Introduction

The cement sector is responsible for 5% of global greenhouse gas emissions. In Europe, the sector emits more greenhouse gases than the whole Belgian economy. In light of the Paris Agreement objectives, the cement industry will need to achieve deep emission reductions in the coming years. The EU’s main instrument to decarbonise cement – the EU ETS – has however failed to deliver this so far: By subsidizing pollution, there has hardly been a sufficient economic incentive to leverage emission cuts in the cement sector.

This policy briefing interprets the findings for the cement sector of an updated CE Delft study that shows how industry in 20 European countries has massively profited from its pollution under the EU Emissions Trading System (EU ETS). The briefing ends with recommendations on how to make the EU ETS fit for purpose for the low-carbon transition of the cement industry.

Windfall profits under the EU ETS

The EU Emissions Trading System covers the EU’s greenhouse gas emissions (GHG) from the power sector, energy-intensive industries and aircrafts which amount to just over 40% of the EU’s total GHG emissions. While power companies are obliged to buy all of their CO2 allowances at auction, industrial companies get their emission allowances for free.

The emission allowances that are given away for free represent subsidies, since governments forego income and lose out on revenues from auctioning these pollution permits. Companies have furthermore been able to make significant windfall profits under the current ETS rules. Windfall profits occur when industrial companies are over-subsidised for their pollution. This can for example happen when too many free emissions allowances are given away that can be sold for a profit on the market.

Read 4 page brief here