1. Cement Production and the EU ETS: How to make a win – win Bruno Vanderborght Vice President Climate Protection CoP 11 / MoP 1, Montreal, 05 December 2005 The Cement Sustainability Initiative

2. 2 CoP/MoP CSI 05.12.2005 EU ETS Core Objective Objective: Reduce CO2 emissions at lowest cost Means: Allocation of initial emission allowances Reduction of emissions and Creation of excess tradable allowances Internalization of cost Price indication

3. 3 CoP/MoP CSI 05.12.2005 EU ETS, Cement & Concrete 1.Cement & Concrete: sustainable construction materials for prevention and adaptation:  Energy efficiency of buildings  Infrastructure for public transport  Building material for power stations  Flood protection  Resistance to wind 2.Cement is second largest sector of ETS 3.Cement is the second most financially exposed ETS is important for success of cement industry Cement industry is important for success of ETS

4. 4 CoP/MoP CSI 05.12.2005 What has the ETS achieved till now ?  Price Indication  CO2 price … higher than expected  Electric power price increase … higher than expected  Real CO 2 awareness through the company Strategy & Risk Executive Committee Board of Directors Production Monitoring Procurement Finance & Administration Marketing & Sales Engineering Communication Emissions Trading

5. 5 CoP/MoP CSI 05.12.2005 Has this also caused CO2 emission reductions ?  Very few emission reductions, not proportional to the effort and cost of this most important policy instrument.  Why not ?  Which improvements to ETD / NAPs are needed to realize reductions in the cement industry ?

6. 6 CoP/MoP CSI 05.12.2005 Reduction options, necessary conditions & ETS Reduction optionNecessary conditionETD & NAP 2005-07 Reduce clinker content in cement Allowance Allocation: cement performance based Allocation based on absolute historic emission from clinker production Substitute fossil fuel by waste Holistic view Recognition of overall reductions Narrow view No recognition of reductions outside ETS Energy efficiency improvement Long term view3 – 5 years view InvestmentsLong term view Equal treatment of new & existing installations New installations punished with less allowances than incumbents    

7. 7 CoP/MoP CSI 05.12.2005 Has & will ETS cause CO2 emission reductions ?  Very few reductions  Because of inadequate incentives for the four main reduction drivers in the industry  Consequences:  Uncertain business environment  Deferral of decisions  Additional costs, but no reductions  Loose – Loose situation

8. 8 CoP/MoP CSI 05.12.2005 How to improve for 2008-12 and post 2012 ?  Equal treatment of existing and new installations  Long-term predictability  Integration in a global framework  Cement Performance Based Allocation  Cement industry could be pilot industry for Performance Based Allocation (absolute Cap & Trade) 2008 -12  Longer time horizon  True Cement Performance Based System  Credits for indirect savings  Integration with other trading systems outside EU Post 2012

9. 9 CoP/MoP CSI 05.12.2005 Conclusion 1.Yes to Emissions Trading 2.Integration in business and price signals two necessary but insufficient conditions 3.Current NAPs do not give the right signals to initiate significant decrease of CO2 emissions from cement industry 4.Improvements needed for the medium term (2008 – 12):  Equal treatment  Cement Performance Based Allocation  Cement as a pilot 5.Further improvements needed for the long term (2008 – 12):  Integration in a global system  Longer time horizon  True Cement Performance Based System  Credits for indirect savings