World Bank/Ecofys affirms sensitivity of cement sector to carbon leakage

While other factors such as raw materials, energy, labour and knowledge also have to be considered in terms of carbon leakage, the impact of carbon pricing on a cost-competitive industry such as the cement industry cannot be ignored, according to “State and Trend of Carbon Pricing 2015”, a report published by the World Bank and Ecofys. “However, for sectors producing relatively homogenous products — such as commodities, steel, cement, and electricity — cost competition is crucial. … Often, production of these relatively homogenous goods is also emissions-intensive and carbon pricing could have a significant impact on companies’ production costs, leading to loss of their international competitiveness and, as a consequence, emissions leakage,” says the report.

In the run-up to COP21, the Paris climate change conference to be held in December, there is a growing trend to put a price on carbon. At present there are some 40 countries and over 20 cities, or around a quarter of GHG emission, that have introduced carbon pricing as a way to mitigate the output of CO₂ into the atmosphere.

However, carbon pricing has both positive and negative effects on the sector. “This result [of carbon pricing] is an economically efficient and socially fair impact on the relative competitiveness of firms, which makes them face the truer economic cost of production. It levels the playing field between the emissions-intensive and relatively 'clean' firms,” adds the report.

In terms of negative impacts, these mainly occur when there are differences between different areas and are manifested via short-term output, long-term investment and global fossil fuel prices. To protect against carbon leakage governments can take measures such as free allocation of allowances, administrative exemptions, rebates and border carbon adjustments.