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Carbon leakage – winners and losers

World Cement,

In the run-up to the international climate talks to be held in Copenhagen this December, much is being said about carbon leakage, the phenomenon whereby, rather than successfully reducing emissions, environmental legislation simply results in the relocation of ‘dirty’ industries to countries unhampered by environmental regulations.

In mid-September the EU announced that some 164 industry sectors and sub-sectors – including the cement industry – have been proposed for protection from carbon leakage through the allocation of free allowances (the details of which will be decided in 2011). The list is in the process of being scrutinised by European parliament and may end up being scrapped altogether if some kind of international agreement is reached in Copenhagen. In the meantime, however, it ought to offer some comfort to energy intensive industries and to European economies, which would suffer cash as well as carbon leakage should industry move out of the EU.

The US
Meanwhile, as the US deliberates over its own emissions trading scheme, it is faced with the same concern – that its industries will simply relocate rather than meet stringent environmental standards. Already there is talk of some 14 cement plants facing closure should the EPA proceed with its new mercury ruling; for some, operating in such an environment is just not feasible, particularly during a global economic downturn. Emissions caps would only add to this burden, and may result in further plant closures. With the cement industry predicted to begin recovery from the end of next year, the US might find itself reliant on imports unless significant investment is made in environmental upgrades, and any emissions trading scheme is based on appropriate efficiency benchmarking (as is planned for the EU ETS allowances).

The fortunate few?
Many countries – both mature and developing – are already feeling the pressure of cheap imports from nations that benefit from cheap fuels and plentiful raw material deposits. The combination of natural advantages and minimal environmental legislation leaves the cement industry – and many other industries – with a choice selection of Middle Eastern and Asian nations with the power to take on global trade. The oversupply situation in these countries has been making news for quite some time now, but it could be that cement producers there will find themselves well-placed to meet demand in Europe and the US, in addition to their existing export markets. Much, too, depends on freight costs, which are similarly subject to fuel prices and, as such, emissions legislation.

For now, with so much left up in the air, everyone will be waiting with bated breath to see what will happen in Copenhagen.

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