Carbon emissions in the cement industry

BACI stated the following position to the Ministry of environment and water to provide information (evidences) on carbon emissions in the cement sector, which will be used to support the country’s position on the Just Transition Mechanism (JTF).

According to EC definition, the carbon emissions refers to the situation that occurs if, for reasons of costs related to climate policies, businesses in certain industry sectors or subsectors were to transfer production to other countries with less stringent emission constraints. This could lead to an increase in their total emissions globally, mitigating the effectiveness of the EU’s emission mitigation policies while reducing the economic output of energy intensive EU companies due to a loss in market share. The criteria that determine the expose to carbon emissions are the emission intensity

and the sector’s trade intensity with non-EU countries

Cement sector is among the one with the highest emission intensity in EU and is at high risk of carbon emissions as acknowledged in the Delegated decision 2019/708 of the European Commission. This the reason why the industry is entitled to free allowances. Despite of this, the imports of cement in EU are increasing by 113% in the last 5 years and the trade intensity factor is close to 10%.

The carbon emissions risk is even higher in Bulgaria. According to the data of the National Statistical Institute, the trade intensity of cement in Bulgaria is 2-3 times higher than the average EU factor as shown in the following table:

 

Trade intensity of cement in Bulgaria 2015 2016 2017 2018 2019 I-VI 2020
21% 25% 28% 17% 22% 29%

We’ve been expressing the position that the sector is exposed to carbon emissions, especially in border countries like Bulgaria, in all our communication with the European commission and with the MoEW on national level and this has been supported by the statistical data:  in Bulgaria, imports have increased from 312k tonnes in 2014 to 368k tonnes in 2019 and are estimated to exceed 430 ktonnes in 2020 (35% increase in imports in 2020 Jun YTD vs same period last year) and will correspond to about 20% of the domestic market.

Carbon emissions in terms of imports is happening in Bulgaria despite the fact the Bulgarian Cement Industry applies the best available technologies with high energy efficiency, high rate of utilization of alternative fuels and all that as result of intensive investments. Due to the high imports, the industry suffers from low utilization rate (less than 50% excl. exports) and it was forced to close 2 of the 5 cement plants in Bulgaria (Vulkan cement and Plevenski cement).

In addition to rising imports, we note an increased capacity build-up in third countries neighboring the EU. According to a PWC study (Compensation for Indirect Costs of the EU ETS for the EU cement industry, PwC Strategy& analysis 2019), the cement production capacity will continue to rise in EU neighboring countries. For instance, an estimated 20m to 40m new tonnage capacity will be installed in Turkey over 2010-2025. Capacity utilization in these countries varies between 40% and 60% and a 70 million tonnes overcapacity (which equals 40% of EU production) in third countries is estimated between 2018 and 2025. The surplus capacity in the neighboring countries can vary significantly based on rapid changes in local demand due to political or economic turmoil. The recent economic crisis in Turkey is such an example and we observe increasing export from this country. The threat to Bulgaria is easily understood because Turkey is a neighboring country and three Turkish cement plants are located close to the Bulgarian border. The cost disadvantage of the Bulgarian cement industry vs. the imports is further deteriorating due to the high indirect costs incurred to the industry by the EUA costs included in the electricity price of the coal-fired power plants, which have share in the Bulgarian energy mix plants.

In the context of the carbon emissions communication it worth pointing out that the European Commission, in its recent State Aid Guidelines on indirect compensation, has identified the risk of carbon emissions as either the transfer of production from the EU to other countries with lower emission reduction ambitions or the replacement of EU products by more carbon-intensive imports. This issue is especially relevant for the Bulgarian cement market because the imported cement from third countries is highly carbon intensive (mostly CEM I with more than 95% clinker, which is the CO2 intensive constituent of cement).