Taxing times

This article is an abridged version of the full article, which appeared in the October 2012 issue of World Cement. Subscribers can view the full article by logging in.

Introduction

By most credible metrics, the international cement industry accounts for between 5% and 8% of all CO₂ emissions, a major contributor to global warming. Climate change deniers are now generally receding in number, but a recent (2011) University of Michigan survey of public opinion in North America confirmed that political “partisan affiliation” was the most important determinant of belief in the existence of global warming. Whilst President Obama’s probable re-election this year is unlikely to hinge upon his party’s perspective on industrial CO₂ output, the success of the Environmental Protection Agency (EPA) in passing anti-pollution legislation affecting the cement sector has been undeniably political. The European experience has been comparatively harmonious. This is all the more remarkable when one considers the near-constant state of flux (and mismanagement) that characterises EU emissions management policy.

Carbon tax in Canada

Until recently, Canada could have laid claim to being, at the very least, willing to play a part in regulating the global thermostat. Pulling out of the Kyoto Protocol did little to maintain its image of a concerned global citizen. To its credit, however, it has compensated – possibly overcompensated – through the implementation of the inaugural carbon tax. This was introduced in British Columbia (BC) in 2008 at CA$10/t and ramped up to its maximum level of CA$30/t in July of this year (levied on combustion emissions rather than process emissions). Although not on a scale to equal the carbon taxation levels of (for example) Swedish industry, it has hit the Western Canadian cement sector hard in those four short years. Despite being graduated and phased – and supposedly revenue-neutral in returning collected fees to individuals and through compensating corporate concessions – the BC cement industry has paid CA$20 million in carbon taxes since 2008.

Emissions regulations in the US

Canada’s California (as BC is often referred to) demonstrates fewer similarities with its US counterpart/namesake on emissions management. America’s most important cement-producing state has faced challenges arising from new EPA standards to be fully enacted in September 2013 (although a recent announcement by the EPA appears to have set back the compliance date to September 2015 – a decision to be finalised by the end of 2012). The National Emissions Standards on Hazardous Air Pollution (NESHAP) have targeted industry emissions comprising toxics and particulates that significantly exclude CO₂. (In the USA, CO₂’s description as a ‘pollutant’ only recently gained any traction, with a Supreme Court ruling as late as June of this year in which there was an acceptance that the gas could be classed as an ‘endangerment’ to health – a move that meant that the EPA could impose emission cuts without the approval of the Senate). By 2015, the incoming industry-wide regulations aim to reduce annual emissions of SO₂ by 78%, HCl by 97% and mercury by 92% (though the latter has recently been negotiated down to 85%). Despite the Portland Cement Association’s (PCA) success in getting the industry limits increased for some pollutants, the net effect, for example, in the case of Lehigh (Southern California) has been to effectively have their production license limited to 1.6 million stpa of clinker. Despite the cement and concrete producers accounting for only 20 of the 465 ‘High Priority Violators’ on the EPA’s nationwide watch list, the sector is going to be hit hard in terms of attaining compliance to new air quality standards.

In addition to the Criteria Air Contaminants, California is arguably leading by example with Greenhouse Gas control. Eschewing a carbon taxation approach, the preferred instrument for CO₂ mitigation has been cap and trade (C&T). The

EPA has defined standards for Maximum Achievable Control Technologies (MACT), based on the average of the best performing plants – 12% of those sources for which data is available. Maximum Achievable has replaced Best Available – a subtle distinction in reality that originated in the EU as part of the Integrated Pollution Prevention and Control legislation – and was later upgraded to the BATNEEC designation (Not Entailing Excessive Cost), divorcing it from the ‘spare no expense doctrine’ that enshrined the system previously. Similar benchmarking will apply in the next phase (III) of the EU-Emissions Trading System (EU-ETS). Recognising the error of issuing free allowances, resulting in undervaluation of the units of account in phase I, future free allocations are to be based on data derived from the 10% most efficient cement plants in the EU (probably German).

Carbon leakage in need of mopping up

This issuance of free allowances has been proposed as a countermeasure to the fear of carbon leakage, whereby the product is sourced from (or ‘offshored to’) a jurisdiction not subject to emissions accounting regulations. This has been the experience of British Columbia’s cement producers since the imposition of the carbon tax. The European experience of exposure to carbon leakage has been somewhat different. Some of the most advanced and credible research in this field has been undertaken in Germany, traditionally a highly efficient cement-producing nation. Scientists at the Potsdam Institute for Climate Impacts Research assessed the risk of carbon leakage in terms of the direct (production process) and indirect (electricity from supplying power generators) price effects generated by emissions trading.

Despite lengthy rounds of agenda-setting negotiations, the transportation of cement and cementitious product by road remains outside the realm of carbon taxation or cap and trade mechanisms. (The exception to the rule here being BC’s tax that in July 2012 contributed almost ¢7 to the litre on gasoline burnt). Although new sampling and mapping technologies provide precision grid-scale data on such ‘diffuse’ sources, the industry does not yet need to account for these full life-cycle emissions. Here at least is some common ground between the EU and North America.

Cap, trade, tax or offset

Providing industrial emitters with options for reduction has a track record of success. However maligned the concept of cap and trade may be in some quarters, the North American 1980’s Acid Rain programme in the most affected region of the northeast USA, targeting SO₂ and NO_x specifically, returned positive results in terms of measured ambient levels of these pollutants (typically of over 40% reductions since the mid-1980s). The use of low-sulfur coal feedstock or the retrofitting of flue-gas desulfurisation or scrubbing technologies were both selected as adopted measures by trading parties. Twenty years later in Canada, the Alberta Specified Gas Emitters Regulation (SGER) targeting heavy emitters (over 100 kt of CO₂ pa) required participants to select from one of four options to account for their emissions quotas, including investing in offset projects and contribution to a fund that invests in carbon-mitigation projects (at a rate of CA$15/t). Results for the scheme (2008 compliance outcomes) confirm that Alberta’s two main cement producers (Lafarge and Lehigh) and a supplier of lime products (Graymont Western Canada) collectively contributed to both of these options – 46 000 t of CO₂-equivalent offsets and 56 800 fund units (equating to CA$852 000 of fund contribution) – relative contributions broadly in parallel with overall sectoral participation (although the cement sector in general is a comparatively low-emitter in the oil-and-gas-driven province). Unlike all other sectors, the cement producers elected not to participate in the generation or submission of Emissions Performance Credits (tradeable and bankable units of account), suggesting that the cement sector was not set up for trading mechanisms with its associated administrative overhead. Likewise, the upgrading of facilities to reduce emissions at source was not selected by cement producers (largely in line with other high-emitting sectors though).

Trading and taxing will always be ‘ex-post’ measures, and more in the way of ‘ex-ante’ from within the industry sector is going to confer competitive advantage. The British Columbia Government switching to Portland Limestone Cement (10% less carbon-intensive to produce) may be 25 years behind the Europeans, but it is a start.

Conclusion

The CSI’s ‘Getting The Numbers Right’ database is going to remain the driver for effective emissions management in the heavy emitting sectors such as cement and concrete production. The 90% reductions in criteria contaminants being prescribed by the EPA may be non-attainable without the wholesale implementation of high-technology such as electrostatic precipitators and dry scrubbers. Kyoto Protocol national emissions reductions targets, if they are to be achieved on time (which is looking increasingly unlikely at present), are going to need a bigger carrot and stick combination than a €6/7 price on the carbon trading markets. British Columbia’s CA$30 levy is going to hurt the cement sector more than most this year.

In North America, amidst the limited momentum of federal regulatory streamlining, the future of carbon management in the cement sector will likely be in regional programmes. To illustrate just how bizarre the entire process is becoming, one need look no further than the unlikeliest of regional pairings, as California and Quebec are set to launch a linked cap and trade programme next year. Perhaps spurred on by a shared distrust of Federal legislation the east and west will engage within what remains of the Western Climate Initiative.

Written by Peter Ion. This article is an abridged version of the full article, which appeared in the October 2012 issue of World Cement. Subscribers can view the full article by logging in.

Read the article online at: https://www.worldcement.com/the-americas/08102012/cement_canada_environment_emissions_carbon_taxes_163/