BACI’s position on public consultation of the draft of Act amending the Climate Change Mitigation Act

BACI presented its position to the Ministry of Economy on the draft of Act amending the Climate Change Mitigation Act, and in particular the envisaged Ordinance on compensations for indirect costs for greenhouse gas emissions of the sectors exposed to a significant carbon leakage risk. As we propose in our Letter to the ministry, No.: 92-00-1049/25.10.2018, and as confirmed in ministry’s letter, No.: 92-00-1049/30.11.2018, the Ministry of Economy has expressed its support and has taken the lead in introducing financial measures to compensate the industrial sectors exposed to a significant risk of carbon leakage. With this position BACI would once again like to draw the ministry’s attention to the unequal application of the compensations for indirect costs for greenhouse gas emissions under the EU ETS Directive among the various industrial consumers of electricity, and to solicit ministry’s support for the inclusion of the Bulgarian cement industry in the list of potential beneficiaries of state aid under the new Ordinance on compensations for indirect costs for greenhouse gas emissions of the sectors and sub-sectors exposed to a significant carbon leakage risk.

The Bulgarian Association of the Cement Industry (BACI) is a not-for-profit association whose members are producers of cement on the territory of the Republic of Bulgaria, including three of the best known cement companies – Devnya Cement AD (part of the Heidelberg Group), Holcim Bulgaria AD (part of the LafargeHolcim Group) and Titan Zlatna Panega Cement AD (part of Titan Group).

As the ministry is aware, the cement industry is defined under the EU ETS Directive as a sector exposed to a risk of carbon leakage but is not included in the sectors eligible for compensations for rising electricity prices due to the impact of the prices of the greenhouse gas (CO2) emissions. In particular, According to Paragraph 15 of Article 10a of Directive 2009/29/EC and the effective guidelines on certain measures of state aid in the context of the greenhouse gas emission allowance-trading scheme after 2012, what determines the classification of a sector or sub-sector as being exposed to a significant risk of carbon leakage are the following:

  1. the sum of direct and indirect additional costs would lead to a substantial increase of production costs, calculated as a proportion of the gross value added, of at least 5%; and
  2. the intensity of trade with third countries, defined as the ratio between the total value of exports to third countries plus the value of imports from third countries and the total market size for the Community is above 10 %.

These thresholds are currently covered by the cement industry at the European level as a whole, as confirmed by the calculations of the European Commission itself. Therefore, the non-inclusion of the industry in the list of sectors and sub-sectors considered beforehand to be exposed to a significant risk of carbon leakage due to indirect costs for emissions is a deviation from the established rules. It is this position, along with all the facts justifying its accuracy that has been officially presented by CEMBUREAU to the European Commissioner for Competition, Ms Margrethe Vestager.

Cement production is an energy-intensive industry and its not being included in the list of sectors and sub-sectors exposed to a significant risk of carbon leakage due to indirect costs for emissions, will constitute unequal application of the established European rules, as well as have a direct impact on competitiveness, both at the European level in general, and in respect of the Bulgarian producers in particular.

Specifically, for cement producers in the Republic of Bulgaria, the above-mentioned argument is even more burdensome because the intensity of trade with third countries has a significantly bigger influence than the average European. According to data of the National Statistical Institute of the Republic of Bulgaria, the intensity of trade with third countries is calculated at 28% in 2016 and 32% in 2017 (whereas the same indicator for the European cement industry as a whole is a little over 10%). On the other hand, the impact of rising electricity costs due to carbon emissions is also significantly higher in the Republic of Bulgaria compared to other EU countries due to the lower share of electricity produced from renewable sources at the expense of coal-fuelled power plants in the country.

With the letter, the Bulgarian Association of the Cement Industry (BACI) kindly requests whereby The Ministry of economy to include the cement industry among the potential beneficiaries of state aid under the new Ordinance on compensations for indirect costs for greenhouse gas emissions of the sectors exposed to a significant carbon leakage risk.

We are of the opinion that each of the EU Member States should be pro-active and support a position, which ensures equal application of the legislation and the rules established on the territory of the EU while ensuring the level playing field necessary for the efficient functioning of the industry.