On 7th December, the world’s nations will come together in Copenhagen to discuss the future climate strategy. The potential consequences are immense, but there remains huge uncertainty as to the outcome of the meeting. Recent developments have seen Europe commit to more stringent targets to reduce emissions by at least 20% below 1990 levels by 2020, and by 30% provided that other developed countries, namely the US, commit themselves to comparable emission reductions.
For European industry, this effectively means that allocations will be set 21% below their 2005 emission levels by 2020. Furthermore, emission allowances will have to be purchased through an auctioning process, scheduled to start in 2011. But what does all this mean for the European cement industry?
According to Cembureau, and the recent Boston Consulting Group report, auctioning would expose the European cement industry to catastrophic carbon leakage, at worst resulting in the wholesale relocation of its production base out of Europe. Crucially, and as a result of intensive lobbying, the European cement industry has been exempt from auctioning and is expected to benefit from 100% free allocation in Phase 3 of the ETS (2013-2020). But this does not let the industry off the hook. Allocations will be based on performance benchmarks, whereby plants will have to operate at the level of the 10% most efficient installations. According to Ecofys, the organisation advising the European Commission, this implies gross emissions of 780kg CO2/t of clinker (based on CSI "Getting the numbers right" database). By definition, 90% of Europe’s plants will have to improve efficiency to meet this criteria.
These details still have to be resolved in the course of the next year, and further changes may occur as a result of the negotiations in Copenhagen. Undoubtedly, the devil will be in the detail, and cement producers will be watching developments carefully. Another key area of reform will be the Clean Development Mechanism (CDM), which has been widely criticised for its bureaucratic processes and controversial application of the key ’additionality’ criterion, which is seen as highly subjective.
Effective CDM reform would result in faster, cheaper approval processes and could have positive implications for the cement industry which has struggled to exploit this mechanism to date (though Cemex’s Eurus 250MW windfarm in Mexico shows what is possible). Meanwhile the International Energy Agency has just brought out its own cement technology roadmap (in conjunction with the WBCSD) concluding that greater emphasis on thermal energy efficiency, alternative fuel use, clinker substitution and, not least, carbon capture and storage will be the key to a more sustainable global cement industry. At the end of the day, strong agreement between governments could result in emission targets being upgraded, while the failure of Copenhagen would result in further procrastination and even the downgrading of targets. The future of carbon emission trading is itself uncertain. Without an agreement, it is facing irrelevance. With an agreement the system could be greatly expanded, made truly global, and become the world’s - not just Europe’s - principal means of fighting climate change.