
emissions trading to delivering a global greenhouse gas stabilisation
target, consistent with the UK's goal of limiting global warming
to 2°C
7.1 International emissions trading will
play its part in stabilising GHG emissions, however, only if the
international emission trading is on a truly global scale. Thus
far, the balance of effort has been placed on industrial point
sources and power generation, but all sectors of the economy will
need to contribute to mitigating and adapting to climate change.
Although the efforts of the UK are important, it is vital that
emissions targets in the UK are not simply met by importing a
greater amount of products because this will do nothing to help
limit warming to 2°C.
8. Whether, and under what circumstances,
emissions trading ought to be supplemented or replaced by tax
or regulation
8.1 BCA contributed to the Committee inquiry[18]
in 2007 that investigated the overlaps between the existing Climate
Change Levy tax and related legislation. The EAC correctly recognised
that simplification is needed in the UK's climate change policy
arena. As such, any proposal for additional regulation/tax on
carbon or fuels associated with cement manufacture would be unnecessary,
duplicative and not follow the aims of "Better Regulation".
Emission trading within a cap will always limit emissions to the
value of the cap set and thus other regulation or tax is totally
unnecessary. These other regulations and taxes should be applied
to those sectors or areas of emissions not covered by the Emission
Trading Scheme.
9. The record of Phase II of the EU ETS, and
prospects for the success of Phase III
9.1 It is too early to speculate on the effectiveness
of Phase II of the EU ETS. However, the UK cement industry experience
with the allocation process for Phase II has been a mixed one.
The use of both "grandfathered" historical emissions
data and benchmarking to set allocation levels for Phase II has
created an inequitable distribution within the sector.
9.2 The prospects for Phase III could be disastrous
for the UK cement industry if the sector is not listed in the
group related to Article 10a of the Directive amendment proposal[19]
following the assessment of the European Commission, related to
potential "carbon leakage".
9.3 Free allocation to minimise carbon leakage
should be distributed using a single common methodology, in the
case of the cement industry this should be a benchmark method
based on the clinker production (the CO2 emitting intermediate
of cement).
9.4 Having said that; we repeat the comment
from above, namely the trading schemes will restrict emissions
to the cap set and thus, in limiting CO2 emissions from the sectors
covered, it will be successful.
10. Extent to which the carbon price will
be sufficient to drive low-carbon investment, in particular decarbonisation
of energy
10.1 Currently, there is an absence of international
agreement on climate change that provides equivalent treatment
of cement companies and those supplying competing materials on
a global basis. Until this gap in the system is addressed then
any locally applied carbon price will only disadvantage local
production. Whilst we recognise that protectionist measures such
as "border tax adjustment" are not desirable under the
present economic climate, there is a need to promote Sustainable
Production and Consumption[20]
and part of this is to support locally sourced and supplied materials.
10.2 As described in the introduction, the cement
industry has made significant improvements in its carbon dioxide
emissions, a performance that surpasses the UK as a whole. However,
there are limitations to what can be done by the decarbonisation
of energy. It should be noted that the CO2 emissions from cement
manufacture comprise of emissions from the fuels burned in the
kiln, ("fuel CO2") and these account for around 40%
of the direct CO2 emission. The decomposition of limestone during
the "calcination" process ie the chemical reaction of
calcium carbonate (CaCO3) to calcium oxide (CaO) releasing CO2,
("process CO2") accounts for the remaining 60%. The
process emissions are essentially irreducible and there is no
foreseeable technological breakthrough that will remove this fundamental
process emission in commercial cement manufacture. Consequently,
even if sufficient biomass fuel sources were available to reduce
the fuel component to a net emission of zero, the total emissions
of CO2 would only be reduced by 40%.
10.3 Carbon Capture and Storage is yet to
be technologically proven in the cement industry but may be a
long-term abatement option. IEA GHG[21]
have estimated that a post-combustion capture fitted cement plant
could cost around €558 million (more that twice the cost
of a non-CCS equivalent) but providing a potential emissions avoided
efficiency[22]
of 77%. An equivalent output oxy-combustion plant, however, could
cost €327 million (25% more expensive than the non-CCS plant)
but at an emissions avoided rate of 52%. Although the oxy-combustion
option sounds more economic the technical barriers are much greater
and will require a fundamental redesign of the kiln system. Moreover,
industrial scale CCS in the UK cement industry will not take place
until there is a fully developed transport and storage network,
the development of this will need HM Government financial support.
Hypothecated auction revenues are a potential source for central
infrastructure funding.
10.4 Grant and funding availability for
industrial CCS will help to promote the construction of a pilot
plant. Pilot and demonstration scale plants will be crucial to
further the knowledge in the cement sector and ultimately provide
evidence for the speed at which CCS can be universally deployed,
if proven to be technically and economically possible.
11. Impacts of economic recession on the workings
of the EU ETS
11.1 The economic downturn has been reflected
in the EU ETS carbon price for Phase II. However, BCA does not
support proposals for a price floor, BCA believes that the market
should set the price and this will assist carbon abatement at
the lowest point of cost. The fundamental principle of emissions
trading is meeting the cap by the least cost method. Evidently
it is easier to meet the cap at a time of recession, under low
carbon prices: the corollary is that in times of growth more effort
is needed, but of course at a time of expansion, more money is
available for investment in low-carbon technology. Emission trading
works in parallel with the economic cycle and intervention is
unnecessary once the caps have been set at the correct level;
challenging but not punitive.
12. Impacts on and responses by UK firms covered
by the EU ETS
12.1 The cement industry is facing an unprecedented
trading period, where deliveries of cement in Great Britain fell
by over 14% in 2008. This means that any carbon costs that are
faced by domestic manufacturers that are not faced, in equal measure,
by non-EU suppliers' puts the UK domestic supply at risk of carbon
leakage. At present 10% of the UK market construction market is
supplied by imported material, estimates suggest that the additional
emissions from transport of this material could add a further
10% to the carbon footprint of the delivered cement.
13. Implications of the EU ETS for business
competitiveness, and how to address them
13.1 Carbon-efficient manufacturing must clearly
be encouraged, whilst carbon leakage and the relocation of manufacturing
outside the EU must be prevented. Otherwise the environmental
objectives of the EU ETS would be undermined along with the local
manufacturing base. A right balance should therefore be sought
between the requirements of an "international agreement"
and the targets that EU authorities impose on European industry.
13.2 Free allocation to sectors subject to carbon
leakage does not stop emission trading from functioning effectively.
Emissions will still be at or below the cap; thus free allocation
should continue for those sectors until a fully global scheme
is in operation.
13.3 Independent authors[23],
[24]
have identified the cement sector as potentially competitively
impacted by an increased use of auctioning in the EU ETS. The
most recent research[25]
puts the loss, to non-carbon constrained economies, of UK cement
manufacturing in 2020 at 100%, at a carbon price of €25/tCO2
with no free allocation and no equalisation measures.
13.4 In order to prevent such losses a great
deal of emphasis has been placed on reaching an international
agreement at the UN Conference of Parties in Copenhagen in 2009.
With regards to the International Agreement, it must ensure that
comparable constraints are imposed on all countries to provide
a level playing field and an unbiased market for all manufacturers.
13.5 An international agreement which includes
energy-intensive industries exposed to a significant risk of carbon
leakage, or a sector specific international agreement that captures
such industries, must comply at least with the following criteria,
in order to provide a level playing field at installation level
in such industries:
13.5.1the participation of countries representing
a critical mass of production;
13.5.2equivalent CO2 emission targets with equivalent
effects by 2020, at the latest, imposed upon all participating
countries; and
13.5.3an effective international monitoring and verification
system.
13.6 In addition:
13.6.1in countries with non-equivalent CO2 emission
targets, measures with equivalent effects should be imposed upon
the same sectors, by 2020 at the latest, to those covered within
the European Union Emission Trading Scheme; and
13.6.2the implementation of measures by the EU to
include importers from countries not covered by the agreement;
and
13.6.3materials in competition have to be subject
to equivalent restrictions taking into account life cycle aspects.
13.7 We believe that the most effective
way to achieve CO2 emission reductions, in energy intensive industries
at risk of carbon leakage, is by free allocation based on benchmarks
which encourage CO2 reduction and ensure a level playing field.
The EU should also provide more details on its "critical
success criteria" and terms and conditions for accepting
an international agreement. This is important because a number
of measures planned in the proposal for a revised ETS are only
applicable upon the conclusion of an international agreement,
but not necessarily its implementation. In order to provide predictability
for EU business and a global "level-playing field",
it is vital that the nature of the terms and conditions of an
international agreement are well defined.
14. Effects of the expansion of the EU ETS
to encompass aviation
14.1 Whilst we recognise that all sectors
of the economy need to play a role in tackling climate change,
the inclusion of aviation in the EU ETS will not lead to any significant
emissions savings in this sector, as emissions are projected to
rise significantly. As such, compliance in the aviation sector
in the EU ETS will be delivered by purchasing allowances from
other sectors, adding to the pressure that already exists in the
manufacturing sector. Transport; aviation, shipping, rail and
road have unique characteristics that lend themselves to a separate
trading system dedicated to transport emissions. Many of the issues
differ from those sectors such as cement that are subject to international
competition from imported goods. Importantly emissions from these
transport sectors continue to rise and the cement industry view
is that these sectors should contribute to climate change mitigation.
15. Allocation or auctioning of EU ETS credits,
and the use of auctioning revenues
15.1 UK manufacturers regulated by the EU ETS
must be given the opportunity to compete equally with suppliers
in non-carbon constrained countries. Equivalent treatment for
EU and non-EU states must be in place before our industries are
required to buy CO2 allowances at auction. Without "equalisation",
emissions will simply move off-shore, taking our domestic industry
and jobs with them and allowing non-carbon constrained economies
to exploit this competitive advantage. The cement industry needs
to know now that they will be listed as competitively vulnerable
to imports so that investment can resume and continue to maintain
a healthy domestic manufacturing economy. In the absence of an
international agreement that delivers equitable treatment of global
cement manufacturers and potential exporters to the UK then free
allocation is the only acceptable methodology. In the interim,
until equivalent treatment in CO2 cost burden can be observed
on a global basis, CO2 allocation should be based on free allocation
using performance based methods such as "benchmarking".
Benchmarking provides the least cost optimal method for promoting
technological change and development of cleaner technologies within
manufacturing industry whereas auctioning promotes change at the
highest cost. However, careful consideration needs to be taken
when designing benchmark methodologies so as not to penalise "best
in class" technologies; so as not to provide unachievable
technological transfer timetables for those below the benchmark
standard; and, not disincentivise investment.
16. Progress of cap and trade schemes in other
countries (notably, the United States), and the prospects for,
and practicalities of, linking between them
16.1 In principle linking is a good thing but
there should be equivalence in every aspect of the linked system.
Such as:16.1.1Overall absolute emissions reduction.
16.1.2Equivalent monitoring, reporting and verification.
16.1.3Equivalent regulation, implementation and penalties
for failure.
16.1.4Equivalent cost for the traded sector ie equivalent
carbon cost.
16.1.5Equivalence in the reduction trajectory for
the traded sector.
16.1.6Inclusion of activities listed in Annex I of
the EU ETS directive.
16.2 Importantly, whilst countries such
as the USA and others are becoming more interested in GHG trading,
BCA recognises that it is India, China, Indonesian and north African
countries that are gearing up to export to Europe with products
that do not have to account for their CO2.
17. The robustness and effectiveness of "offset"
schemes (ie those without a cap), such as the Clean Development
Mechanism (CDM), and the issues around linking them to cap and
trade schemes
17.1 CDM and JI, must be retained and their
operation simplified. Today the credits from project mechanisms
may represent a small volume of CO2 but in the future, they may
come to play a significant role in helping developing countries
with cleaner technologies or other solutions to reduce GHG emissions.
In order to allow this development, potential investors in such
mechanisms must not be deterred by any limitation upon the conversion
of credits into allowances. They should, on the contrary, be encouraged
by the simplification of procedures. The objective of a trading
scheme is to encourage the implementation of the most cost effective
ways of providing the required reductions. Project credits such
as Certified Emissions Reductions (CERs) are an important tool
to achieve emission reductions and encouraging the practice of
reducing emissions through investment in parts of the world where
this would not be a normal priority.
18. The relationship between emissions credits
and the UK carbon budgets set up under the Climate Change Act
18.1 Government should ensure that through its
budgets and targets that real action on climate change is taken.
In doing so it should ensure that "carbon leakage" does
not occur that results in an apparent reduction in carbon dioxide
in the UK but increased carbon dioxide for example from manufactures
supplying goods to the UK. We are fortunate in the UK to have
a domestic cement manufacturing industry that supplies 90% of
UK consumption from domestic manufacture, although this picture
could change if the full costs and benefits are not assessed.
An international agreement on climate change is critical to ensure
domestic manufacturers are not disadvantaged for their early action.
18.2 At present the budgets[26]
proposed by the Committee on Climate Change are vague. The effort
required from manufacturing industry is aggregated and the main
GHG emitting manufacturing industries such as cement have not
been made aware of their expected contribution.
19. Transparency of and justification for
counting the purchase of emissions credits (especially from "offset"
schemes) as decreasing emissions from the UK
19.1 GHG reductions should be made at the
lowest point of cost, wherever this may be. The ability for companies
to purchase credits from those who can more easily and cheaply
make reductions should be encouraged, as this will help to spread
the influence of emissions trading to become a significant driver
in the challenge against harmful climate change.
March 2009
17 "Direct carbon dioxide emissions equate to
emission from the cement kilns, and exclude (indirect) emissions
associated with the generation and transmission of the electricity
used in manufacture. Back
18
Environmental Audit Committee. Reducing Carbon Emissions from
UK Business: The role of the Climate Change Levy and Agreements.
Second Report of Session 2007-08. Back
19
Proposal for a Directive of the European Parliament and of the
Council amending Directive 2003/87/EC so as to improve and extend
the greenhouse gas emission allowance trading system of the Community-Outcome
of the European Parliament's first reading (Strasbourg, 15 to
18 December 2008). Back
20
Sustainable Consumption and Production Indicators Joint Defra/DTI
consultation paper on a set of "decoupling" indicators
of sustainable development. Back
21
IEA Greenhouse Gas R&D Programme (IEA GHG), "CO2 Capture
in the Cement Industry", 2008/3, July 2008. Back
22
Based on emissions avoided including power import and exports. Back
23
Differentiation and Dynamics of EU ETS Industrial Competitiveness
Impacts. Authors: Jean-Charles Hourcade, Damien Demailly, Karsten
Neuhoff, and Misato Sato. Contributing Authors: Michael Grubb,
Felix Matthes and Verena Graichen. Climate Strategies 2007. Back
24
EU ETS impacts on profitability and trade: A sector by sector
analysis. Carbon trust 2008. Back
25
Assessment of the Impact of the 2013-20 ETS Proposal on the European
Cement Industry. Boston Consulting Group 2008. Back
26
Building a low carbon economy-the UK's contribution to tackling
climate change. Committee on Climate Change. December 2008. Back
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