European cement industry seeks level playing field for carbon reduction costs

CEMBUREAU, the European cement association, has recently released two white papers on its position to the Carbon Border Adjustment Mechanism (CBAM) and the EU Emissions Trading Scheme (EU ETS) revision. The draft regulation on CBAM, argues CEMBUREAU, is an opportunity to reduce CO2 emissions globally while equalising costs between EU and non-EU cement suppliers. Meanwhile, the EU ETS also needs to be realigned with Europe's increased climate ambition for decarbonisation.

As the transition period for the introduction of CBAM arrives in 2023-26, CEMBUREAU hopes the new regulations will protect Europe from carbon leakage. CBAM is necessary to ensure cement producers outside of the EU comply with similar CO₂ reduction requirements imposed on EU producers, so that products are of similar environmental performance. CBAM will equalise costs between EU and non-EU suppliers before any phase-out of CO₂ emission free allocations. In the absence of equalisation, CEMBUREAU calls for CBAM to co-exist with the EU ETS free allocation at the current level. The association argues for the gradual reduction of free allocations and in parallel with a successful and efficient application of CBAM.

CEMBUREAU seeks a watertight mechanism to equalise CO₂ costs between EU and non-EU suppliers as a first step prior to any gradual phase-out of free allocations. Such a phase-out would protect against market distortions between CBAM and non-CBAM sectors.

Rising costs with energy and EU ETS
At current EU carbon prices, EU cement industry CO₂ costs account for 8-10 per cent of total production costs, or around EUR4.42/t cement. EU cement producers have seen cement imports increase by 25 per cent in 2020. Moreover, new business models see a trend for clinker being produced outside of the EU and imported to EU grinding units. It is also expected that EU cement producers' costs will rise. By increasing the Linear Reduction Factor (LRF), re-basing of the cap for ETS and strengthening benchmark rules, considerable pressure is expected to be exerted on the cement sector. CEMBUREAU would also like to see waste incinerators included in the draft ETS Directive, so that they are faced with similar climate requirements to the cement industry. 

CEMBUREAU states that around 200 cement kilns across the EU pay for their carbon costs on the basis of verified emissions and that CBAM should impose similar requirements on importers. The association also wants importers to be incentivised to use verified emissions, like the EU does for its producers under the ETS Monitor and Recording Regulation. The risk of circumvention of CBAM with slightly modified products also needs to be prevented and CEMBUREAU warns against importers employing resource shuffling tactics, whereby the cleanest factories are used to export to the EU and more polluting factories are kept to serve the domestic markets. CEMBUREAU is agreed that double protection for EU cement producers should be avoided accounting for carbon pricing schemes developed in other countries.

However, the association does regret that the draft CBAM regulation does not include indirect emissions. Technologies such as carbon capture will lead to significantly higher electricity demand at cement plants and the cement industry's electricity consumption is expected to double by 2050.

Because the fates of CBAM and EU ETS are interlinked, it is also important to ensure that CBAM research and the revised EU ETS Directive are examined in parallel, according to CEMBUREAU. 

Solutions still required for CBAM
The proposed expansion of the ETS to include transport emissions means that CBAM should also consider this for inclusion, CEMBUREAU argues. A solution is similarly required for European exporters. The CBAM draft does not have a solution for the overall increase in CO₂ costs faced by EU producers, while developing countries may not have similar carbon pricing schemes as the EU. The destination principle where operators exporting to a third country have to be treated the same way as a domestic operator might be worth further consideration, CEMBUREAU concedes.

Supporting breakthrough technologies
Cement competes with other ETS sectors beyond those covered in CBAM, which is targeted at cement, aluminium, steel, fertilisers and electricity. CBAM should be wide enough not to impact on downstream markets such as the construction sector, argues CEMBUREAU. The association also wants revenues generated by CBAM to unlock key breakthrough technologies. The free allocations that will be auctioned off will provide revenues for the Innovation Fund, and these should be allocated to projects in CBAM sectors, according to CEMBUREAU.