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The third phase of the European Emissions Trading Scheme is fuelling a riot in the cement industry. Ruby Kitching finds out what is going on.

Next month sees the start of the UK government's consultation into the third phase of the European Emissions Trading Scheme (EU ETS) - the toughest yet.

Phase three will be implemented between 2012 and 2020 and will place a huge burden on energy intensive industries like the cement industry to reduce carbon emissions. Fair enough, burning fuel to heat limestone to 1450 degrees C and grinding it down with gypsum to produce cement uses a lot of energy. But in this third phase, the cost of European cement will go up to meet its carbon emissions obligations, possibly making it cheaper to import cement from outside the EU.

Europe is currently in the second phase of the directive where energy intensive industries, such as cement have been given carbon allocations which "allow" them to produce a certain amount of carbon dioxide. This initial allocation has been negotiated my each member state and is based on "business as usual" rates, so most companies have been able to keep within their allocations. If a company produces more CO2 than allowed, they will have to buy allowances; if they produce less, then they can sell them. This is known as carbon trading.

But in the next phase, the Commission will decide on the limits of CO2 production for industries like cement manufacturing, rather than the member states. It will decide these limits in 2010. So from 2012, the cement industry may need to buy up to 20% of allowances, increasing to 100% by 2020. The power generating industry, by comparison will have to buy 100% of its allowances from 2012.

"Our issues are very different to the power generation industry," says British Cement Association (BCA) climate change expert Dr Richard Leese. "They can pass on their costs, but we can't."

The BCA is worried that allowances will be in short supply and will therefore cost more to buy. Carbon trading will be more like an auction.
"Our main concern is in the auctioning of allowances," says Leese. "Buying these allowances, which manufacturers from the far east and north Africa don't have to do… doesn't give the [UK] cement industry enough protection from [cheaper] imports."

"In fact we could see more imported cement coming in, which would increase the global footprint."

While these problems will not truly come to light for another four years, the BCA and The Concrete Centre building sustainability manager Tom de Saulles explains that cement manufacturers have to make decisions now about how to invest, to prepare for the impact of the third phase of the EU ETS.

"It takes seven years to design and build a new cement plant at the cost of around £200M". Cement manufacturer Lafarge has already put on hold £755M of investment until more assurance is given by Brussels that European cement will be protected from cheaper imports (NCE 21 February).

The BCA is seeking clarity from the government over these issues and points out that it has already achieved a 29% reduction in CO2 in 2006 compared with 1990, this equates to 3.9 Mt fewer carbon emissions. This has been achieved by investing in more efficient plant and moving to burning waste and industrial by-products instead of fossil fuels.

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