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In the first episode of Homaio’s interview series, AGC shared their path toward decarbonization in response to rising carbon costs.
The green deal aims at achieving “carbon net zero” by 2050. By then, emissions of carbon dioxide due to human activities and removals of these gasses should be balanced out. In response, more and more corporations have adopted the same decarbonation target. Since June 2022, the number of companies with this climate target has increased by 40%, reaching a total of 1003. 66% of the annual revenue generated by the world’s largest 2000 companies now falls under a net zero target.
AGC is one of the world leaders in flat glass production. It stands as a key competitor to the French holding Saint Gobain. The group operates in one of the most carbon-intensive sectors. It specializes in the production and distribution of flat glass mainly for the building industry. Buildings are a major contributor to CO2 emissions in Europe, accounting for 36% of all power-related emissions (the power sector being the most polluting, responsible for 34% of the EU ETS coverage). AGC’s 11 float factories in Europe operate 24 hours a day, 7 days a week, as the complex machinery cannot be switched on and off on demand. In 2022, the company’s plants under the EU ETS emitted over 1.3 million tonnes of CO2.
Homaio is excited to present an interview with Niels Schreuder, shedding light on the company’s journey towards decarbonization.
Niels Schreuder : Bringing down carbon emissions is a survival strategy for the European flat glass industry as a whole.
From a regulatory standpoint, it is as simple as that - failure to do so will represent a regulatory breach, gradually banning glass production in Europe. Industries that do not comply with the Emissions Trading Scheme (ETS) will have their operating licenses removed.
On top of this, there is an increasing demand for low-carbon materials from our clients and this market share is very important for us. The demand for low-CO2 products is driven by pressure from regulators. For example, in France, construction companies have to ensure that materials used are with a low carbon footprint. Similarly, car manufacturers have to furnish clients with CO2 reports, tracking emissions related to every component. To avoid losing a substantial market share in Europe, the European glass industry needs to adapt to lower-carbon solutions.
NS: We tackle decarbonization through different prisms:
NS: AGC, falling under the EU ETS coverage, is required to track its CO2 emissions. For each tonne of CO2 emitted, it is obligated to buy a carbon allowance (EUA). At the end of every year, the company must surrender an equivalent number of EUAs to match the total tonnes of CO2 produced.
AGC has had carbon compliance obligations since 2005. In 2022 alone, the EUA expense was around €24 million. AGC’s European operating profits the same year were €190 million - so, the company has spent around 13% of its operating profit to purchase carbon allowances.
Carbon Expenses as a proportion of Operating Profits (2022)
In the first years of existence of the scheme, some part of the allowances were given for free by the European Commission. However, the number of freely distributed allowances has been decreasing over time. Also, the price of EUAs has been increasing. Yet, the volumes of CO2 emitted by AGC have remained relatively stable. Hence, the cost of carbon is becoming a substantial financial challenge for the company. In our ESG report from September 2023, we highlight that an increase in carbon prices is the only short-term transition risk to be on the lookout for.
AGC’s CO2 emissions have been relatively stable since 2013. Despite some EUAs being allocated for free, the increasing price of carbon is translated into a drastic climb in compliance cost for the company.
NS: Yes - they will bring European glass prices higher than those of international competitors. To account for the EUA costs, European firms have to increase their consumer prices. In contrast, numerous glass-producing companies outside of Europe operate without these constraints. To keep being competitive globally, AGC must cut carbon emissions to diminish the exposure to EUAs.
NS: Both AGC and Saint-Gobain, the leading players in the European glass market, face financial challenges from carbon allowance costs and regulatory obligations. They have launched the VOLTA project together and the European Commission’s president Ursula Von der Leyen has been very supportive of it.
It is aiming to introduce innovative technology that will reshape the future of the glass industry in Europe. The VOLTA project sets an ambitious target of reducing direct CO2 emissions from glass production by 50 to 75%. For now, it is only implemented in one production plant during a test phase. If everything goes well and the company is able to replace all of our ovens with this innovative tool in the future, emissions reductions will be considerable. If we are able to cut their emissions by 50% and hence cut in half spendings on EUAs, this will represent yearly savings of up to €12 million. And the more EUAs increase in price, the greater the savings..
EUAs are expected to increase in price over the next few years and decades. This makes projects like VOLTA all the more important to lower the exposure of industrials.
Sources
The European Commission, A Green Deal Industrial Plan for the Net-Zero Age.
The Net zero tracker: Half of world’s largest companies are committed to net zero.
The European Parliament, Energy performance of buildings: climate neutrality by 2050.
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