The rules on the free allocation of EU emissions trading system allowances have created perverse incentives, resulting in the cement sector emitting more carbon than if it were outside the scheme, according to climate think-tank Sandbag.
Its latest report reveals that the rules, under which producers lose 50% of their free allocation if they generate less than 50% of their historic activity levels, had led the cement sector to over-produce clinker to avoid losing millions of euros worth of allowances. Clinker is an intermediary material in the cement-making process, but has a very high carbon intensity.
Sandbag claimed the sector emitted an extra 15 million tonnes of carbon in 2013 and said emissions would be lower if it were outside the ETS. The think-tank also warned that low-efficiency producers were benefiting at the expense of their more efficient competitors. According to the report, low-efficiency cement kilns produced 20 million tonnes of clinker in 2013, even though there were nearly 50 million tonnes of unused capacity among high-efficiency kilns.
Cembureau, the trade body for the European cement industry, reacted angrily to the report, claiming it contained factual errors and wrong numbers. ‘The allegations that the ETS has incentivised overproduction are based on thin air and do not acknowledge the strides the cement sector has made through investments in the reduction of its carbon dioxide emissions,’ said the association.
A separate study by consultancy CE Delft has found that European industry made more than €8bn in additional profits from the overallocation of ETS allowances between 2008 and 2014. The Dutch-based firm calculated the profits for 15 sectors in 19 countries. It found that Spain had the highest profits, totalling more than €1.6bn, while about one-third of allowances in Sweden were issued in excess of verified emissions. It also found almost all sectors in the UK participating in the ETS had profited from over-allocation of allowances.
