THE CEMENT INDUSTRY & THE EU CO 2 REDUCTION CHALLENGE · THE CEMENT INDUSTRY & THE EU CO 2 REDUCTION CHALLENGE ... US RGGI € 1.6 Bn in 2010 12% world ... • EU-wide white cement

Brussels – 6 July 2011

THE CEMENT INDUSTRY &THE EU CO2 REDUCTION CHALLENGE

By Dr Jean-Marie CHANDELLE – CEMBUREAU Chief Executi ve

THE EU KYOTO PROTOCOL

• Base year 1990

• First commitment period 2008-2012 (-5% for Annex I countries)

• OECD & Eastern European countries

KYOTO PROTOCOL

• -8% or 336 M tonnes CO2 by 2012• Binding target of -20% in Climate

Change Energy Package 2009

EU - COMMITMENT (the Bubble)

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Brussels-06.07.2011-Cem Ind & CO2 red challenge-JMC

EU - COMMITMENT

• Minus 20% binding target set in 2009 (compared to 1990 level)


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Cost-efficient pathway to an 80% “domestic” reducti on in 2050

2020 2030 2040 2050

25% 40% 60% 80%

COM(2011) 112 – European Commission Communication“A Roadmap for moving to a competitive low carbon e conomy in 2050”

THE EU ROADMAP TO 2050

EU – COMMITMENT IS UNILATERAL, NOT CONDITIONAL

• But in EU-ETS Art 28 ETD sets certain conditions

• Will trigger major changes� 100% auctioning� -20% to -30%� No measures to include importers

• Open questions� Critical mass of countries� Equivalence� Similar reduction efforts

• Art 28.1 – ETD 3 months after signature of an international agreement, Commission shall submit an assessing report evaluating the outcome of the negotiations


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EU EMISSION TRADING (EU-ETS)


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BASELINE & CREDIT

The baseline represents the forecast emissions of a

company. Emitters that successfully reduce their emissions

below the baseline can receive credit for the amount of

pollution not emitted. That credit can be saved or banked

and then used to compensate for additional emissions, or

can be sold to some other emitter for cash or other

considerations

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BASELINE & CREDIT

Emission allowances

Year

Baseline emissions

http://www.environmental-finance.com/2000/featarpr2.htm

Project start Project end

Actual emissions

Emission credits

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CAP & TRADE

An emissions trading scheme where the total volume of

allowances in the commitment period is limited or

"capped" beforehand and where these allowances can be

traded

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CAP & TRADE

Emission allowances

Year

Emissions cap

http://www.environmental-finance.com/2000/featarpr2.htm

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SIZE OF CARBON MARKETS IN €

Global world € 121 Bn in 2010 100% world

EU € 95 Bn in 2010 64% world

US RGGI € 1.6 Bn in 2010 12% world

Source: Point Carbon – 29 Jan 2010


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EU ETS CAP FOR 2013

• Total EU ETS CAP For 2013 2 039 152 882 EUAs

• Auctioning Cap For 2013 Around 1 000 000 000

• Free allowances cap For 2013Around 1 039 152 882

Source: Commission Decision 2010/634/EU of 22 October 2010 adjusting the Union-wide quantity of allowances to be issued under the Union Scheme for 2013 and repealing Decision 2010/384/EU OJ L 279, 23.10Commission Q&A (Question 2) available at: http://ec.europa.eu/clima/faq/ets/auctioning_third_en.htm


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THE CEMENT INDUSTRY


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THE CEMENT INDUSTRY

• An energy intensive industry

• A CO2 intensive industry

• A capital intensive industry

• A low labour intensive industry

• A heavily regulated industry

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AN ENERGY INTENSIVE INDUSTRY

• 60 to 130 kg of fuel oil or equivalent fuelling amount per tonne of cement

• Plus 110 kWh of electricity per tonne

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A CO2 INTENSIVE INDUSTRY

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• 5% of worldwide CO2 emissions

• 3% of EU CO2 emissions

• High intensity per unit of sales (> 9kg CO2 per €)

• ETS: direct & indirect CO2 cost = 45.5% GVA

• 60% of CO2 emissions = process emissions

• 40% of CO2 emissions = < fuels combustible


A CAPITAL INTENSIVE INDUSTRY

• € 150M per million tonnes of capacity

• Three years of turnover before first € earned

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LOW LABOUR INTENSITY

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48 000 direct employment in EU minus Cyprus and Slo vakia


A HEAVILY REGULATED INDUSTRY

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1944

6492

125147

180220

258

315

377

427

501534 547 562 577 589

608 624 635

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

EU ENVIRONMENTAL REGULATIONS (1990 – 2010)


KEY EU REGULATION APPLICABLE TO THE CEMENT INDUSTRY

• Council Directive 96/61/EC concerning integrated pollution prevention and control (IPPC), now Directive 2010/75/EU on industrial emissions, including former Directive 2000/76/EC on the incineration of waste

• Directive 2003/87/EC establishing a scheme for greenhouse gas emission allowance trading within the Community revised by Directive 2008/101/EC

• Directive 2008/98/EC on waste (Waste Framework Directive)

• Regulation (EC) No 1907/2006 concerning the Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH)

• Regulation (EC) No 1272/2008 on classification, labelling and packaging of substances and mixtures (CLP)

• Council Directive 89/106/EEC on the approximation of laws, regulations and administrative provisions of the Member States relating to construction products (CPD) to be replaced by the Construction Products Regulation (to be published in the OJ EU)

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KEY EU REGULATION APPLICABLE TO THE CEMENT INDUSTRY

• Regulation (EC) No 166/2006 concerning the establishment of a European Pollutant Release and Transfer Register (EPRTR)

• Directive 2004/35/EC on environmental liability with regard to the prevention and remedying of environmental damage (ELD)

• Council Directive 96/82/EC of 9 December 1996 on the control of major-accident hazards involving dangerous substances (SEVESO II)

• Stockholm Convention on Persistent Organic Pollutants

• Basel Convention on the Control of Transboundary Movements of Hazardous Wastes

• A Global legally binding instrument on mercury is in negotiation

>90% EU regulation or EU based national rules

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High need for predictability and stability!


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World cement production 2010, by region and main co untries3.3 billion tonnes

Africa; 4,8%

China; 56,0%

India; 6,4%

Japan; 1,6%

Others Asia; 13,1%

Oceania; 0,3%

European Union (EU27),

5.7%

Others Europe, 2.3%

CIS; 2,5%

USA; 2,0%

Other America; 5,3%

ETS TARGET

Minus 21% in 2020 compared to 2005


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CARBON LEAKAGE


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CARBON LEAKAGE

• Cement industry qualifies as a sector vulnerable to carbon leakage with production cost increase induced directly and indirectly by EU-ETS of 45.5% GVA (above the 30% requirement)

• Next review in 2014 – CO2 price critical!


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CARBON LEAKAGE

Consequences

• Free allocation up to 2020

• Member States may opt for state aids to compensate higher electricity prices

• Possibility to include importers in ETS


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FREE ALLOCATION


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FREE ALLOCATION: BENCHMARK (1)

• EU-wide grey cement clinker benchmark = 766 kg of CO2 per tonne of clinker

• EU-wide white cement clinker benchmark = 987 kg of CO2 per tonne of clinker

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FREE ALLOCATION: BENCHMARK (2)

• Benchmarks to be multiplied with Historical Activity Level (HAL), i.e. production to get amount of free allowances per installation

• BM x Median HAL 2005-2008 or 2009-2010, whichever is higher

• Maximum total free allocation for industry set at industry’s share in total cap based on emissions in 2005-07

� A correction factor may be applied if necessary

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PRODUCT


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PRODUCT: PROGRESS OF NON CEM I CEMENTS = LOW CARBON FOOTPRINT

Reduction ofcementclinker ratio in Europe

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2011...-JMC

Strength Class

Category Ktonnes% %

Ktonnes% %

Ktonnes% %

Ktonnes% %

Ktonnes%

CEM I - Portland cement 4 807 5.8% 6.7% 35 270 28.9% 49.1% 13 230 81.7% 18.4% 18 572 44.6% 25.8% 71 879 27.3%

CEM II - Portland-composite cements

Portland-burnt shale cement 488 0.4% 87.6% 69 0.4% 12.4% 557 0.2%

Portland-composite cement 20 534 24.6% 42.3% 25 706 21.1% 53.0% 1 0.0% 0.0% 2 279 5.5% 4.7% 48 520 18.4%

Portland-fly ash cement 3 723 4.5% 26.1% 10 039 8.2% 70.4% 491 1.2% 3.4% 14 253 5.4%

Portland-limestone cement 20 615 24.7% 36.7% 32 303 26.5% 57.5% 769 4.7% 1.4% 2 490 6.0% 4.4% 56 177 21.4%

Portland-pozzolana cement 1 404 1.7% 29.6% 3 324 2.7% 70.2% 10 0.0% 0.2% 4 739 1.8%

Portland-silica fume cement 0 0.0% 0.0% 54 0.1% 100.0% 54 0.0%

Portland-slag cement 6 719 8.1% 46.4% 6 256 5.1% 43.2% 1 187 7.3% 8.2% 305 0.7% 2.1% 14 467 5.5%

Unspecified 10 881 26.1% 100.0% 10 881 4.1%

TOTAL CEM II 52 996 63.5% 35.4% 78 116 64.1% 52.2% 2 026 12.5% 1.4% 16 511 39.6% 11.0% 149 649 56.9%

CEM III - Blastfurnace cement 5 904 7.1% 32.6% 6 970 5.7% 38.5% 230 1.4% 1.3% 4 996 12.0% 27.6% 18 099 6.9%

CEM IV - Pozzolanic cement 14 697 17.6% 97.1% 447 0.4% 2.9% 15 144 5.8%

CEM V - Composite cement & Others 5 023 6.0% 60.2% 1 043 0.9% 12.5% 711 4.4% 8.5% 1 564 3.8% 18.7% 8 341 3.2%

TOTAL 83 427 100% 31.7% 121 846 100% 46.3% 16 197 100% 6.2% 41 642 100% 15.8% 263 113 100%

Notes

National cement types do not, in some cases, correspond exactly to EN 197-1. However, for the purpose of producing a summary they have been categorised accordingly

Countries not included: AT, IE, LT, LV, LU, NO, RO

DOMESTIC DELIVERIES OF CEMENT BY TYPE AND STRENGTH

CEMBUREAU COUNTRIES - SYNTHESIS 2007

Ordinary High Very HighUnspecified TOTAL

(32.5 of prEN 197-1) (42.5 of prEN 197-1) (52.5 of prEN 197-1)

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2011...-JMC

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2011...-JMC

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WHAT’S THE FUTURE LIKE?

• 2014 – Carbon Leakage list to be reviewed – CO2 prices critical

• Full auctioning will prevail (70% 2020 to 100% 2027):

� Best allocation method in the absence of an international agreement; provided importers are included!

� Possibility to include importers in a limited number of sectors such as steel and cement;

� Is there a political will to include importers? Aviation case will be the test

� The question is WHEN? Provided that cement industry still at risk of carbon leakage


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THE CEMENT INDUSTRY & THE EU CO 2 REDUCTION CHALLENGE · THE CEMENT INDUSTRY & THE EU CO 2 REDUCTION CHALLENGE ... US RGGI € 1.6 Bn in 2010 12% world ... • EU-wide white cement