Department of the Environment, Community and Local Government consultation. EU Commission Proposal for the Reform of the EU Emissions Trading Scheme

Transcription

1 Department of the Environment, Community and Local Government consultation EU Commission Proposal for the Reform of the EU Emissions Trading Scheme Submission by Cement Manufacturers Ireland December 2015

2 Introduction Cement Manufacturers Ireland (CMI) is the Business Association in Ibec which represents the indigenous cement manufacturing industry in Ireland. The three member companies, Irish Cement, Lagan Cement and Quinn Cement have fully participated in the EU Emissions Trading Scheme (ETS) since it was first introduced in The Association has actively supported the EU Commission in the implementation of the Scheme through participation in ongoing consultations between the Commission and the European Cement Association. The members of CMI have directly contributed to the implementation and development of the Scheme in Ireland in partnership with the Irish Government. CMI welcomes the opportunity provided by this Public Consultation to set out its views on the Commission Proposal for the reform of the ETS published in July In the absence of a global agreement on carbon emissions reduction, the challenge for EU regulators is to use the Emissions Trading Scheme to encourage further emission reductions by European industry but without negatively impacting on competitiveness. There is a significant danger that the current EU ETS, with a linear reduction in allowances for energy intensive industries, will move industry and jobs in key industries, from Europe before it achieves the carbon reductions envisaged by the Directive. The EU ETS Reform Proposal, when finally agreed, will be an extremely important legislative instrument which will have a long lasting effect on the sustainability and competitiveness of the cement industry in Ireland and throughout Europe. It is vitally important that it strikes an appropriate balance between promoting innovation in line with technological developments and maintaining a healthy, vibrant and essential industry. While welcoming some aspects of the Commission proposal such as: The recognition of the need for carbon leakage protection for energy and carbon intensive industries The recognition that the Historical Activity Level (HAL) should be more closely aligned with current production The recognition that funding for innovation will be important CMI has very serious concerns that: Measures to deal appropriately with the above issues are unclear in the proposal The proposals for a cross-sectoral reduction factor and for benchmark reduction are inappropriate and unrealistic and will disproportionately impact energy intensive industries in Europe Process emission allocation is not prioritised Compensation for indirect emissions is not given sufficient weight In this submission CMI has expanded on the shortcomings of the Commission Proposal, and looks forward to the forthcoming consultations and the opportunity to engage in more detail on these important issues. 1 CEMENT MANUFACTURERS IRELAND SUBMISSION DECEMBER 2015

3 1. Carbon Leakage Full Carbon leakage protection is essential for the best performing installations The Commission Proposal to reduce the number of free allowances available through the application of a cross-sectoral correction factor and benchmark reductions will penalise the best performing installations in Europe in an impractical manner and to what end? The best performers have already invested in new technologies and process innovations and have demonstrated a real commitment to achieving carbon reduction targets in line with global best practice. The reformed ETS must remain consistent with EU growth objectives and industrial policy as well as environmental policy so that the best performers across all industrial sectors are encouraged to grow, invest and develop employment in Europe and should not be penalised. This objective is fully in line with the EU Council Conclusions of October The so-called tiered approach, which is now entering the dialogue, adds unwelcome complexity and uncertainty to the determination of carbon leakage status for industry. Differing interpretation of data is possible which can lead to a variety of possible outcomes for determining carbon leakage exposure. This uncertainty will not assist in achieving additional carbon reductions and is likely to lead to competitive distortions across the industrial spectrum. The final Reform Package must ensure that emissions reductions in the EU are achieved at least cost and that the best performing installations do not face disproportionate cost on the global stage as a result of being exposed to carbon leakage. CEMENT MANUFACTURERS IRELAND SUBMISSION DECEMBER

4 2. Benchmark Reductions Benchmark adjustment must be industry specific and not penalise best performers The Benchmark Principles of the current Directive should be maintained. In an industry such as cement production, with investment cycles measured in decades, setting benchmarks on the basis of data from the best performers is acceptable. However, making arbitrary short-term adjustments to a benchmark for an industrial process with long technological and investment cycles creates a disconnect between tangible policy responses and the realities of industrial production. The benchmark in every sector is established by the best performing installations through their leadership in innovation and investment. Innovation cycles clearly differ across different sectors and the cement industry, with a long industrial heritage, has reduced innovation opportunities when compared to newer industries. Industry benchmarks should provide realistic but stretched targets to raise standards across the industry. Poor performers in each industrial sector should be pushed to improve or penalised for inactivity. The reformed ETS should recognise the pace of improvement and establish criteria for benchmark revision when the average industry performance approaches the benchmark. In this way appropriate progress can be promoted for all installations in an industry while avoiding the inequities associated with reductions in benchmarks through a one size fits all approach which is currently proposed. The impracticality of the imposition of benchmark reductions and the imposition of a reducing cross-sectoral reduction factor for the cement industry are shown clearly in the diagram below: 800 CURRENT BENCHMARK = 766 KG CO 2 /TONNE CLINKER KG C02/T CLINKER 600 PROCESS EMISSIONS FROM RAW MATERIALS THIS LINE CANNOT BE CROSSED WITHOUT CARBON CAPTURE TECHNOLOGY BENCHMARK ESTIMATED BENCHMARK ADJUSTMENT -0.5% OR -1%/YEAR CROSS-SECTORAL CORRECTION FACTOR -0.5% OR -1%/YEAR CEMENT MANUFACTURERS IRELAND SUBMISSION DECEMBER 2015

5 3. Process Emissions Full allocation is necessary for Process Emissions for an industry at risk of carbon leakage The cement sector has already made, and will continue to make, reductions to carbon emissions associated with fuel combustion. But so called process (non-combustion) emissions arising directly from the raw materials needed for cement production, cannot be reduced any further without significant progress in carbon capture technology. This needs to be addressed in the reformed ETS to ensure that innovation in the sector is supported to deliver the breakthrough technologies required to allow for reliable and cost effective carbon capture. The diagram on page 3 clearly illustrates not only the difficulties associated with benchmark reductions and the imposition of the cross sectoral reduction factor but also the need to deal separately with process emissions for clinker manufacture in the cement industry. The chemical properties of the base raw material (limestone calcium carbonate) fix a fundamental lower emission limit. Current technology does not permit the industry to achieve emission levels below this limit. Breakthrough technologies for carbon capture will be required. The diagram clearly demonstrates that the combination of the current Commission proposals for benchmark adjustment together with the cross-sectoral reduction factor would require cost effective and reliable carbon capture technology to be installed and operational throughout the European cement industry in the next 10 years. Based on the current pace of development of this technology this is highly unrealistic. The International Energy Authority in conjunction with the global cement industry identified carbon emission reductions of 32% by 2050 and only with the implementation of reliable carbon capture could this level be exceeded. The global cement industry currently has active research and development projects in this field and once proven is committed to the integration of these technologies into clinker manufacturing. CEMENT MANUFACTURERS IRELAND SUBMISSION DECEMBER

6 4. Historical Activity Level (HAL) HAL assessment period to reflect more recent production The cement industry welcomes the proposals to adjust the HAL to reflect more recent production. The HAL assessment period should be set as close as possible to the allocation period to accommodate for variations in activity cycles. 5. Compensation for Indirect Costs Establish a mechanism to compensate for indirect carbon costs Indirect costs due to the additional carbon cost burden arising from electricity usage are very significant for the cement industry. The reformed ETS should recognise the need for energy intensive industries subjected to carbon leakage to be fully compensated for indirect carbon costs. 6. Innovation Funding Effective Innovation funding is essential to maintain EU competitiveness The current text of the Commission Proposal is unclear in respect of funding for Innovation and Growth. Revenues from auctions and direct innovation support must be targeted at industrial sectors facing the greatest abatement challenges. For the cement industry the reformed ETS should recognise the critical need to support innovation in the EU to deliver the breakthrough technologies required to achieve cost effective carbon capture and ensure that Europe maintains a competitive advantage. 5 CEMENT MANUFACTURERS IRELAND SUBMISSION DECEMBER 2015

7 7. Conclusion Cement is an essential commodity for all modern economies and the reformed ETS should support sustainable cement production in Europe The cement industry in Europe has achieved carbon reductions and made significant progress in developing sustainable production technology. In the absence of a binding global agreement, the cement industry will be subject to carbon leakage threats. Carbon leakage in the cement sector will lead directly to job losses, and a transition of the industry out of Europe to less regulated markets will have negative environmental, fiscal and social impacts. It is vital, therefore, that the reform of the EU ETS delivers an effective, fit for purpose and fair scheme balancing the twin goals for Europe of emission reduction and industrial growth. The key elements to be addressed in finalising the Commission Proposal are: To protect against carbon leakage full free allocation should be available to best performers and for process emissions The current benchmark methodology should be maintained A reserve or auction adjustment mechanism should replace the cross-sectoral reduction factor The HAL should be closely aligned with the relevant period Provision for compensation for indirect carbon costs for energy intensive industry should be included The text relating to innovation and growth funding should be clarified CEMENT MANUFACTURERS IRELAND SUBMISSION DECEMBER

8 Cement Manufacturers Ireland Ibec Confederation House Lower Baggot Street Dublin 2 T +353 (0) E cement@ibec.ie W