Memorandum by The British Lime Association
The British Lime Association (BLA) welcomes
the opportunity to contribute towards the European Union Committee—Environment
and Agriculture Sub-Committee Inquiry into the revision of the
EU Emissions Trading System (EU ETS) and supports the objectives
and scope of the work.
BRITISH LIME
ASSOCIATION
The BLA is a constituent body of the Quarry
Products Association (QPA), the trade association of the aggregates,
asphalt and ready-mix concrete industries. The BLA represents
the interests of six member companies, responsible for producing
more than 95% of the lime sold in the UK. The BLA Members are
Tarmac Buxton Lime & Cement, Hanson, Steetley Dolomite, Lhoist
UK, Singleton Birch and Totternhoe Lime & Stone Co Ltd.
The BLA is also a member of the European Lime
Association (EuLA) and represents the interests of Corus, British
Sugar and Specialty Minerals on issues relating to lime manufacturing
with Emissions Trading and Climate Change Levy Agreements.
INDUSTRY CONTEXT
The Lime Industry is a relatively small, but
strategically vital contributor to a huge range of downstream
environmental, industrial, social and construction activities.
It is an essential ingredient in the treatment of drinking water,
sewage and effluent treatment, acid gas treatment, soil stabilisation
and contaminated land remediation in addition to the more traditional
end-use markets of iron and steel production, building/construction,
agriculture and chemicals.
It is vital that the contribution made by lime
is not ignored, because the demise of a domestic Lime Industry
would have serious implications on the competitive status of numerous
downstream sectors that are important to the environmental, social
and economic wellbeing of the UK.
Energy typically represents over 40% of variable
costs for the industry, and therefore one of the primary concerns
of BLA Members has always been to maximise efficiency and thereby
reduce the CO2 emissions from their operations.
For many years, the BLA has recognised the importance
of it's responsibilities in addressing climate change and has
always been supportive of the EU ETS. However, there are a number
of aspects within the revised proposals that do raise concerns
for the Lime Industry.
The UK Lime Industry will be subject to "carbon
leakage" under the Commission's proposals. Manufacturing
lime has been widely recognised in a number of studies as an energy
intensive process that is highly exposed to the cost of CO2, with
limited opportunities to pass the cost on to customers. However,
the BLA harbours concerns with the criteria proposed by the Commission
for assessing the potential for carbon leakage and particularly
the use of GVA data as an indicator.
Furthermore, the BLA is concerned by the proposed
timescale for identification of these "exposed sectors"
and supports the government's proposal to improve certainty by
bringing the decision forward to mid-2009.
SPECIFIC INQUIRY
QUESTIONS
The proposed level of emissions reductions and
the automatic change from 20% to 30% should an international agreement
be reached
Despite achieving substantial energy efficiency
gains and CO2 abatement over the past 15 years, the BLA recognises
the importance of continuing to make a contribution towards UK
objectives and targets. However, it is vital to recognise that
should domestic reduction in CO2 simply be achieved through "carbon
leakage" then this will be environmentally counter-productive.
This is because there will continue to be demand for lime in the
UK and so there will be a net increase in CO2 emissions from transport
and also, potentially, from production in less efficient installations
in non-carbon constrained countries outside the EU.
There needs to be greater clarity on exactly
what constitutes an "International Agreement", how and
when it would be implemented or ratified by each participating
country and what is considered an "equivalent commitment".
There should be a provision in the Directive for the traded sector
reduction trajectory to be adjusted depending on the nature and
rigor of any international agreement reached. Even after ratification
of an international agreement, those sectors exposed to a risk
of carbon leakage need to be protected from production in countries
that does not carry an equivalent cost of carbon. This is necessary
to ensure that EU Industry is not disadvantaged against its global
competitors.
The sectors and gases that the Commission proposes
to include and exclude
The BLA is content with the proposed expansion
plans for the inclusion of additional gases and sectors and believes
that all sectors, including non-EU ETS sectors should contribute
towards the reduction of GHG.
The practical application and enforceability of
the scheme
Current proposals do not allow for European
"Sector caps" to be derived from the EU Central Cap.
It makes practical sense to have EU-wide sector caps that are
distributed using harmonised sector benchmark methodologies using
a top-down approach and for this to be subsequently reconfirmed
through a bottom-up assessment.
The current definition of "new entrant"
inhibits the potential to consolidate production at the most efficient
sites and places a barrier for companies to take advantage of
upgrading existing installations. Often emission reductions are
made by consolidating and improving the larger installations and
closing smaller or older less efficient plants. This is an important
issue if we are to encourage investment in existing industrial
installations within the UK.
The key strengths and weaknesses of the proposal
The BLA supports the efforts made to bring a
level playing field to the scheme through increased harmonisation,
but further measures are required to ensure that UK Industry is
not disadvantaged on a European and/or Global scale.
Although the use of auctioning may appear to
be the most efficient method of distributing allowances from an
economic perspective, in practice it does not encourage technical
innovation. If 100% auctioning were applied to the lime sector,
it would add a massive ~ 50% to the cost of lime production and
is far greater than current profit, even when assuming a conservative
€30 per tonne of carbon. NERA has undertaken an economic
analysis of the lime sector which clearly demonstrates that this
would cause carbon leakage. The Lime Sector has developed a simple
and transparent benchmark system that provides strong drivers
for investment in CO2 reduction in the industry. Such a progress
fostering benchmark produces exactly the same incentive for reducing
CO2 as auctioning. However auctioning introduces a high cost penalty,
which removes funds from capital intensive industries that could
have been used to invest in new, innovative and more efficient
plant.
The current proposals are not equitable, since
if the Lime Sector were to be classified as a sector exposed to
carbon leakage thus receiving up to 100% of allowances free of
charge, the stated annual reduction of 1.74% and NER contribution
would ensure that the sector would be competitively disadvantaged
with Non-EU Countries (unless a genuinely equivalent International
Agreement is reached). The contribution to the NER and 1.74% factor
should not be automatically applied to free allocation and instead
the level of free allocation should be based on benchmarks set
at a level to avoid carbon leakage.
The potential application of the new Article 24a
permitting allowances to be issued in respect of projects outside
the scope of the Community scheme that reduce greenhouse gas emissions
The BLA believes that emissions reductions should
be made at the point of lowest cost. Consequently the use of project
credits should be unlimited, as this will help to promote climate
change mitigation internationally and also allow those activities
within the scheme with long investment cycles, such as lime, time
to adjust.
Whether decisions about the proportion of permits
to be allocated for free rather than auctioned should be taken
at EU level or at Member State level, and what time-frame for
such decisions should be
The BLA believes that such decisions should
be harmonised to ensure an equitable European market, although
as previously stated auctioning should not be applied to the Lime
Sector, since it will put the industry at risk of carbon leakage.
Which sectors (if any) should continue to receive
a proportion of their emissions permits allocated free of charge,
and for how long?
Economic analysis has demonstrated that for
the UK Lime Industry the cost of auctioning is several times greater
than its profit and it therefore has very limited capability to
pass on the cost of auctioning to the customer without attracting
a significant quantity of imported lime from non-EU countries.
The downstream processes (referred to earlier in this note, such
as drinking water) of key strategic value to the UK would become
reliant on externally sourced lime, and security of supply would
then clearly become an issue.
The BLA believes that the UK Lime Industry is
subject to "carbon leakage" and to prevent this it would
be necessary to receive free allocation based on progress-fostering
benchmarks until sufficient market equalisation occurs, either
through a robust international agreement which ensures that lime
produced in all countries carries an equivalent cost of carbon
or a boarder adjustment mechanism.
Whether the redistributive element of the Commission's
proposal (whereby poorer Member States are allocated more auctionable
emissions permits, thereby increasing the revenues accruing to
their Treasuries) is appropriate
The EU ETS is an environmentally targeted instrument;
as such all of the Member State auction revenue should be used
entirely by that Member State for the purpose of tackling climate
change.
The extent to which EU operators should be allowed
to meet obligations under the ETS by investing in projects to
reduce emissions outside the EU through the Clean Development
Mechanism (CDM)
Tackling Climate Change is a global issue. The
use of project credits should be unlimited to promote the potential
for achieving the highest possible emission reductions and reward
proactive performers for global action.
The likely feasibility of creating links between
ETS and other similar schemes around the world
The future effectiveness of the EU scheme must
be based on its ability to bring other global partners on board
through a genuinely equivalent International Agreement. Industry
must be consulted on the criteria for assessing "equivalence"
with the EU scheme, as otherwise European Industry could be competitively
disadvantaged in the global arena.
19 June 2008
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