Select Committee on European Union Minutes of Evidence


Memorandum by the British Cement Association

1.  EXECUTIVE SUMMARY

  2.  The British Cement Association supports the use of emissions trading in combination with the other Kyoto mechanisms as an appropriate means for achieving reductions in greenhouse gas emissions. While concurring with this in principle, the BCA believes that in its present form, the EU Emissions Trading Scheme is flawed in its scope and application.

  3.   Limitations on the effectiveness of emissions trading. Implementation of "Best Available Technique (BAT)" is one of the requirements of the permitting procedure under the European Directive on Integrated Pollution Prevention and Control (IPPC). All UK cement plants are authorised under IPPC permits by the Environment Agency. However, once implemented, until further technological advance takes place, any required increase in output or reduction in CO2 allocation leaves no alternative but the purchase of carbon credits.

  4.   Non-Compliance with Targets. Full implementation and rigorous enforcement of the trading scheme across all EU Member states is a prerequisite to an equitable competitive framework for European industry. Failure on either part will result in an unfair competitive advantage to industry within a non-compliant Member country. Consequently, the second phase of the scheme will be compromised, as will the EU's international credibility for delivering its Kyoto obligations.

  5.   Non-EU Countries. Failure to ratify the Kyoto protocol, by the non-participation of key countries such as Russia and the United States, will impact upon the competitiveness of the EU. The susceptibility to international competition of the EU's cement makers has been demonstrated by the European Cement association, CEMBUREAU.

  6.   Hasty Implementation. The implementation of the EU Emissions Trading Directive has been driven by an unrealistic timetable being imposed by the Commission, with the connivance of the Council. Insufficient time has been allowed to develop robust procedures and sound methodologies. This has been compounded by the UK Government's politically driven desire to be first to publish its National Allocation Plan. Insufficient thought has been given to developing the necessary "smooth transition" Ministers have declared they wanted between the EU ETS, the UK's trading scheme and the Climate Change Levy. Failure to redress the rush to implementation will lock-in problems from the start.

7.  BACKGROUND

  8.  The manufacture of cement is an energy intensive process, and within the United Kingdom the cement sector is responsible for approximately 2 per cent of the anthropogenic emissions of carbon dioxide[1]. This reflects the lower level of cement usage in the UK, (~225 kg/person/annum), compared with that in mainland Europe, (400-500 kg/person/annum), and suggests that domestic buildings regulations do not reflect the benefits that may be achieved by utilising the high thermal efficiency of concrete structures.

  10.  For social, environmental and business reasons, the industry is committed to reducing its greenhouse gas emissions.

  10.1.  The British Cement Association and its member companies have entered into a Climate Change Agreement with UK government to increase the energy efficiency of cement manufacture by 25.6 per cent over the period 1990 to 2010.

  10.2.  Through their parent companies, Lafarge Cement UK, Castle Cement, and Rugby Cement are committed to carbon reductions through the World Business Council for Sustainable Development Cement Sustainability Initiative, (WBCSD CSI). In addition, Buxton Lime Industries has undertaken to adopt the commitments within the WBCSD CSI.

  11.  The introduction of the EU Emissions Trading Scheme at EU level and its implementation at UK level do not give industry the certainty on which to base major long-term investment decisions, whilst weakening industrial competitiveness.

  12.  Evidence on the UK's implementation of the EU Directive, and in particular the draft National Allocation Plan is being prepared by BCA for a consultation being undertaken by Defra. Reference to the cement industry's views in this context have been included as an example of how the EU Directive in practice will affect UK industry in general and the cement industry in particular.

13.  BCA RESPONSES TO QUESTIONS RAISED BY THE COMMITTEE

Question 1.   The Commission is this year expected to review their programme on climate change.

    —  Is the EU approach to climate change appropriate both for achieving its Kyoto targets and maintaining EU competitiveness?

    —  Is the balance between Member State and EU action correct?

  14.   Emissions Trading. The British Cement Association supports the use of emissions trading in combination with the other Kyoto mechanisms[2] as an appropriate means for achieving reductions in greenhouse gas emissions. While concurring with this in principle, the BCA believes that in its present form, the EU Emissions Trading Scheme is flawed in its scope and application, viz.

  14.1.  The allocation of the EU Kyoto target of 8 per cent is inequitable and appears to be out of step with the Lisbon Agreement and other EU commitments relating to competitiveness. Similar reservations have been expressed by EU Energy Commissioner Loyola de Palacio[3]

  14.2.  A restricted number of industries fall within the ambit of the EU ETS—~46 per cent within the United Kingdom—and these include many sectors in which there have already been substantial reductions in CO2 emission[4] but excluding the politically sensitive areas of transport and domestic usage where appreciably less progress has been made.

  15.   Approach within the EU. In order to achieve significant reductions in the emissions of carbon dioxide, it is necessary for the cement and other industries to make substantial levels of investment in capital plant. In the cement industry, the time from making the initial decision to invest and the operation of the new plant is typically ~seven years, and the sector as a whole has committed to a £500 million investment programme, with each of BCA's four member companies developing a new cement kiln.

  16.  However, the economic assumptions on which these decisions were based are undermined by uncertainty in the nature and financial implications of EU Emissions Trading, which are even greater from 2008 onwards, when the second phase begins.

  17.  Consequently, investments which might have been made in Europe may go to other regions in the world where there is greater certainty.

  18.   Approach within the UK. The approach of the United Kingdom government to the entire UK Climate Change Programme appears to be narrowly focussed upon heavy industry and power generation.

  18.1.  Appreciable progress in the reduction of CO2 has already been made and verified through the industry's participation in the UK Climate Change Levy Scheme (CCL).

  18.2.  However, far from giving businesses "first mover advantage", the CCL has left a legacy of additional bureaucracy and muddle.

  18.3.  In addition, firms over-achieving their CCL targets have been penalized in the allocation of carbon under the EU ETS, whilst those outwith the scheme have been subject to no such reductions.

  19.   Limitations on the effectiveness of emissions trading. Once an industry has invested in the best available technology, the only remaining possibility with which to address growth and/or future reductions on CO2 allocation is the purchase of credits.

  20.  In this respect, the cement industry is in a less strong position than virtually all other sectors falling within the EU ETS—metals; lime; paper; glass; textiles; chemicals; power. Cement has the highest CO2 emissions per unit of profit, and (emissions) trading at

15/tonne CO2 will approximately double the variable cost of cement production.

  21.  The manufacture of one tonne of cement results in the generation of approximately one tonne of CO2[5]. Thus the cost of trading carbon at

15/tonne CO2 equates to about the cost of transport per tonne of cement from the Far East.

  22.   Imports. Within the present format of the scheme both at UK and EU level, there is no provision to prevent "carbon leakage" from the import of cheaper products produced in countries where manufacture is subject to less stringent CO2 emission or environmental controls.

  23.  Reflecting these concerns, the European Cement Association CEMBUREAU, is to monitor the level of non-EU imports into the sector, and BCA would encourage the EU to undertake a similar exercise in relation to all industries falling within the EU ETS.

24.  Question 2.   Given that the Commission recently warned that only the UK and Sweden are currently on course to meet their emissions reduction targets under the Kyoto Protocol, how can the EU live up to its commitments under the Protocol?

    —  What measures should be taken against those EU countries not on course to meet their targets under the Protocol?

    —  What impact might inaction by individual Member States have on the EU as a whole?

    —  How will the accession of 10 new Member States affect the EU's climate change ambitions?

    —  The UK will hold the Presidency of the EU in the second half of 2005; what should be their priorities to achieve a sustainable policy on climate change?

  25.   Action against non-compliance with targets. Unless action is taken against Member States that do not meet their targets, other Member States will be financially disadvantaged, the second stage of the EU ETS compromised, and the position of the EU as leader in emissions trading will become untenable.

  25.1.  Member States that are not on course to meet their targets must be left with no doubt that the sanctions within the Emissions Trading Directive will be imposed. However, the EU does not have a good record in the pursuance of infractions by Member States.

  25.2.  The current inability of the Commission to address the obligations of France and Germany under the European Monetary Scheme is pertinent to the expected failure of most Member States to achieve their Kyoto targets. Unless this issue is addressed many Member States will have little incentive to work towards their Kyoto targets.

  25.3.  Other Member States appear to be placing reliance on the Joint Implementation and Clean Development Mechanism to achieve their targets. Although questionable in potential effectiveness, it is nevertheless indicative of the desire of these governments to shield their energy intensive industries from stringent, low allocations.

  25.4.  BCA believes that aside from the UK (and possibly Germany), other Member States are working with their energy intensive industries to minimize the effect of this legislation on their competitiveness.

  26.   Effect of inaction on the EU as whole. The competitiveness of industry within those Member States that achieve demanding targets will be undermined, particularly in the UK where those targets exceed the requirements of the allocation within the EU of the Kyoto targets.

  27.   Non-EU Countries. If Kyoto is not ratified by the United States, Russia, and other countries, then the competitiveness of the EU as a whole will be harmed. An assessment of the available cement and clinker capacities in countries with no constraints on CO2 emissions has been made by CEMBUREAU, Annex II [not printed].

  28.  UK Presidency of EU. The UK should use its Presidency of the EU to ensure that action is taken against non-compliance with the EU Directive, and the Community is in a position to take a lead in the development of emissions trading and the other Kyoto mechanisms.

  29.  The UK should also ensure the development of firm links between emissions trading and the aspirations within the Lisbon Agenda.

Question 3.   How well understood is climate change amongst the public at large?

    —  Do many people know of its current and predicted effects? Do people know of its causes? Do people know what they can do to reduce greenhouse gas emissions and to mitigate the effects of climate change?

    —  Is the EU effectively communicating the urgency of climate change?

  30.  Anecdotal evidence from local MPs suggests that global warming and climate change comprise few questions in their postbag.

  31.  However, the issue is not whether the public at large understand climate change or know what they might do to mitigate its effects. The crucial issue is that they are engaged in a co-ordinated approach to reduce the emissions for which they are responsible—approximately 50 per cent of the UK emissions result from domestic activity such as transport and energy usage in the home.

  32.  It has been politically unacceptable for government and NGOs to address this issue with their own stakeholders—the electorate and their subscribing members respectively.

  33.  To date, industry has provided a means, albeit inequitable, of addressing some of the issues raised by global warming. However, there are finite limits to the reductions that can be achieved by industry alone, if the UK is to maintain a domestic cement manufacturing capability.

  34.  With the prospect of the medium- to long-term requirement of greenhouse gas reductions in the order of 60 per cent, all sources of greenhouse gases must be addressed at an early stage.

Question 4.   Are EU policies regarding energy and renewable technologies compatible with climate change policy? Should there be more integration between these initiatives?

  35.  BCA agrees with the need for an increased level of integration between climate change policy and all other areas on which this impacts.

  36.  One area with which there should be more integration is Defra's Waste Management Strategy, within which cement kilns provide an environmentally sound route for the treatment of a number of waste streams: tyres; used solvents; packaging waste; processed sewage pellets; and waste oils.

  37.  Energy recovery resulting from the use of these materials in cement kilns is an alternative to other disposal options, such as incineration, that result in the generation of greenhouse gases without the recovery of energy. Nevertheless, this use in cement kilns is counted against the cap within the emissions trading scheme.

  38.  BCA welcomes the principle within the EU Directive on the Energy Performance of Buildings[6], and would support the revision of the building regulation.

Question 5.   The EU Emissions Trading Scheme will come into operation in 2005.

    —  How well are Member States progressing with the implementation of the scheme?

    —  Has it been well designed?

    —  Is there a role for other economic instruments to be used alongside emissions trading?

  39.   Other Member States. Through the European organization CEMBUREAU, the BCA tracks the implementation of the emissions trading scheme within other Member States.

  40.  A major theme that emerges is that insuffient time has been available to develop a sound basis for establishment of emissions trading schemes by the Member States. This has resulted from an unrealistic timetable imposed by the European Commission, compounded by an overly complicated and bureaucratic allocation procedure within the UK.

  41.  Whilst it is clear that the United Kingdom is in the forefront of implementation, any possible benefits must be counterbalanced against the limited time available for detailed consideration by government and industry.

  42.   Other Economic Instruments. The UK already has the CCL, and its own Emissions Trading Scheme. Neither has an easily understood equivalence with the EU ETS, making transition and comparison difficult.

  43.   Relationship between EU ETS, UK CCLA and UK ETS. BCA understands that Defra has changed its position on how to treat the climate change agreements, CCLA, for installations that do not opt-out of the first phase of the EU ETS (2005 to 2007). We do not believe that a partial (electricity only) CCA is required for an installation within the EU ETS due to the pressures exerted from rises in electricity prices as the generators directly account for their CO2. This amounts to double charging of the users of electricity. We certainly do not agree that the two regimes should run in parallel. Parallel inclusion will create unnecessary administration and confusion for no additional environmental benefit and does not represent the "smooth transition" between the schemes as indicated by the government. We believe the correct procedure would be for those joining the EU ETS to be relieved of all their obligations under climate change agreements.

  44.  As indicated above, all sectors have a role to play in contributing to the achievement of greenhouse gas reductions, and here there is clearly an opportunity for the use of other economic instruments.

  45.  In addition, other instruments such as the voluntary agreement between the motor industry and the European Commission on the reduction of CO2 emissions from new passenger cars could be used.

46.  Question 6.   The EU has played a significant role in international negotiations on climate change.

    —  What role should the EU play in shaping future international objectives after the 2008-12 commitment period laid down in Kyoto?

    —  How effective is the EU in international climate negotiations?

    —  How could it be more effective in encouraging those states yet to ratify the Protocol to re-engage in international discussions?

    —  How can the EU best exert pressure on developing countries to keep emissions under control whilst expanding their economies?

  47.  Unless the EU, whilst maintaining competitiveness, can manage to achieve its own targets and those of its Member States, imposing sanction where targets are not met, it cannot have an authoritative and formative role.

  48.  In order to have the moral authority to influence others, not just developing countries but also the US and Russia, the EU and its Members must demonstrate the social, environmental and business case for controlling emissions.

February 2004





1   ie substantially less than the world/EU level of 5 per cent. Back

2   Joint Implementation, (JI) and the Clean Development Mechanism, (CDM). Back

3   Financial Times, 25 February 2004. Back

4   On 15 January 2004, the steel firm Arcelor instituted proceedings at the European Court of Justice seeking that the Emissions Trading Directive is (partially) declared void on grounds inter alia that there is little or no technological potential to reduce CO2 emissions beyond the level achieved since 1990. Back

5   The production of 1 tonne of cement clinker results in the generation of: ~535 kg "process" CO2 from the calcination of limestone; 375 kg CO2 from fuel used in the kiln; and 70kg CO2 "indirect" emissions from the electricity used. Back

6   Directive 2002/91/EU of the European Parliament and of the Council of 16 December 2002 on the energy performance of buildings, OJ [2003] L1/65. Back


 
previous page contents next page

House of Lords home page Parliament home page House of Commons home page search page enquiries index

© Parliamentary copyright 2004