European cement industry carbon costs cannot be passed onto customers

One of the issues during the debate on the future of the EU Emissions Trading Scheme (EU-ETS), is the ability (or not) of a sector to pass on to their customers costs arising from to the purchasing of CO2 allowances.

“Based on a recent study commissioned to PricewaterhouseCoopers (PwC), it is clear that the European cement industry cannot pass through these additional carbon costs onto its customers,” according to European cement association, CEMBUREAU. “This is demonstrated by both economic theory and market data. Firstly, the ability to pass on such costs is affected by changes in supply and demand. Over the last seven years, the construction industry across the EU has been in a recession. This has had a negative impact on cement demand, which is further compounded by the long business cycle of the sector (due primarily to high initial investment costs). As a result, this high supply, low demand environment restricts the carbon cost pass-through possibility of the sector.”

Moreover, while cement producers can deal with overcapacity in view of low domestic market demand by increasing exports, they face a much greater price pressure in export markets due to the lack of a comparable climate change policy implemented. EU28 export prices are decreasing even more so than local prices (76 per cent of the 2008 level). In addition, as a homogenous product, cement faces commodity pricing and can easily be substituted by a competing product either from within a local market (competing producers) or from different geographical markets.