House of Lords - European Union

Select Committee on European Union Written Evidence

Memorandum by Brunner Mond

INTRODUCTION

The European Commission is proposing to amend Annex 1 of Directive 2003/87/EC in order to include the production of soda ash (Na2CO3) and sodium bicarbonate (NaHCO3) in the EU Emissions Trading Scheme (EU-ETS).

This evidence addresses the Committee's interest in the proposed process of Allocation and Auctioning of permits (items 6 and 7 in the Committee's call for evidence) and the damaging effects on Brunner Mond's UK manufacturing operations if an auctioning process is adopted for the soda ash and sodium bicarbonate business.

SUMMARY

— The European Commission is proposing to include the production of soda ash and sodium bicarbonate in EU-ETS, with emission permits issued by auctioning.

— The cost of purchasing emission permits would amount to 13% of the current sales price for soda ash, and could not be absorbed within our very narrow profit margins.

— Brunner Mond, in common with the rest of the EU soda ash and sodium bicarbonate industry, is exposed to international competition.

— Our international competitors have surplus capacity, and would be expected to increase their shipments to the EU if the introduction of EU-ETS put the domestic industry at a cost disadvantage.

— Capital investments made by Brunner Mond in recent years have significantly reduced our CO2 emissions.

— Soda ash supplied by our international competitors has a higher carbon footprint than that produced in our own plants, even before emissions due to shipping are taken into account.

— Inclusion of the soda ash and sodium bicarbonate industry in EU-ETS on an auctioning basis will therefore result not only in carbon leakage but also an increase in total global CO2 emissions. A process of free allocation based on benchmarks should be adopted to prevent these negative consequences.

— A common approach across the industry in the EU is the correct way forward; individual Member States should not be allowed to make separate decisions as this will lead to an unfair distortion of trade within the EU.

1. BRUNNER MOND'S UK MANUFACTURING OPERATIONS

Brunner Mond is the only UK producer of sodium carbonate (soda ash) and sodium bicarbonate. These are strategic raw materials for the nation, being essential to the manufacture of many everyday items such as glass, detergents, foods and pharmaceuticals. Based in Northwich, Cheshire the company manufactures about one million tonnes of product at its two sites, Northwich West and East.

Brunner Mond and its predecessors have been manufacturing soda ash in Northwich since 1873. In 2000 a new CHP plant, owned and operated by Powergen CHP (now E.ON), was commissioned. Brunner Mond then closed its old coal-, oil- and gas-fired integrated power stations and entered into an over-the-fence relationship for the supply of steam and electricity.

1.1 Technical description of Brunner Mond's manufacturing process

Brunner Mond, like all European soda ash producers, manufactures soda ash using the ammonia-soda process. The ammonia-soda process was developed by Ernest Solvay in the 1860s and subsequently licensed to John Brunner and Ludwig Mond, the founders of the original Brunner, Mond & Company.

Manufacture of soda ash

The primary raw materials for the ammonia-soda process are sodium chloride brine (salt), limestone and coke. The process can be represented as a double decomposition between sodium chloride and calcium carbonate to produce sodium carbonate and calcium chloride (Equation 1).

However, the reaction between sodium carbonate and calcium chloride will not proceed unaided. The critical steps involve the use of ammonia absorbed into the brine to generate alkalinity and the carbonation of the alkaline brine using carbon dioxide of carefully controlled strength and chemical quality. This precipitates impure ("crude") sodium bicarbonate leaving ammonium chloride in solution (Equation 2).

Carbon dioxide for the carbonation reaction is produced by burning limestone with coke (anthracite is an alternative) in vertical shaft kilns, in which the operating conditions and raw materials are specified to optimise the carbon dioxide content of the evolved gas (Equation 3).

The burnt lime is slurried with water to produce a milk of lime solution (Equation 4), a highly alkaline medium, which is used to liberate free ammonia from the ammonium chloride solution (Equation 5). The liberated ammonia is recycled to the ammoniation stage.

Soda ash is obtained from the crude sodium bicarbonate precipitated in the carbonation reaction (Equation 2) by thermal decomposition (Equation 6). The carbon dioxide so liberated is recycled back into the carbonation reaction.

The chemical kinetics require an excess of carbon dioxide to provide the driving force for carbonation and this excess is lost as unreacted carbon dioxide in the waste gas. The quantity of carbon dioxide produced at the kilns is also dependent upon the lime demand for ammonia recovery. Under certain circumstances it is necessary to waste excess carbon dioxide prior to carbonation to maintain the overall chemical balance.

Manufacture of sodium bicarbonate

The crude sodium bicarbonate precipitated in the carbonation reaction (Equation 2) is not of sufficient purity for sale. Instead, sodium bicarbonate is manufactured by carbonating an aqueous solution of soda ash (Equation 7).

The co-production of sodium bicarbonate on an ammonia-soda process soda ash plant can significantly reduce the need to waste carbon dioxide. However, the capacity to produce it is limited in that if too much sodium bicarbonate is made then it becomes necessary to waste lime to maintain the chemical balance.

In summary, the ammonia-soda process relies on complex recycles of carbon dioxide, ammonia, water and energy. Over the 140 years since its invention, these recycles have been optimised both for cost and environmental considerations. It is vital that the process is viewed in totality rather than as independent units.

SUMMARY

The ammonia-soda process must not be confused with conventional lime (calcium oxide) production, where there is no similar demand for the carbon dioxide produced. For this reason, it is not included as a scheduled process in the context of the current emissions trading regulations and is exempt under the Climate Change Levy (Fuel Use and Recycling Processes) Regulations 2005.

A more detailed description of the ammonia-soda process can be found in the Process BREF for Soda Ash prepared by the European Soda Ash Manufacturers Association, a Sector Group of Cefic.[5] A graphical representation of the ammonia-soda ash process (taken from the BREF) is given in Appendix 1.

1.2 Carbon Dioxide Emissions

Energy generation

Energy in the form of steam is required for the thermal decomposition of crude sodium bicarbonate to soda ash (Equation 6) and for the recovery of ammonia (Equation 5). In addition, both steam and electric power are required for driving a range of machinery on the soda ash plant, including the compressors for the carbon dioxide gas.

All of the steam and electric power requirements for Brunner Mond's UK soda ash plants are generated by a gas-fired combined heat and power (CHP) plant located adjacent to our Winnington site. The Winnington CHP plant was commissioned in 2000, and represented an investment of £130 million. The plant is owned and operated by the CHP division of E.ON UK (formerly Powergen).

The Winnington CHP plant is one of the most efficient power plants in Europe, with a combined thermal and electrical efficiency of 85%. The plant has total annual CO2 emissions of 750,000 tonnes. However, Brunner Mond consumes only 25 MW of the 120 MW electricity generated by the plant; the remainder is exported to the National Grid.

Using Environment Agency guidance on allocating CO2 emissions from CHP plants, the emissions associated with the steam and electricity consumed in Brunner Mond's UK plants are calculated to be 450,000 tonnes per year. This is equivalent to 0.5 tonnes CO2 per tonne of soda ash.

It should be noted that in investing in a state-of-the-art energy generation facility, Brunner Mond has substantially reduced its carbon dioxide emissions. The CHP plant replaced three aging boiler plants, which burnt a mixture of coal, natural gas and oil. The old boiler plants emitted 900,000 tonnes of CO2 in producing the steam required for our factories, but generated only 25 MW of electricity.

In summary, commissioning of the Winnington CHP plant resulted in:

— a reduction in CO2 emissions from 900,000 t/yr to 750,000 t/yr; and

— an increase in electricity generation from 25 MW to 120 MW.

Since the extra electricity is exported to the National Grid, emissions associated with steam and electricity consumption in Brunner Mond's UK soda ash plants have been reduced by over 50% from 900,000 tonnes per year (equivalent to 1.0 t CO2/t soda ash) to 450,000 tonnes per year (equivalent to 0.5 t CO2/t soda ash).

Process emissions

Although the majority of carbon dioxide generated in the limekilns is absorbed into the finished products, there is inevitably some loss of unreacted carbon dioxide from the carbonation and bicarbonation reactions. The amount of unreacted process carbon dioxide released from Brunner Mond's UK plants is 200,000 tonnes per year, equating to 0.2 t CO2/t soda ash.

1.3 Cost impact of inclusion of soda ash manufacture in Phase 3 of EU-ETS

Carbon dioxide emissions arising from energy generation were included in Phases 1 & 2 of EU-ETS. Emissions arising from the process of manufacturing soda ash are proposed for inclusion in Phase 3.

The total emissions (energy and process) associated with manufacturing a tonne of soda ash at Brunner Mond's UK plants are 0.7 t CO2/t soda ash. Taking the European Commission indicative price for emission allowances of €30/t CO2, it can therefore be calculated that purchasing emission permits will increase Brunner Mond's UK production costs by £15/t soda ash. This would represent a 13% increase in our production costs.

The soda ash business operates on very narrow margins such that the additional costs arising from EU-ETS will have to be passed on in full to our customers if the business is to remain viable. However, the next section of this document will demonstrate that our ability to pass on the cost increase is highly constrained by competitors, who will not be subjected to EU-ETS.

2. EU[6] SODA ASH MARKET

2.1 EU soda ash demand

The estimated 2007 demand for soda ash in the EU is 8.7 million tonnes.[7] The principal user of soda ash is the glass industry, accounting for over 60% of demand. Other important customers include the chemicals industry and the detergents industry. The current breakdown of soda ash demand in Europe is illustrated in Figure 1.

Figure 1

EU SODA ASH MARKET BY END USE[8]

Soda ash is a critical raw material in the production of glass, representing approximately 20% of the weight of the finished glass.[9] It is also the most expensive raw material in proportion to the amount used, accounting for around 60% of a glassmaker's raw material costs.[10] Acting as a fluxing agent, soda ash lowers the melting temperature of the silica sand and therefore reduces energy consumption. There is no substitute for soda ash in the glass-making process. Increased recycling of glass reduces, but does not eliminate the need for virgin raw materials.

Flat glass is used to make the windows in buildings and cars. In order to improve energy efficiency, building regulations across Europe increasingly specify the use of double or triple glazing and low-emissivity energy-saving glass. These requirements are increasing the demand for raw glass and hence for soda ash.

Glass containers are still very important for packaging food and drinks, despite competition from PET and other plastic packaging materials. Glass containers are much easier to reuse and recycle than those manufactured from plastic, and glass remains the preferred packaging material for premium products such as wine and beer. The last few years have seen an increasing quantity of wine being imported from Australia and South America in bulk and bottled locally in Europe, a practice that brings a number of environmental advantages.[11] The prospects for the European glass container industry are therefore stronger than they have been for many years.

The category "other glass" includes glass wool insulation. Demand for this product is growing due to the need to increase the energy efficiency of buildings, and there are plans for a number of new factories across Europe.

2.2 EU soda ash producers

There are six producers of soda ash in the EU, with a total nameplate capacity of 9.3 million tonnes per year (Table 1).

Table 1

EU PRODUCERS—CAPACITY AND PRODUCTION LOCATIONS

Producer	EU Capacity (t)	EU Manufacturing Locations
Solvay	5,000,000	Germany (2 plants), France, Spain, Portugal, Italy, Bulgaria*
Ciech	1,900,000	Poland (2 plants), Germany, Romania
Brunner Mond	1,300,000	UK (2 plants), Netherlands
Novacarb	500,000	France
GHCL	300,000	Romania
Sisecam	300,000	Bulgaria*
Total	9,300,000
*The Bulgarian plant is a joint venture between Solvay and Sisecam, with each partner being allocated a proportion of the output.

In addition to the above, BASF manufactures a small amount of soda ash as a by-product at plants in Belgium and Germany.

In 2007, EU soda ash production is estimated to have been 8.9 million tonnes.7 The majority of the soda ash plants in the EU are currently operating at or close to their nameplate capacities. The two plants in Romania are an exception to this, as they are currently benefiting from investment by their new owners. By operating their plants at full capacity, the EU producers are able to maximise operating efficiencies and minimise production costs, thus remaining competitive against imports.

Around 84% of the soda ash produced by EU producers in 2007 was sold on the EU market. The majority of the 1.4 million tonnes exported outside the EU, comes from the plants in Spain, Bulgaria and Romania. Latin America is the principal export market for the Spanish plant, whilst product from Bulgaria and Romania is exported to a variety of destinations including the Balkans, Africa and the Middle East.

2.3 Suppliers to the EU soda ash market—producers and importers

The EU producers supplied around 87% of the 8.7 million tonne EU demand in 2007. The remainder was supplied by imports. Figure 2 shows an estimate of how the EU market was split between domestic producers and importers.

Figure 2

EU MARKET SHARE OF DOMESTIC PRODUCERS AND IMPORTERS (2007 ESTIMATE)

Solvay and Sisecam also import soda ash into the EU from their plants located outside the EU. Sisecam is responsible for all of the imports from Turkey and Bosnia. Solvay has a plant in the USA, but is only responsible for a small proportion (less than 2%) of the imports from that origin. The majority of imports from the US and all imports from Russia and the Ukraine are by companies that have no manufacturing presence in the EU.

Although Brunner Mond's parent company, Tata Chemicals and GHCL also manufacture soda ash in India, they are not currently importers to the EU. Brunner Mond/Tata Chemicals has a plant in Kenya. Tata Chemicals recently acquired General Chemicals of the USA which supplies part of the US material imported into the EU.

The EU-wide market shares illustrated in Figure 2 mask the fact that the sales by the various suppliers are not distributed evenly across the EU market. As a bulk commodity, soda ash is expensive to transport in proportion to its value, so producers have a strong incentive to sell as much of their output as possible close to their manufacturing plants. The pattern of trade is therefore normally that sales are made either in the country of manufacture or the immediately neighbouring countries.

Similarly, imports are not evenly distributed across the EU market. Importers tend to sell their product as close as possible to the port of import, in order to minimise land transportation costs. Thus imports from the US are concentrated in the western parts of the EU, with over 50% landing in Brunner Mond's core markets of Belgium and the Netherlands. (Table 2).

Table 2

DISTRIBUTION OF US EXPORTS TO EUROPE (2007)[12]

Destination Tonnes % of total

Belgium* 186,000 32%

Netherlands* 139,000 24%

Spain 160,000 28%

Portugal 27,000 5%

France 60,000 11%

Other 1,000 0.2%

Total 573,000 100%

*A proportion of the soda ash landing in Belgium and the Netherlands is transhipped and forwarded to the UK and Scandinavia.

Imports from Turkey are concentrated in countries along the Mediterranean coast of Europe whilst imports from Russia and the Ukraine are found in Poland, the Baltic Countries and other countries that can be accessed by sea (Figure 3).

Figure 3

DISTRIBUTION OF IMPORTS TO THE EU

2.4 International exposure of the EU soda ash industry

According to the criteria elaborated by DG ECFIN, a sector is supposed to be internationally exposed if:

— the trade ratio is > 20% (extra-EU exports + imports/domestic EU production);

— the import ratio is > 10% (extra EU imports/domestic EU production); and

— CO2 cost/sales price ratio is > 5%.

For soda ash:

— the trade ratio is 29%;

— the import ratio is 13%; and

— the CO2 cost/sales price ratio is 13% (Brunner Mond UK figures).

Therefore the EU soda ash industry clearly qualifies as being internationally exposed under the official definitions.

3. POTENTIAL THREAT FROM US IMPORTS

3.1 US soda ash producers

There are five producers of soda ash in the United States of America (see Table 3). All of the US producers manufacture soda ash from the mineral trona. Four of the producers are located together in Green River, Wyoming, where they extract trona from underground mines. The exception is Searles Valley Minerals, which is located in California and manufactures soda ash from trona extracted from lake brines.

Table 3

US SODA ASH PLANTS

Producer	Capacity (t)	Comment
FMC	4,400,000	2 plants. Nippon Sheet Glass has a minority stake
OCI	2,800,000
Solvay	2,500,000	Asahi Glass has a 20% stake
General Chemicals*	2,500,000	Owens-Illinois has a 25% stake
Searles Valley Minerals	1,300,000	Acquired by Nirma in January 2008
Total	13,500,000
Tata Chemicals, the parent company of Brunner Mond, has recently acquired General Chemicals. 3.2 Production of soda ash from trona*

The US soda ash producers refer to their product as "natural soda ash", a name that has now slipped into common usage. In fact there is no such thing as naturally occurring soda ash. The mineral trona is actually an impure form of sodium sesquicarbonate, and it requires considerable energy-intensive processing in order to convert it into soda ash with a sufficient purity to compete with that produced via the ammonia-soda process.

Most soda ash production in the United States is by the monohydrate process. The trona ore is first calcined at around 200°C in order to convert it to crude sodium carbonate (Equation 8). This step also serves to destroy some of the organic impurities contained in the ore.

The crude sodium carbonate is dissolved in water, allowing insoluble mineral contaminants to be separated by filtration and soluble organic contaminants to be removed using activated carbon. The solution is then evaporated, resulting in the precipitation of sodium carbonate monohydrate (Na2CO3.H2O). The monohydrate crystals are washed before being calcined at about 150°C to produce soda ash.

Carbon dioxide emissions

The monohydrate process requires significant amounts of energy for the evaporation and calcination steps; published figures[13] suggest that a typical plant uses 6.1 GJ energy per tonne of soda ash. Unlike Brunner Mond, the Wyoming soda ash producers have not invested in modern Combined Heat and Power plants, and so do not export electricity to the US network. Furthermore, they have switched to using coal instead of natural gas for their energy requirements on cost grounds. The CO2 emissions associated with the energy requirements of a typical monohydrate process plant are therefore estimated to be 0.6 t CO2/t soda ash.

Note that carbon dioxide is evolved during the initial calcination of the trona ore (0.15 t CO2/t soda ash). This carbon dioxide serves no further role in the production process, and is simply vented to the atmosphere.

The total emissions of a typical US monohydrate process soda ash plant are therefore estimated to be 0.8 t CO2/t soda ash—ie fractionally more than the 0.7 t/t emissions of Brunner Mond's UK soda ash plants.

Carbon dioxide footprint of US soda ash delivered to the EU

US soda ash for supply to Europe is first transported by rail from the plants in Green River, Wyoming to the port of Port Arthur in Texas, a distance of around 1,500 miles. It is then loaded into ships for the 5,000 nautical mile journey to Europe. The estimated carbon dioxide emissions resulting from the transportation to Europe is 0.11 t CO2/t soda ash (0.05 t/t from rail transport plus 0.06 t/t from ship transport).

The total carbon dioxide footprint of US soda ash delivered to Europe is therefore 0.9 t CO2/t soda ash. This compares with 0.7 t/t for soda ash produced at Brunner Mond's UK plants.

Transport from the European port of import to the end customer is typically by lorry. These emissions are excluded from the above calculation, as they are equivalent to those arising from transporting soda ash from a European production plant to the end customer.

3.3 Exports of soda ash from the United States

The capacity of the US soda ash industry greatly exceeds the US domestic demand, and the US soda ash industry is therefore dependent on exports in order to fully utilise this capacity. Table 4 details the sales by destination of the US soda ash industry.

Table 4

US SODA ASH SALES DESTINATIONS 2007[14]

Destination	Tonnes	% of total
US Domestic	6,070,000	54%
Canada	440,000	4%
Mexico	880,000	8%
Central/South America	1,470,000	13%
European Union	570,000	5%
Former Soviet Union	50,000	0.4%
Africa and Middle East	260,000	2%
East/South-east Asia	1,310,000	12%
Australasia	150,000	1%
Total	11,210,000	100%
Total Exports	5,140,000	46%

The four Wyoming-based soda ash producers are members of the American Natural Soda Ash Corporation (ANSAC), an export trade association benefiting from exemption from US anti-trust laws under the Webb-Pomerene act. ANSAC does not operate in Canada or the EU. Export sales by the ANSAC members to all other markets are handled exclusively by ANSAC—ie the individual ANSAC members do not compete with each other for sales in these markets.

ANSAC applied for permission to operate in the EU market in 1988, but this was refused by the European Commission.[15] However, the Commission decision left open the possibility of co-operation in matters relating to the transport and storage of soda ash. The US producers therefore formed another Webb-Pomerene association known as the American European Soda Ash Shipping Association (AESSA). All of the US soda ash producers are members of AESSA (Searles Valley Minerals, which left ANSAC in 2004, appears to have maintained its membership of AESSA).

AESSA allows the US soda ash producers to coordinate their shipping activities to Europe. Vessels bringing soda ash to Europe often contain product from two or three producers. Storage sheds at European ports are also shared between the producers. The US producers are therefore able to benefit from considerable economies of scale in exporting to Europe.

3.4 Behaviour of the US soda ash producers on the EU market

According to US export data, US soda ash producers have shipped 570,000 tonnes of soda ash to Europe in 2007. The quantity of soda ash shipped from the US to Europe has fluctuated dramatically, as can be seen from the historical data presented in Figure 4.

Figure 4

US SODA ASH SHIPMENTS TO EU-27 (1989-2007)

The US soda ash producers have at times been extremely aggressive in selling their surplus production on the EU market. The European Commission found the US producers to be dumping on three occasions (in 1982, 1984 and 1995) and imposed anti-dumping duties.

The graph in Figure 4 illustrates how the US producers have been able to increase their shipments to Europe rapidly in response to changing market circumstances.

Shipments were increased by 250,000 tonnes in 1991 and by a further 260,000 tonnes in 1992 in response to the withdrawal of anti-dumping duties in September 1990. They then fell back after new anti-dumping proceedings were launched in August 1993.

Anti-dumping duties were again repealed in October 1997, and 1998 saw US shipments to Europe increase by 140,000 tonnes. The weakness of the Euro relative to the Dollar in the period 1999 to 2002 reduced the attractiveness of the European market. However, the relative strength of the two currencies started to reverse in late 2002, with the result that 2003 saw shipments jump by 260,000 tonnes.

The sudden surges of US imports have been extremely disruptive to the EU soda ash industry. In 1993, three soda ash plants in the EU with a total capacity of one million tonnes per year were shut down, largely in response to the rapid growth in US imports over the previous two years. In 2002-03 Brunner Mond decided to reduce the capacity of its Netherlands plant by 100,000 t/yr, and a 160,000 t/yr soda ash plant in Austria was closed in 2005.

3.5 Anticipated response of US producers to the introduction of EU-ETS

After the formation of the ANSAC export cartel in December 1983, the US soda ash industry was able to achieve significant annual increases in export sales. Throughout the 1980s and up to the late 1990s, the US soda ash producers expanded their capacity aggressively in anticipation of continuing strong export growth.

The Asian financial crisis of 1997 and then increased competition from China in the markets of East and South-East Asia left the US producers with considerable surplus capacity. Although the global market has tightened significantly in the last few years, the US producers still have an estimated 1.5 million t/yr of mothballed capacity that could be brought on stream if there were sufficient financial incentive to do so.

In February 2008, FMC announced that it would be restarting 0.7 million t/yr of currently mothballed capacity at its Granger plant in the period 2009-12. The additional production will be sold entirely on the export market.

The US soda ash industry has proved very effective at lobbying the US government in order to protect its interests. There are numerous examples of diplomatic pressure being brought to bear on countries that are perceived to be putting trade barriers in the way of US soda ash exports, or which try to ensure that ANSAC complies with their national anti-cartel legislation.

The United States has not ratified the Kyoto Protocol, so there is no immediate prospect of the US soda ash industry being put under any pressure to reduce its CO2 emissions. In fact, the US soda ash industry was recently able to use its lobbying power to obtain a reduction in the US federal royalties for trona extraction from 6% to 2% on the basis of the intense competition that it claimed that it was facing in the international market. This reduction in taxation was granted at the same time as the industry was increasing its CO2 emissions by converting from natural gas to coal.

Despite itself being free from any threat of carbon taxation, the US soda ash industry is well aware of the opportunity presented by the potential imposition of emission charges on its overseas competitors. Recent lobbying material[16] has sought to portray their product as having a lower environmental impact than that produced by the ammonia-soda process. Their comparisons are based on plants in China, which have much poorer energy efficiency than Brunner Mond's plants, and also neglect to consider the impact of shipping.

We have no doubt that if an auctioning basis is used when EU-ETS is extended to the European soda ash industry, the US soda ash producers will use this as an opportunity to increase their sales to the EU at the expense of the indigenous producers.

4. POTENTIAL THREAT FROM RUSSIAN IMPORTS

There are four soda ash producers located in Russia (Table 5). The two larger plants produce soda ash via the ammonia-soda process, whilst the small plants use a unique process in which soda ash is produced from the mineral nepheline as a by-product of alumina manufacture. The soda ash produced by the nepheline process is of a lower quality, and is not sold outside the Former Soviet Union.

Table 5

SODA ASH PLANTS IN RUSSIA

Producer	Capacity (t)	Production (t)
Soda Sterlitamak	2,100,000	1,720,000
Soda Berezniki	1,500,000	480,000
Rusal (Achinsk)*	600,000	560,000
Rusal (Pikalevo)*	220,000	180,000
Total Russia	4,420,000	2,940,000
*Soda ash is a by-product of alumina production from Nepheline ore.

The nameplate capacity of the Russian plants dates from the Soviet era, when large capacities were built up to serve the needs of the Soviet Union and its Comecon trade partners. When the Communist system collapsed at the end of the 1980s, much of this production capacity became surplus to requirements and was mothballed.

Since the late 1990s, this mothballed capacity has been gradually brought back on stream, with the result that Russian production has grown by an average of 6% per annum since 1997. Demand in Russia is also growing at about 6% per year, but a proportion of the increased production is finding its way on to the export market (Figure 5). In particular, exports to the EU have increased by 130,000 tonnes in the last three years.

Figure 5

RUSSIAN EXPORTS—TOTAL AND EU (1997 -2007)

Most of the Russian producers' domestic sales are conducted through a single trading organisation, ETK, enabling them to command artificially high prices. They are therefore free to sell their excess production on the export markets at very low prices. The Russian soda ash producers are also able to access low-cost gas, coal and anthracite, giving them a substantial cost advantage over the EU producers.

Both the Sterlitamak and the Berezniki plants have investment programmes in place, which will see continued growth in their production in the period to 2010. Our projections suggest that the production increase will be more than is required to satisfy the growth in domestic demand over the period, so the amount of Russian soda ash available for export to the EU is expected to rise.

Carbon footprint of Russian soda ash delivered to the EU

The large Russian producers use the same manufacturing technology as Brunner Mond, but with poorer efficiencies and lower environmental standards. They have not invested in Combined Heat and Power plants, and with the lower costs of gas and coal in Russia have little incentive to do so.

Prior to the investment in the new CHP plant, Brunner Mond's plants emitted a total of 1.2 t CO2/t soda ash. It can be assumed that a typical Russian soda ash plant will have emissions of at least this level.

As with imports from the US, emissions from transport must be taken in consideration when evaluating the carbon footprint of Russian soda ash sold in the EU market.

Almost all of the Russian soda ash sold in the EU comes from the Sterlitamak plant. To reach the EU, soda ash must first be transported by rail to either St Petersburg on the Baltic Sea or Novorossiysk on the Black Sea, both of which are approximately 1,500 miles from Sterlitamak. Transport from St Petersburg to Antwerp by coastal shipping involves a further journey of just under 1,400 nautical miles.

The carbon dioxide emissions resulting from the transport of Russian soda ash to Antwerp are estimated to be at least 0.09 t CO2/t soda ash. This gives a total carbon footprint of over 1.3 t CO2/t soda ash, far in excess of the 0.7 t CO2/t soda ash for domestically produced soda ash.

5. SODIUM BICARBONATE

Brunner Mond manufactures sodium bicarbonate as a downstream product. The production of sodium bicarbonate is dependent on the production of soda ash.

Sodium bicarbonate has a much more diverse range of applications than soda ash. Key application areas are pharmaceuticals (including haemodialysis), food, animal feed, personal care (eg toothpaste) and household cleaning products. Demand for sodium bicarbonate in the EU is growing strongly.

An increasingly important application for sodium bicarbonate is Flue Gas Treatment. Sodium bicarbonate is one of the most effective substances available for the abatement of acid gases (principally hydrogen chloride and sulphur dioxide). With new legislation specifying ever-lower emissions limits, we are predicting that demand will continue to grow strongly.

Like soda ash, Brunner Mond's sodium bicarbonate business must compete with companies importing sodium bicarbonate into the EU. In the case of sodium bicarbonate, the main competition comes from Russia and Turkey.

Brunner Mond currently sells 16% of its sodium bicarbonate production outside the EU. We are one of the few producers of sodium bicarbonate in the world whose product meets the demanding standards required by the pharmaceutical industry, so our product is able to command some price premium. Nevertheless, a unilateral cost increase arising from EU-ETS would put these valuable export sales in jeopardy.

6. CONCLUSIONS

Brunner Mond's soda ash business operates on extremely narrow margins. The additional costs generated if EU-ETS is introduced on an auctioning basis would make the production of soda ash unprofitable. The threat from competition from suppliers that would not be subjected to this charge would prevent us from passing on the full additional costs to our customers.

The likely consequence of the inclusion of the EU soda ash industry in EU-ETS as currently envisaged (ie through the full auctioning of carbon permits) is the closure of a large proportion of the industry and the substitution of domestic soda ash with imports from Russia and the United States. This would deprive key downstream industries of a reliable raw material supply and also result in a net increase in global carbon dioxide emissions.

For the above reasons, the optimum solution would be that the soda ash industry should be excluded from EU-ETS until such time as a global emissions-trading scheme is established which encompasses its overseas competitors. However, given that the Member States wish to include the industry in Phase 3 of the EU-ETS, it is essential that emissions allowances are granted free of charge according to a benchmarking system. Benchmarks can be established for the level of CO2 emissions generated in a good quality manufacturing process with manufacturers being required to purchase allowances only where they fail to meet this standard. Such an approach would provide an incentive to achieve the best quality (lowest carbon) manufacturing performance and lead to the lowest possible carbon footprint for the strategic raw materials of soda ash and sodium bicarbonate in use in the EU.

For such an approach to be successful it is critical that the auctioning decision is taken at an EU level and is not delegated to individual Member States to make separate determinations as this would lead to an unfair distortion of trade within the EU and potentially even favour manufacturing operations with heavier carbon footprints than the exemplars that do exist within the Community.

18 June 2008

APPENDIX 1

AMMONIA SODA PROCESS

Block Diagram of the Soda Ash Manufacturing process extracted from the Process BREF for Soda Ash prepared by the European Soda Ash Manufacturers Association.5