Displaying items by tag: Emissions Trading Scheme
China: According to Reuters, Chinese cement companies, including Huaxin Cement, covered by the carbon market in Hubei Province will likely be forced to spend millions of Chinese Yuan on permits before the compliance deadline on 10 July 2015 after authorities rejected their pleas for leniency.
In June 2015, the companies asked regulators to let them borrow some permits from the 2016 quota, saying that they could not afford to buy permits to cover their obligations for 2014. However, their requests were rejected, easing market concerns that big emitters would be let off the hook.
Huaxin Cement, Hubei's biggest cement producer, has been under particular pressure to buy over the last few trading days as it has a shortfall of 1.15 million permits. "Local officials have talked through the consequences of non-compliance with cement plants, so Huaxin Cement approved a US$6.44m budget to pay for permits," said a trader who did not want to be named as he was not authorised to speak to media.
Trading volumes on the Hubei carbon exchange have surged ahead of the deadline in the absence of any indication that the compliance date, initially set for 31 May 2015, would be pushed back for a second time. As of 9 July 2015, 44 companies, or 32% of the total 138 firms, did not have enough permits to cover their obligations. Of these, 26 were cement producers. A manager with Gezhouba Cement Group, Hubei's second-largest cement producer, said that its permit allocation had been miscalculated.
Companies covered by the Hubei exchange are only obliged to buy a maximum of 200,000 permits, regardless of how much they overshoot their cap. However, Gezhouba has eight subsidiaries in the scheme, bringing its total permit demand to more than a million. "The scheme is punishing big producers, but not inefficient competitors," said the Gezhouba manager. "We pleaded with the government to re-issue permits and narrow the gap, but we have not got any reply. How can we spend tens of millions on carbon?"
Grand Theft Carbon
08 October 2014It's been an expensive few weeks for Holcim. First, the Venuezuelan state-run outfit Corporación Socialista Del Cemento failed to pay its last instalment of US$97.5m in compensation for its forced nationalisation in 2008. Then the European Court of Justice dismissed Holcim's lawsuit against the European Commission over the theft of 1.6 million emissions allowances in 2010. Here we concentrate on the second story.
Holcim Romania's CO2 accounts held within the Romanian National Registry for Greenhouse Gases were illegally accessed by hackers in November 2010. 1,000,000 CO2 allowances were transferred to an account in Liechtenstein. Another 600,000 CO2 allowances were transferred to a company in Italy, which had account registries in Italy and the UK. Parts were then transferred to accounts in the Czech Republic, the UK and France before being sold on to emissions exchanges in Paris and Amsterdam.
Holcim then tried to sue the Commission, which administers the bloc's electronic emissions trading network, in 2012 for failing to freeze the accounts containing the stolen units, for not returning them and for allowing other companies to turn them in for compliance under the EU Emissions Trading System (ETS). The multinational building materials producer tried to force the commission to pay it Euro17.6m for damages associated with the theft. The amount was equivalent to the 905,000 allowances that remain unaccounted for at a spot price of Euro14.6/unit and an interest rate of 8%.
Other registries were also targeted in early 2011. As much as Euro30m in carbon allowances were stolen at the time, leading to exchanges having to stop trading temporarily.
Although this is a relatively small amount for a multinational company that reported net sales of over Euro16bn in 2013, it feels harsh. If a personal investor had assets stolen from a bank or investment scheme they would expect some sort of compensation.
It should be noted though that it is unclear how the hackers gained entry to Holcim's account details. Successful 'phishing' for account logins via fake emails and the like might suggest lax security on Holcim's side. Or a more conventional hack on the registry server might suggest loose security on the registry's side. Add to this the fact that the price of carbon allowances has fallen since 2010. Reuters estimated that the outstanding allowances would be worth Euro5.1m today.
Hopefully the thefts in late 2010 and early 2011 can be marked down as teething problems. Yet the European Union Emission Trading Scheme is compulsory for 11,000 power stations and manufacturing plants. Any European company that may be less keen on the scheme is unlikely to have its fears settled by high profile cases of carbon credit thefts or the current low price of trading.
Meanwhile, companies and investors involved with China's Guangdong Province carbon emission trading scheme, the world's second biggest such scheme after Europe, may well be watching what happens in Europe closely.
Taxing arguments for European cement producers
18 June 2014Industrial energy consumers in Romania have succeeded in extracting concessions from the government's green certificates scheme this week. Cement producers, including Lafarge, Holcim and local HeidelbergCement subsidiary CarpatCement Holding, will benefit now from a 10-year facility to acquire the certificates and they will be allowed to buy up to 85% fewer certificates than at present.
The Romanian government reckons the change will save industry Euro750m. It will be good news for the cement producers and aluminium producer Alro Slatina, one of the chief lobbyists for the change which paid Euro39m for the certificates in 2013, reported losses of Euro17m and threatened production closures.
The debacle strikes a chord with other government-led attempts to nudge society towards lower-carbon emitting energy sources. First a national or international scheme offers economic incentives toward some sort of carbon reduction. Then major industrial users either complain that the system 'unfairly' penalises them or they find a way to play the system. The latest example of the adjustments in Romania is an example of the former, as is the current Australian government's intention to remove its carbon tax. Multinational companies surrendering carbon offsets into the European Union's (EU) emissions trading scheme (ETS) is an example of the latter.
In defence of government-industry negotiation, the EU ETS is now in its third phase of trying to make the scheme work as the EU tries to reach its target of a 20% cut in emissions compared to 1990 levels by 2020. In late 2013 environmental group Sandbag accused the target of containing a loophole that allows for a much smaller cut in emissions due to a slack in carbon budgets, of potentially 2% of 1990 levels. However, the EU confirmed in early June 2014 that it is on track to beat its target and cut down total emissions by 24.5% by 2020.
Alongside all of this arguing, overall energy costs have steadily risen over the last decade, as have the rates of co-processing at European cement plants. As a secondary major fuels consumer, behind energy generation and transportation, the cement industry is particularly susceptible to energy prices being jolted around behind various market trends, such as increases in natural gas supply in the US market. In effect the cement industry hops between different 'next best' options, after the leading energy consumers have taken the premium fuels. The interplay between legislators and heavy industry over carbon taxes prompts the following question: what encourages cement producers more to move to reduce their carbon emissions – legislation or fuel prices?
In other news this week, the chief executive of African producer Bamburi Cement, Hussein Mansi, has announced his plans to move on to Lafarge Egypt. In his memo to staff he mentioned, '...five very interesting years leading the Kenya – Uganda business.' Telling words perhaps given the Kenyan government's attention on Bamburi Cement and the East Africa Portland Cement Company, a producer minority-owned by Lafarge. Of course Mansi may discover that 'interesting' is relative in Egypt, a country on the other side of the energy subsidy spectrum to Europe and its carbon taxes.
Lessons from the Europe ETS for the Chinese cement industry
04 December 2013In late November 2013 Guangdong province in China announced that it will be launching its carbon emissions trading scheme (ETS) in December 2013. Together with six other pilot projects in China the scheme will be the second largest carbon market in the world after the European Union (EU) when fully operational. Yet with the EU ETS floundering from excess carbon permits, with a resulting low price of permits and large cement producers such as a Lafarge reported as stockpiling permits, what are the Chinese schemes planning to do differently to avoid these pitfalls?
Overall, China has announced that it intends to cut its carbon dioxide emissions per unit of GDP by up to 45% by 2020 compared to 2005. In Guangdong, emissions from 202 companies will be capped at 350Mt for 2013, according to the local Development and Reform Commission. As shown in an article in the December 2013 issue of Global Cement Magazine, Guangdong province has a cement production capacity of 132.7Mt/yr, the second highest in the country after Anhui province.
From the perspective of the cement industry, Chunfang Wang from Huaxin Cement spoke about the importance of monitoring, reporting and verification (MRV) at an International Emissions Trading Association (IETA) workshop that took place in Guangzhou, Guangdong in early 2013. From Wang's perspective, emission assessment standards were at a 'developmental' stage in China and 'smooth' carbon trading would depend on consistent standards being adopted everywhere. Although at the time the particulars of the Guangdong scheme were unknown, participants at the IETA event advised cooperation with scheme planners to ensure emission producers and purchasers remained part of the decision process. Sliding carbon prices in the EU ETS may have been beneficial for permit buyers but once the government planners become involved to revive the market they might lose out.
As the Economist pointed out the summer of 2013, an ETS is a cap-and-trade scheme. Since China appears to have no definite cap to carbon emissions, how can the trading work? The Chinese schemes cap carbon per unit of Gross Domestic Product (GDP). Yet since GDP is dependent on production, any ETS run in this way would have to include adjustments at the end of trading. This would give central planners of the scheme plenty of wiggle room to rig the scheme. Worse yet, analysts Thomson Reuters Point Carbon have pointed out that the Chinese schemes face over-allocation of permits, the same issue that sank EU carbon prices. Additionally, one of the criticisms of the Guangdong Emissions Trading Scheme (GETS) pilot scheme was that the carbon prices may have been higher than expected due to market collusion.
The Chinese ETS projects face issues over their openness. If traders don't know accurately how much carbon dioxide is being produced by industry, such as cement production, then the scheme may be undermined. Similarly, over-allocating carbon permits may make it easier for producers to meet targets but it will cause problems in the trading price of carbon. However, given that a carbon emissions cap is an artificial mechanism to encourage markets to cut emissions, should any of these concerns really matter? The main question for Chinese citizens is whether or not China can cut its overall emissions and clear the air in its smog filled mega-cities.
Specifically for cement producers, it seems likely that large producers will be able to cope with the scheme best, from having more carbon permits to sell, to rolling out unified emissions assessment protocols, to liaising better with scheme planners. In Europe smaller cement producers, like Ecocem, have criticised the EU ETS for slowing a transition to a low carbon economy by subsidising the larger producers' emissions through over-allocation. In China, with its self-declared intention to consolidate an over-producing cement industry, whatever else happens it seems likely that smaller cement producers may become lost in the haze.
Guangdong carbon market to launch in December 2013
27 November 2013China: Guangdong Province plans to launch carbon emission trading in December 2013. It will be the world's biggest carbon trading scheme after the European Union.
Guangdong has started allotting 388Mt of carbon emission quotas to selected enterprises, according to the provincial development and reform commission. Initially 242 companies from cement, power, iron and steel and petrochemical industries have been included in the quota allocation. The scheme will cap CO2 emissions at 350Mt for 2013.
Quotas equivalent to 29Mt of carbon emissions will be auctioned and the base price will be US$9.8/t. The rest of the quotas will be allotted to companies for free.
Shenzhen City started its carbon trading market in June 2013 and Shanghai launched its market on 26 November 2013. The National Development and Reform Commission has also approved pilot carbon emission trading schemes in Beijing, Tianjin, Chongqing and Hubei. China has pledged to reduce CO2 emissions by 40 – 45% per unit of GDP by 2020.
Lafarge sits on carbon permits so far in 2013 due to weak prices
07 November 2013France: Lafarge has stockpiled carbon permits in the European Union for the first nine months of 2013 due to weak prices. The multinational cement producer confirmed the situation to Reuters following the release of its third quarter results on 6 November 2013.
"Given the current price for CO2 rights there is not a strong rationale for sale compared to holding them for the future," said a Lafarge spokeswoman. Lafarge made Euro56m from selling carbon permits in the first nine months of 2012. Holcim reported in its third quarter results for 2013 that its revenue from the sale of CO2 emission certificates in the first nine months of 2013 fell by 17% year-on-year to Euro8.10m from Euro9.7m.
The EU Emissions Trading Scheme (ETS) has seen the price of carbon permits fall by over 80% to Euro4/t in August 2013 from Euro30/t in 2008. The scheme has been undermined by an oversupply of permits.
Ecocem releases carbon roadmap
09 October 2013Ireland: Ecocem has accused the Irish cement industry of failing to align its CO2 emissions with the European Union carbon 2050 roadmap. The producer of GGBS (Ground Granulated Blastfurnace Slag) cement made the comments in a document detailing its response to the Irish government's Climate Action and Low-Carbon Development Bill 2013. The EU carbon roadmap suggests cutting emissions in Europe by 80% below 1990 levels by 2050.
In its document Ecocem also attacked the European Union's Emissions Trading Scheme (ETS), saying that it provided strong incentives against promoting decarbonisation of the cement sector. It added that a transition to a low-carbon cement and concrete industry could create up to 1200 new jobs within five years.
Ecocem says its product has a carbon footprint of 19kg of CO2 per tonne of cement, compared with about 750 kg of CO2 per tonne it says is produced by the traditional Irish cement sector.
The perils of emissions trading schemes for the cement sector
16 January 2013This week Donal O'Riain, the Irish chief executive of Ecocem, cried out for an 80% tax on cement producers in Ireland. His reason? In his words, Irish producers are making profits from an over-allocation in the European Union (EU) Emissions Trading Scheme (ETS) despite demand dropping in the Irish industry. The tax was his suggestion to address this 'anomaly' and give the Irish Exchequer a boost.
The timing of his comments are interesting given that the EU ETS entered its third phase at the start of 2013. Towards the end of 2012 environmental campaign group Sandbag questioned in a report whether the scheme was actually helping the environment or not. As Sandbag pointed out generally, not just for the cement industry, carbon prices in the scheme had remained low due to an excess supply in the market. Due to the oversupply, prices were so low that the EU ETS has ceased to function.
The European Commission conceded this failing of the EU ETS in November 2012 by announcing that it was taking steps to address the supply-demand imbalance of emission allowances in the scheme. Firstly 'back-loading' action volumes, revising the auction time profile and delay of the auctioning of 900 million allowances, came into effect from 1 January 2013. Secondly the Commission launched a debate on broad structural measures with a report on the carbon market.
Any emissions trading scheme can distort the market in unexpected ways. With regards to the cement industry, if O'Riain is correct, then parts of the Irish cement industry are making profit on carbon credits despite demand falling. Or, to put it as O'Riain did, the EU ETS may be subsidising environmentally-unfriendly plants at the expensive of more environmentally sensitive ones. Such as Ecocem we must presume. What would be really interesting here is to find out whether other European cement producing countries are also benefitting from over-allocation as demand falls, specifically in Portugal, Spain, Italy and Greece.
Another distortion is that in the EU ETS, offsets generated from developing countries can be surrendered by companies in competing sectors in the EU, giving, in effect, a subsidy to competitors outside the EU. For example, as ETS schemes spread then staying outside of such regulation could prove profitable for cement exporters.
Koen Coppenholle the chief executive of CEMBUREAU, the European Cement Association, tackled this in his response to the European Commission's report, "It is essential that any further reduction of CO2 emissions above the targets agreed should remain conditional upon the conclusion of an international agreement between all major greenhouse gas emitting countries. This should be undertaken with a view to establish a global crediting scheme, characterised by a comparable methodology to measure greenhouse gas emission reductions and equivalent monitoring and reduction efforts." Hence the interest in regional Chinese ETS schemes such as the emissions trading schemes that were launched in Beijing, Shanghai and Guangdong in 2012. China currently plans to introduce its own national scheme in 2015.
Despite the bureaucrats' efforts to improve emissions trading schemes, Petroleum Review summed up their effect in June 2012, "Carbon trading appears to have pulled off the noteworthy achievement of uniting oil and gas producers and environmentalists in their appraisal of its shortcomings." We could add cement producers to that list.
Green cement executive speaks out over ETS 'anomalies'
14 January 2013Ireland: The chief executive of Ecocem, which has 'green' cement plants in Ireland, France and the Netherlands, has called for an 80% windfall tax on cement manufacturers in Ireland, which are currently making profits from the EU Emissions Trading Scheme (ETS). Donal O'Riain says that the Irish cement sector has lost 75% of the demand seen during the boom years of the mid-2000s and that 'anomalies' between its current output and the ETS mean that the Irish economy is losing out.
It is thought that the over-allocation of carbon credits, which now far exceed production requirements, have cost the Irish exchequer Euro120m since 2005 and could cost double that in the seven years to 2020. The Irish cement industry currently gets tens of millions of Euros every year in 'profits' as a result of the scheme.
Previously, the Irish Department of Finance increased the tax on profits from the sale of the credits, from 12.5% to 30%, by ruling that they have to be taxed as a capital gain rather than at the corporation tax rate. O'Riain said they should be taxed at up to 80%. He said that a system that was designed to encourage cement producers to reduce their CO2 emissions was instead incentivising them to produce CO2 at the public's expense.
O'Riain has called on the Irish government, while it holds the European presidency, to change the rules governing the ETS system. He said one of the effects of the way the system operated was to subsidise those plants using environmentally unfriendly practices. "Every 1t of polluting cement in Ireland is sold with a taxpayer subsidy of 17% of the selling price," said O'Riain.
Lafarge named in top 10 list of companies surrendering offsets into EU Emissions Trading Scheme
20 November 2012UK: French multinational cement producer Lafarge has been named in a list of top ten companies surrendering offsets into the European Union's (EU) emissions trading scheme (ETS) by environmental campaign group Sandbag. According to Sandbag's report 'Help or Hindrance? Offsetting in the EU ETS,' Lafarge purchased 181,425 certified emissions reduction (CERs) credits in 2011.
Carbon offsetting by the European cement sector grew by 246% in 2011 compared to 2010 figures. Carbon offsetting by all European companies grew by 85% in 2011. The companies policed by the EU's Emissions Trading Scheme (ETS) submitted a total of 254 million credits to offset 13% of their carbon emissions. Sandbag's report observed that the majority of these offset credits were due to be banned from the scheme in 2013.
Lafarge surrendered 181,425 credits in 2011, HeidelbergCement surrendered 101,314 credits in 2008, Miebach Gruppe surrendered 65,813 credits in 2011, Colacem surrendered 59,756 credits in 2009 and Italcementi surrendered 37,867 credits in 2010. Sandbag did not report the breakdown of so-called 'grey' and 'green' credits for the cement industry.
"Offsetting was supposed to be a price containment measure to ensure that carbon prices didn't rise too high, but carbon prices have remained low due to excess supply in the market. Offsets are contributing significantly to this oversupply and are now depressing prices so low that the EU ETS almost ceases to have a function," said Rob Elsworth, policy officer at Sandbag.