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The cement - EU ETS Kaleidoscope Holcim Group Support Bruno Vanderborght Vice President Environmental Strategy Holcim Group Paris, 05 September 2006.

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Presentation on theme: "The cement - EU ETS Kaleidoscope Holcim Group Support Bruno Vanderborght Vice President Environmental Strategy Holcim Group Paris, 05 September 2006."— Presentation transcript:

1 The cement - EU ETS Kaleidoscope Holcim Group Support Bruno Vanderborght Vice President Environmental Strategy Holcim Group Paris, 05 September 2006

2 2 Holcim Group Support IEA - Cement – EU ETS 05.09.2006  Voluntary Corporate commitment  EU ETS objective and means  Evaluation of the EU ETS for the cement industry  Summary & Conclusion  The future

3 3 Holcim Group Support IEA - Cement – EU ETS 05.09.2006 Holcim’s CO 2 emission reduction objective Holcim's objective is to reduce by the year 2010 the Group average specific net CO 2 emissions per ton cement by 20% from the reference year 1990, as to WBCSD cement protocol definitions. This reduction will be achieved through improving four key eco- efficiency parameters:  clinker factor (increasing MIC)  thermal substitution rate (increasing AFR)  specific thermal energy consumption (improved energy efficiency)  reducing cement kiln dust disposal.

4 4 Holcim Group Support IEA - Cement – EU ETS 05.09.2006 Holcim(Europe) performance in corporate commitment 2000 – 2005 (WBCSD protocol definitions):  5,0 % decrease of gross specific emission per ton cement  6,2 % decrease of net specific emission per ton cement  3 % clinker factor reduction  Fuel mix, a.o. + 1,7 % biomass  ~33 Mton cement produced in 2005 666 633 Holcim(Europe)  1,08 Mton (process + fuel) gross CO2 prevented in 2005 compared to the same cement production with year 2000 specific emission  0,2 Mton indirect savings in 2005 due to fossil waste as fuel Would those real CO2 reductions be rewarded in the EU ETS? 632 593

5 5 Holcim Group Support IEA - Cement – EU ETS 05.09.2006  Voluntary Corporate commitment  EU ETS objective and means  Evaluation of the EU ETS for the cement industry  Summary & Conclusion  The future

6 6 Holcim Group Support IEA - Cement – EU ETS 05.09.2006 Objective of Emissions Trading System (ETS) 1.Reduce emissions more effectively 2.At lower cost 3.Foster economy and employment 4.Long-term 5.Investments in clean technology  Emissions Trading is a means, not an objective

7 7 Holcim Group Support IEA - Cement – EU ETS 05.09.2006  Voluntary Corporate commitment  EU ETS objective and means  Evaluation of the EU ETS for the cement industry  Summary & Conclusion  The future

8 8 Holcim Group Support IEA - Cement – EU ETS 05.09.2006 Criteria for evaluation of ETS’s success Environment: Are the CO2 emissions lower than without the ETS ? Cost, Competitiveness and Competition Is the emission reduction at lower cost than without the ETS? How are competitiveness and competition affected? Technology: Does the system provide a long-term sustainable improvement ? Does the system foster investments in clean technology? Does the system reward all drivers to reduce emissions ? Trading: What is / how evolves the CO2 price? How does the CO2 price influence management decisions?

9 9 Holcim Group Support IEA - Cement – EU ETS 05.09.2006 Influence of the Emissions Trading System Strategy & Risk Executive Committee Board of Directors Production Monitoring Procurement Finance & Administration Marketing & Sales Engineering Communication Emissions Trading CO2 is integrated in business systems Quality of Monitoring & Reporting has significantly improved CO2 has a market price CO2 price is factored in electric power price, and financial analyses

10 10 Holcim Group Support IEA - Cement – EU ETS 05.09.2006 Influence of the Emissions Trading System Strategy & Risk Executive Committee Board of Directors Production Monitoring Procurement Finance & Administration Marketing & Sales Engineering Communication Emissions Trading CO2 is integrated in business systems Quality of Monitoring & Reporting has significantly improved CO2 has a market price CO2 price is factored in electric power price Management attention and price indications possibly lead to a start of a reduction of emission per unit of production Order of magnitude ~1 %

11 11 Holcim Group Support IEA - Cement – EU ETS 05.09.2006 Percent short / long of real cement installations as a function of CO2 efficiency Real situation with NAP 2005-07, Emission Based Allocation High emission is rewarded with excess of initial allowances Low emission is punished with shortage of initial allowances Up to 40 % difference in initial allowances for equal installations  Influence of National Allocation Plans (NAP)

12 12 Holcim Group Support IEA - Cement – EU ETS 05.09.2006  Influence of National Allocation Plans (NAP) (3.6%) (16.7%) (17.3%) (8.1%) (7.1%) (21%) (-3.3%)  Distortion of competition between sectors  Distortion of competition between companies  Distortion of competition between countries  All distortions are without environmental basis

13 13 Holcim Group Support IEA - Cement – EU ETS 05.09.2006 Reasons for Difference Allowances & Emissions 2005 1.Decrease or less growth of production, mainly due to economic development since reference period, partially as a consequence of marginal cost of CO2 2.Decrease of production for export 3.Better monitoring & reporting 4.Willingness of governments to protect their industry in an international competition, during allowance allocation process 5.The psychology of absolute caps during the allowance allocation negotiations

14 14 Holcim Group Support IEA - Cement – EU ETS 05.09.2006  Influence of National Allocation Plans (NAP)  Performance of low clinker factor is not rewarded, quite the contrary  Reductions through investments in energy efficiency are not rewarded, quite the contrary they are rather punished  Indirect savings from fuel switch to fossil waste are not rewarded  Decrease & relocation of clinker production are rewarded  The time horizon of the allocation periods (3 – 5 years) is much too short to stimulate investment decisions. Investment decisions are deferred.

15 15 Holcim Group Support IEA - Cement – EU ETS 05.09.2006  Voluntary Corporate commitment  EU ETS objective and means  Evaluation of the EU ETS for the cement industry  Summary & Conclusion  The future

16 16 Holcim Group Support IEA - Cement – EU ETS 05.09.2006 Preliminary evaluation of ETS’s success Environment: Are the CO2 emissions lower than without the ETS ? Cost, Competitiveness and Competition Is the emission reduction at lower cost than without the ETS? How are competitiveness and competition affected? Technology: Does the system provide a long-term sustainable improvement ? Does the system foster investments in clean technology? Does the system reward all drivers to reduce emissions ? Trading: What is / how evolves the CO2 price? How does the CO2 price influence management decisions?  Management attention, price signal and better monitoring & reporting lead to small emission reductions  Increased electric power cost leads to search for options to reduce  Change from compliance to opportunity management (trading) is a managerial mindset change

17 17 Holcim Group Support IEA - Cement – EU ETS 05.09.2006 Preliminary evaluation of ETS’s success Environment: Are the CO2 emissions lower than without the ETS ? Cost, Competitiveness and Competition Is the emission reduction at lower cost than without the ETS? How are competitiveness and competition affected? Technology: Does the system provide a long-term sustainable improvement ? Does the system foster investments in clean technology? Does the system reward all drivers to reduce emissions ? Trading: What is / how evolves the CO2 price? How does the CO2 price influence management decisions?

18 18 Holcim Group Support IEA - Cement – EU ETS 05.09.2006 Experience from one year EU ETS 2005 - 07 The NAPs 2005-07:  Give the wrong signals  Do not reward the key drivers for reduction in the cement industry  Create undue distortion of competition without environmental justification, within EU and outside EU  Are ineffective in their environmental and economical objective  Are a subsidy for companies facing decreasing economic activity, production and export

19 19 Holcim Group Support IEA - Cement – EU ETS 05.09.2006 Experience from one year EU ETS 2005 - 07 The origin of the deficiencies is in the National Allocation Plans, not the Emissions Trading Directive The deficiencies risk to undermine the confidence of industry in the effectiveness of the Emissions Trading System Emissions Trading System:Yes Current Allocation Methodologies:No

20 20 Holcim Group Support IEA - Cement – EU ETS 05.09.2006  Voluntary Corporate commitment  EU ETS objective and means  Evaluation of the EU ETS for the cement industry  Summary & Conclusion  The future

21 21 Holcim Group Support IEA - Cement – EU ETS 05.09.2006 Improvements to the EU ETS 1.Allowance Allocation through Benchmarking  Performance Benchmarking (CO2 / ton cement) (ex ante)  Real production volumes (ton cement / year as realized) (ex post) 2.Long term  Long-term Converging Differentiated Benchmarking 3.Integration in International Framework  Include in scope of ETS: Import installations  Benchmarking in CDM

22 22 Holcim Group Support IEA - Cement – EU ETS 05.09.2006 Performance Based Allocation (Benchmarking) Percent short / long of same cement installations as a function of CO2 efficiency Same installations Performance Based Allocation same total allocation, same environmental result Gives the right signals: Performance is rewarded, Polluters pay Discussion on differences between equal installations are futile, compared to differences in case of grandfathering

23 23 Holcim Group Support IEA - Cement – EU ETS 05.09.2006 Long-term Converging Differentiated Benchmarking “Old” Process / product “2005 BAT” Process / Product “Innovative” Process / Product Stick Carrot Asset adaptation Transition time Converging Differentiated Benchmarks BaU Present industry average Long-term target CO2 emission per unit of production 200520082012 2015 2020202520302035 year 2040 grandfathering =~Benchmarking = CONDIF Benchmarking transition =

24 24 Holcim Group Support IEA - Cement – EU ETS 05.09.2006 Integration in International Framework Developed economies Developing economies Regional Benchmark Installation / Project Sell Installation / Project Buy / Reduce No obligation Production & Import installations Production installations Including Installations for Import in ETS prevents leakages & undue distortion due to import

25 25 Holcim Group Support IEA - Cement – EU ETS 05.09.2006 Read more on www.holcim.com 1.The efficiency principle 2.EU Emissions Trading System 3.National Allocation Plans 4.Performance Based Allocation for 2008-12 5.PBA applied to the cement industry 6.Absolute versus Specific targets

26 26 Holcim Group Support IEA - Cement – EU ETS 05.09.2006  Voluntary Corporate commitment  EU ETS objective and means  Evaluation of the EU ETS for the cement industry  Summary & Conclusion  The future  Sectoral approach

27 27 Holcim Group Support IEA - Cement – EU ETS 05.09.2006 Efficiency * Incentive = Result Efficiency in production, products, consumption Policy measures to stimulate market and behaviour Absolute emission reduction, economic & social development X= General Principle of Emission Reductions and Social & Economic Development Efficiency targets and policy measures should be tailored for each sector Industry Transport Buildings Appliances Agriculture

28 28 Holcim Group Support IEA - Cement – EU ETS 05.09.2006 General Principle of EU ETS Voluntary CDM X= Non Annex 1 Parties Buildings Transport Appliances Agriculture Industry Buildings Transport Appliances Agriculture Industry X= EU Member State EfficiencyIncentiveResult

29 29 Holcim Group Support IEA - Cement – EU ETS 05.09.2006 General Principle of Sectoral Approach Efficiency Standards Implementation Mechanism Resulting Absolute Reduction X= IndustriesTransportBuildingsAppliancesAgriculturePopulation

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