Displaying items by tag: Emissions Trading Scheme

Belgium: The European cement association Cembureau has called for the European Union (EU) to continue to permit the free allocation of carbon credits under the EU Emissions Trading System (ETS) until it completes the roll-out of Carbon Border Adjustment Mechanisms (CBAM) in 2030 at the earliest. It said that this would provide indirect cost compensation and mitigate the risk of the relocation of industries. It would additionally incentivise emissions reduction by EU suppliers, ensure a smooth implementation of CBAM in the event of challenge to CBAM by the World Trade Organisation (WTO) and mitigate distortions on the EU internal market, according to the association. It gave the example of cement producers competing with other building materials producers as a way in which an overlap period can limit the disruptive impact of CBAM on European value chains.

Chief executive officer Koen Coppenholle said, “A pragmatic approach is needed regarding the interaction of CBAM with the existing carbon leakage measures. A full co-existence of CBAM and free allocation is essential to minimise risks for the industry, avoid distortions on the internal market, safeguard the competitiveness of exports and provide certainty for investors. Such full co-existence, which can be done without any risk of ‘double protection,’ should last at least until the end of Phase IV of the EU ETS in 2030, following which the CBAM will hopefully be mature and expanded to cover most sectors of the economy.” He added, “CBAM is a useful tool to address the imports of products not subject to similar carbon constraints in the EU and therewith mitigates the carbon leakage risk allowing the European cement industry to deliver low-carbon investments. The Environment Committee’s report highlights some key points in this respect, notably that a CBAM should result in EU and non-EU suppliers competing on the same CO₂ costs basis, that the scope of CBAM should be wide to avoid market distortions and that both direct and indirect emissions should be included.”

Cement imports were one of the themes in this week’s news, with stories on the topic from South Africa and Ukraine. The former concerned the latest chapter in that industry’s saga on slowing down imports. The International Trade Administration Commission (ITAC) has started a review on tariffs imposed on cement from Pakistan that were introduced in 2015.

Local producers in South Africa have experienced mixed fortunes since 2015, such as PPC and AfriSam’s failed merger attempt or the introduction of a local carbon tax, and were starting to complain again about imports even before the effects of coronavirus in 2020. This led the Concrete Institute to lobby ITAC in 2019 about rising imports from other nations, principally Vietnam and China.

Back in 2013 cement imports from Pakistan to South Africa were 1.1Mt. This represented the vast majority of all imports to the country. Tariffs of 14 – 77% were imposed on Pakistan-based exporters in mid-2015, initially for six months, but this was then extended. Roughly a year later in mid-to-late 2016, Sephaku Holdings said that imports of cement had ‘significantly’ declined on a year-on-year basis, particularly from Pakistan. By the end of June 2016 approximately 0.16Mt had been imported compared to 0.5Mt in the previous period. However, it noted that 75% of the volume was from China. Since then imports started to creep up. Cement imports reportedly rose by 84% year-on-year in 2018 and then by 11% in 2019. Data from construction industry data company Industry Insight suggests that Vietnam accounted for 70% or 0.47Mt of the 0.68Mt of cement imported into South Africa in the first nine months of 2020. The remaining 30% or 0.20Mt came from Pakistan. In this kind of environment it seems unlikely that ITAC will do anything other than extend tariffs.

Meanwhile in the northern hemisphere, in Ukraine this week a court in Kiev dismissed a challenge by the Belarusian Cement Company to remove cement import tariffs from Russia, Belarus and Moldova that were introduced in mid-2019 for five years. Notably, a law firm representing Dyckerhoff Cement Ukraine, HeidelbergCement Ukraine, Ivano-Frankivsk Ukraine and CRH subsidiary Podilsky Cement commented favourably upon the court’s decision to uphold tariffs. These producers form UKRCEMENT, the association of cement producers of Ukraine. However, the association doesn’t include Russia-based Eurocement, which operates Ukraine’s largest cement plant at Balakleya. Relations have been poor between Russia and Ukraine since a war between the countries that started in 2014. So any trade tariffs implemented upon Russia and/or Commonwealth of Independent States (CIS) members will inevitably carry the whiff of geopolitics. Yet, in Ukraine’s defence, it also started an anti-dumping investigation into cement imports from Turkey in September 2020. Nationalism may be relevant but let’s not discount hard-nosed economics just yet.

Turkey’s involvement in Ukraine leads to last week’s presentation at Global Cement Live by Sylvie Doutres, DSG Consultants on cement and clinker trade in and out of the Mediterranean region. Readers can watch the presentation here but the headline story here was the trend of reducing exports away from southern European countries such as Spain, Italy and Greece, to greater exports from North African countries and Turkey over the last decade. Turkey particularly has pushed its share of exports even more in 2020 despite (or perhaps because of) a tough domestic market. The general trend here away from southern Europe has been blamed on European Union-based (EU) producers becoming less competitive often against newer plants in nearby countries.

Battles between producers and government tariff policies are a perennial feature of any market in commodities such as cement. The ebb and flow of import and export markets cover many factors including production costs, distribution networks, tariff structures and more. Distinctive features of cement trading, for example, are the high cost of transporting heavy building materials over land and the world’s chronic cement production overcapacity. In the EU’s case one reason that often gets blamed is the emissions trading system (EU ETS) and the mounting cost it is imposing upon cement production. For example, today’s story that Holcim España wants to convert its integrated Jerez plant into a grinding unit has been blamed on falling exports and a reduction in ETS credits. It is noteworthy then that the EU ETS rate breached the Euro30/t level in December 2020. This may be good news for the sustainability lobby but the exodus of exports away from Southern Europe tells its own story. What form the EU ETS carbon border adjustment mechanism takes as part of the EU Green Deal will be watched closely by producers both inside and outside the EU.

Global Cement Live continues on 21 January 2021 with Kevin Rudd, Independent Cement Consultants, presenting 'Independent or third party factory acceptance testing of major cement plant equipment and critical spare parts and the challenges of Covid’

HeidelbergCement released their sustainability report for 2019 this week. Every large cement producer publishes one but this one is worth checking out because of the company’s ambition to become CO₂ neutral. Other companies are heading the same way but few of them have such developed and public plans.

Sustainability reports are often a hodgepodge of non-financial reporting bringing together environment, health and safety, community and other topics. Multinational companies cover a wide range of jurisdictions and combining reporting in these kinds of fields can be beneficial. Typically they are members of various bodies like the Global Reporting Initiative (GRI) or the Global Cement & Concrete Association (GCCA) that give various levels of conformity between reports. Yet, the wider focus of sustainability reports gives companies a chance to promote what they are doing well, away from balance sheets.

One highlight of HeidelbergCement’s report is its progress towards reducing its specific CO₂ emissions per tonne of cement and its recognition by the Science Based Targets (SBT) initiative towards this goal. So far it has achieved a reduction of around 22% from 1990 levels to 599kg CO₂/t (net) with a target of a 30% reduction or 520kg CO₂/t by 2030. There is a lot more going on in the report but it’s led by the vision, ‘to offer CO₂-neutral concrete by 2050 at the latest.’ It plans to achieve this by increasing the proportion of alternative CO2-neutral raw materials and fuels, developing lower clinker cement types and capturing and utilising CO₂ emissions. A focus on concrete is worth noting given the pivot by building materials manufactures towards concrete in recent years.

Back in the present, HeidelbergCement is roughly in the middle of the pack of major European multinational cement producers with its specific CO₂ emissions for cement in 2019. LafargeHolcim reported 561kg CO₂/t and Cemex reported 622kg CO₂/t. This is a bit of a moving target since corporate acquisitions and divestments can change both the starting point and the apparent current progress. HeidelbergCement’s acquisition of Italcementi in 2017 or CRH’s purchase of Ash Grove did exactly that. The other thing to consider is that these companies manufacture a lot of cement. The actual gross CO₂ emissions from a multinational cement producer are immense. LafargeHolcim, one of the world’s largest multinational producers, emitted 113Mt of CO₂ in 2019 from process and fuel sources whilst making cement. To put that into context, estimates for total global CO₂ emissions range from 33 – 36Gt for 2019. The cement industry’s entire share was estimated by the International Energy Agency (IEA) to be 4.1Gt in 2018.

Where this sustainability report starts to become really interesting is where it talks about CO₂ capture and utilisation. Its plans in this department are more mature than many of its competitors with various initiatives at different levels of development, mostly in Europe. Norcem, its Norwegian subsidiary, recently signed an agreement with Aker Solutions to order a CO₂ capture, liquification and intermediate storage plant at its integrated Brevik cement plant. The deal is dependent on government support but it’s a serious proposal. As reported previously from the Innovation in Industrial Carbon Capture Conference 2020, HeidelbergCement is actively preparing to hook up with CO₂ transport and storage infrastructure. The driver is CO₂ pricing from initiatives like the European Union (EU) Emissions Trading Scheme (ETS). With the EU preparing for the next phase of the ETS and talk of the European Green Deal gathering pace, before the coronavirus outbreak at least, CO₂ prices in Europe look set to rise. HeidelbergCement is positioning itself to benefit from being the first major cement producer to head into CO₂ capture and storage/utilisation with a variety of methods intended for different CO₂ prices and regional requirements.

HeidelbergCement doesn’t mention the coronavirus pandemic in its latest sustainability report. The report covers 2019 after all, before all of this happened. These reports do include health and safety information of employees, so this may be something to look out for next year. However, Cemex did mention the coronavirus in relation to its climate action plans this week. Essentially it wants to maintain its plans as a ‘fundamental component’ of its efforts to recover from the health crisis. This chimes with media talk around so-called ‘green-led’ government-backed relief programmes. Governments are the ones who are likely to be handing out the money, probably in the form of infrastructure projects. So it’s the perfect opportunity for them to encourage change from the companies bidding for this funding. Sustainability reports and the information behind them will be a useful tool in accessing this cash.

Hungary: Italy-based Entsorga has completed the installation of an automated alternative fuel (AF) line at a Hungarian cement plant.The upgrade consists of an Entsorga Spider crane and Pelican power system which will be able to maintain a continuous feed to the plant’s calcination system 24 hours a day.

Entsorga CEO Francesco Galanzino said, “Bringing a commission to a successful conclusion in the middle of the maximum intensity period of the coronavirus crisis has been a great satisfaction. The cement plant will make significant savings in CO₂ emissions.”

EU: Cembureau has welcomed the European Commission (EC)’s proposal for consultations on setting up a carbon border adjustment mechanism (CBAM) for imported goods including cement, and set out a number of ‘design principles’ that it says ‘should apply’. According to Cembureau, a CBAM ought to be: complementary to EU emissions trading scheme (ETS) free allowances (in the initial phase) and World Trade Organisation (WTO) compatible, based on importers’ verified emissions, including indirect emissions, applicable to all ETS sectors and capable of providing a CO2 charge exemption for EU exporters.

The EC has said that it will present a final proposal for a CBAM by mid-2021.

EU: The European Union (EU) has ignored lobbying calls from the cement industry in upholding the 31 March 2020 deadline for companies to submit emissions reports for 2019. EurActiv News has reported that “firms are struggling to have their reports verified” due to the coronavirus.

After reports are submitted, producers will have until 30 April 2020 to surrender any Emissions Trading Scheme (ETS) credits needed to cover their reported emissions.

EU: The coronavirus has caused emissions credits sold under the Emissions Trading Scheme to take a price dive to Euro16.31/t of CO₂ on 19 March 2020, down by 36% month-on-month from Euro25.66/t on 19 February 2020 and 22% year-on-year from Euro21.01/t on 19 March 2020. Environmental consultancy firm Energy Aspects said, “As the COVID-19 outbreak is now spreading rapidly in Europe, it will start to reduce emissions as lockdowns are put in place in multiple countries,” according to Reuters. The European Commission has forecasted a 1.0% contraction in the EU economy in 2020, revising its February estimate of 1.4% growth year-on-year. This would correspond to a reduction in industrial CO₂ emissions of between 10.0Mt and 20.0Mt by the end of year.

Estonia: Germany-based HeidelbergCement’s subsidiary Kunda Nordic Tsement has announced the planned closure of its 0.8Mt/yr integrated Kunda plant in Kunda, Lääne-Viru County in March 2020. Business World Magazine has reported the plant closure will result in 80 redundancies. The company has stated the reason for the closure as being that the plant’s equipment, which produces cement by the wet method, is economically unviable due to its CO₂ intensity.

The price of EU Emissions Trading System (ETS) emissions permits fell to Euro15.24/t of CO₂ on 18 March 2020, down by 30% from Euro21.71/t on 18 March 2020.

UK: Parliament has voted to grant Her Majesty's Treasury powers to implement a UK emissions trading scheme (ETS) in line with the Climate Change Act (2008). Accountancy Daily News has reported that the ETS will be linked to the EU ETS ‘if such is suited to both sides’ interests,’ but, if not, will be subject to an alternative pricing mechanism. The Treasury said that “in a standalone UK ETS, additional market stability mechanisms can be implemented.”

Announcements from two very different countries serve to highlight the global cement sector’s on-going and seemingly intractable overcapacity issues this week.

First up, India, the world’s largest democracy and second-largest cement market, will reportedly struggle to exceed 70% capacity utilisation in the forthcoming 2020-2021 fiscal year, according to the credit ratings agencies ICRA, India Ratings and Crisil. In the same week, however, we have heard that UltraTech Cement will launch a 3.5Mt/yr capacity expansion at its Bhogasamudam plant in Andhra Pradesh, while ACC committed to launching a 2.5Mt/yr plant in Chandrapur, Maharashtra early last week. In February 2020 Deccan Cements firmed up plans to expand its Mahankaligudem plant in Telengana and JSW wants to turn its Bilakalagudur plant into a 6Mt/yr beast. Back in January 2020. Shree Cement launched ambitious plans to spend US$1.3bn on upgrades in the period to 2023. With Indian capacity estimated to hit 500Mt/yr by the close of 2020, what do all of these producers know that ICRA et al don’t?

Second on the list is centrally-planned Vietnam, the world’s third-largest producer, having produced 96.5Mt of cement in 2019. Here, long-standing excessive capacity is looking increasingly ridiculous following a massive collapse in export sales in January and February 2020 due to the coronavirus outbreak. This, of course, continues to affect cement producers and users alike.

Just today, Nguyen Quang Cung, chairman of the Vietnam Cement Association (VNCA) said that demand is expected to remain high throughout 2020 as a whole. The Ministry of Construction (MoC) currently stands by its autumn 2019 forecast that Vietnam will produce a whopping 103Mt of cement this year. It expects domestic consumption to be around 70Mt, with exports of 33Mt. A 2.5Mt/yr plant in Tân Thắng Commune in the central province of Nghệ, and a 4.6Mt/yr plant in Bỉm Sơn Commune, Thanh Hóa, will come online in 2020, further adding to the country’s capacity. Exports were touted as the saviour of the sector back in January 2020. This assertion may now have to be revisited.

The drivers behind the overcapacity are different in each country. Indian producers have a long history of capacity addition in order to maintain or improve their market share. Standing still is tantamount to walking (or even running) backwards, so the biggest producers (and those that want to become big producers) tend to go ‘over the top’ with their expansion aims. Market forces eventually catch up with the smaller players, which find themselves bought up or shut down. This has the seemingly inevitable effect of maintaining low capacity utilisation rates.

In Vietnam, the overcapacity is due to central targets, which, as noted previously, are an entirely alien concept for cement producers across much of the rest of the world. As Vietnam’s obsession with high cement production has developed, it has become hooked on exports, entering a void recently vacated by Chinese exports. It often sells at scarcely-believable prices and now, with the introduction of the coronavirus into the mix, even these seem to be too high. After all, Vietnam’s cement association cannot ‘set targets’ for cement demand in other countries.

So… how to reduce capacity? There are two examples, again from different types of market. China has, of course, reduced its overcapacity massively to eliminate outdated capacity and improve the country’s environmental performance. This has been possible due to orders from the top of government. The other example can be found in Europe, where the EU Emissions Trading Scheme has finally found its teeth, with the oldest and least efficient plants now feeling the financial bite of their CO₂ emissions.

It remains to be seen whether the collapse of the export market will force the Vietnamese cement sector to rationalise its inventory. From a market-based mindset it is clear that it should follow China’s lead. India, meanwhile, has a massive overcapacity that market forces seem slow (or indeed unable) to clear. The EU route may be more applicable here, but one might expect resistance from cement producers. Also, the development and demographic differences between India and Europe are stark, indicating that there may be a need, at some point in the future, for 500Mt/yr of capacity. The Indian majors are counting on this and laying the groundwork for a step-change in the future. Indeed, in a few years, 500Mt/yr may look vanishingly small if demand increases rapidly. What are the chances of that?