Chronicles from the EU ETS battlefield:  How does carbon pricing accelerate decarbonization in the cement industry?

Chronicles from the EU ETS battlefield:  How does carbon pricing accelerate decarbonization in the cement industry?

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We came across an open letter to the European Commission advocating for the strengthening of the  EU ETS. Signatories included the usual suspects: WWF, Carbon Markets Watch, the European Environmental Bureau… 

What was surprising, however, was the presence of Cem' In' Eu', a cement producer. Traditionally, the cement industry is among the most polluting sectors. It represents 7% of the world's direct CO2 emissions. Why does a cement company advocate for higher carbon prices? 

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We reached out to Fabien Charbonnel, Cem’ In’ Eu’s managing director. We are truly grateful for the time he spent responding to our questions and the thought-provoking insights that he shared.

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Homaio: What does Cem’ In’ Eu’ do? 

Fabien Charbonnel: Cem’ In’ Eu’ specializes in the production of cement. The company buys raw materials, processes them, and manufactures cement having the lowest carbon footprint possible. Finally, it distributes the finished product to its clients.

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H: How is Cem’ In’ Eu’ different from other cement manufacturers? 

FB: Traditionally, the cement industry is among the most polluting sectors. It represents 7% of the world's direct CO2 emissions - 6 times more than the average in the materials sectors.

Clinker is used to produce cement - this raw material requires a lot of energy to be heated (1 450°C) hence requiring the release of large quantities of CO2. The cement production process also involves calcium, a material that is naturally very carbon-intensive.

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Cem’ In’ Eu’ has an innovative concept - through small production units and low-carbon technologies, it aims at offering cement that is as sustainable as possible.

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H: Why does Cem’ In’ Eu’ specialize in lower-carbon intensive cement production?

FB: First, there is increasing demand for more sustainable cement. Builders have the legal obligation to account for the carbon intensity of their construction. As per the Construction Carbon Regulations in Europe Report, numerous programs make it mandatory for the building sector to reduce its carbon footprint.

• In France, some initiatives are Bâtiments Bas Carbone (BBCA), Haute Qualité Environnementale (HQE), Bâtiment à Énergie Positive & Réduction Carbone (E+C-), The regional variants of Effinergie, Quartiers et bâtiments durables.
• In Germany, there is the DGNB, the BREEAM DE, or the Nachhaltiger Wohnungsbau. 

So, Cem’ In’ Eu’ helps those constructors find lower carbon solutions and helps them comply with their local regulatory requirements. 

Second, Cem’ In’ Eu’ is adopting more sustainable practices as a response to the European Union Emissions Trading Scheme (EU ETS). 

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H: Have you been incurring costs for carbon until now?

FB: So far, Cem’In’Eu’ has not been facing costs for carbon allowances. Indeed, in the cement industry, what falls under the scope of the EU ETS is the production of the abovementioned primary material - clinker. Since Cem’ In’ Eu’ is buying clinker from abroad and processing it to make cement (instead of producing clinker themselves), we have not been required to purchase carbon allowances. 

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H: Why then did you mention the need to start adopting more sustainable practices as a response to the European Union Emissions Trading Scheme (EU ETS)?

FB: In 2023, the EU regulators introduced the Carbon Border Adjustment Mechanism (CBAM). The idea is to make industries pay for the carbon emitted during the production of materials that they are importing. In other words, Cem’ In’ Eu’ has been buying clinker from outside of the EU without incurring carbon costs so far. After the introduction of the CBAM after 2026, we will need to buy carbon allowances to match the CO2 produced during the production process of the clinker in question. 

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H: You will only need to start paying for carbon allowances after 2026. Is it already a relevant topic for you?

FB: Cem’ In’ Eu’ is anticipating the cost that they will need to face to buy European Union Allowances (EUAs) after 2026 to match the carbon relative to the clinker needed for our operations. We are already incorporating the cost of carbon in our financial models and projections. 

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H: At what level are the strategic decisions on how to tackle EUA prices taken within the company?

FB: The decisions regarding the levels and how exactly to take into account the future costs of carbon are taken by Cem’ In’ Eu’ s executive committee and board of directors - it is a key strategic element discussed at a centralized level. 

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H: Do you see the introduction of the CBAM and the EU ETS more broadly seen as beneficial for the cement industry?

FB: The CBAM goes alongside with the phasing out of free allowances. Companies like us who will need to buy allowances to match the CO2 of imported goods will have to match an increasing percentage of the carbon intensity of what we are buying. At first, we will only have to match 2.5% of the CO2 in 2026, then 5% in 2027 and so on to reach 100% in 2034. In parallel, our competitors who have been already paying for carbon allowances to match the CO2 released during the production processes, have been receiving a proportion of their EUAs for free. As the CBAM is kicking in, they will receive less and less free allowances. This is great news for the sustainability of the cement industry - everyone will see their costs for carbon increased at the same time. In a level-playing field environment, we are all going to be incentivized to adopt more environmentally friendly practices. 

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H: Would you personally invest in carbon allowances? 

FB: I am convinced that the EUA price will rise in the near future - all of our business models incorporate prices on the rise. Yet, I do not want to discuss my investment decisions and risk tolerance publicly :)

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