With letters to the Minister of economy, the Minister of environment and water and the Minister of energy, BACI expressed its position regarding the consultation with the Government of the Republic of Bulgaria expected by the European Commission (DG Competition) in relation to the eligibility of energy-intensive industry sectors for indirect cost compensation under the EU ETS Directive.

The cement industry has submitted a file with the European Commission on 9 April in response to the Commission’s consultation on the revision of the indirect State Aid Guidelines.

The ministries were provided with a copy of our response through CEMBUREAU into the consultation as well as an accompanying presentation put together by PwC, our external consultants on the file. We also attach a letter that draws the attention to some inconsistencies in Eurostat data that are used as the basis for the calculations by the European Commission and a short summary of our main arguments.

The cement industry is strongly engaged on a decarbonisation path throughout its supply chain but it needs a facilitating regulatory framework that allows investment efforts to be made in a competitive environment. One of the key elements is access to affordable electricity that will need to be sourced from renewable sources. Decarbonisation will increase electricity demand and hence cost for our industry. Therefore, it is of crucial importance that the cement industry qualifies for indirect compensation.

INDIRECT COMPENSATION UNDER EU ETS
SUMMARY POSITION OF THE CEMENT SECTOR

CEMBUREAU, the European Cement Association, has submitted its response to both the targeted (deadline 9 April) and the public (deadline 16th May) consultation on the revision of the indirect compensation guidelines under EU ETS;

Cement industry has a high exposure to CO2 costs

• Electricity represents 12% of the energy mix in the cement sector and can account for 50% of the cost price for energy given the high electricity prices;
• In 2016, the weighted average external power consumption for cement manufacturing stood at 108 kWh/t (+1.1% per annum over 2014-2016); indirect emissions intensity averaged 1.87 kg CO2 / € GVA over 2014-2016
• The share of direct vs. indirect emissions is fairly similar across countries with direct emissions accounting for c. 90% of total emissions and indirect emissions for c. 10%. However, the decarbonisation of the cement sector will entail a shift from costs related to direct CO2 emissions to indirect emission costs. By way of example, the use of alternative fuels to replace fossil fuels requires more electricity and a successful implementation of carbon capture technology will double and, in some cases, even triple electricity costs;
• The shift from direct to indirect emissions also justifies a full 100% compensation of electricity costs without degressivity being applied;
• There is no cost pass through possibility in the cement sector as cement is a homogeneous product traded on local and international markets and faces commodity pricing; in addition, cement producers in Europe are price-takers and are unable to adjust prices upwards in the wake of increasing electricity prices ;
• The distinctively high exposure to indirect CO2 costs should qualify the cement industry for indirect cost compensation, especially when considering that the Commission has deemed the sector to be at risk of carbon leakage;

Energy efficiency largely optimized in the cement industry  

• The cement industry has invested heavily in improving the energy efficiency of its operations, more particularly through investments in dry kiln technology – with thermal efficiency levels of 70 to 80% (depending of raw material moisture, fuel mix, “waste” heat utilization in the pre-heater/pre-calciner, etc.) cement works are among the most efficient industrial plants

Need for equal treatment between different building materials

• Concrete is a building material that competes on the downstream construction market with steel, which is a building material that is already eligible for indirect compensation
• For high-rise buildings and infrastructure such as bridges, steel frames are in direct competition with (reinforced) concrete and parameters taken into account to compare both materials are versatility, span, price, durability and resilience.
• Therefore, it is essential that a fair and equal treatment is secured for materials that are competing on downstream markets.

Need to assess accuracy of Eurostat data

• The European Commission will be relying on Eurostat data when assessing eligibility for indirect compensation; CEMBUREAU will be interested to engage in a discussion on accuracy of the Eurostat data, more specifically:
  

  (i)	NACE 23.51 reports the added value of more companies than the actual number which artificially increases the added value for the sector;
  (II)	The added value calculation can be flawed because companies can report the used allowances as an “input expenditure” or as “other management costs”
  (iii)	In some countries, power consumption only includes members of national cement associations and does not include consumption of independent companies.

Suggested indirect emission intensity threshold

• The cement sector has an indirect emissions intensity that is higher than 1 kg CO2/ € GVA and therewith ranks 8th in the overall list of 246 industry sectors assessed by the European Commission. This means that the cement industry carries an exceptionally high cost burden induced by indirect emissions.
• It is not plausible that a sector that is among the top 10 sectors in terms of indirect emission intensity and evidently exposed to a significant risk of carbon leakage is not explicitly included in the list of target sectors.
• Therefore, if the alignment between carbon leakage list and indirect compensation list needs to be further refined, CEMBUREAU suggests that the most appropriate criterion would be an indirect emissions criterion set at an emission intensity of more than 1 kg CO2 / € GVA.