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CO2 trading worth more than cement

MATERIALS Cement producers 'could make more from carbon trading than from exports'

CEMENT producers could make more cash by reducing exports and trading surplus carbon emission allowances under European plans to cut greenhouse gases.

City analysts claimed that the current high price of carbon dioxide makes shipping cement from European Union countries uneconomical. Instead it would be more prof itable for companies to sell on the freed up carbon dioxide allowances under the EU's Emission Trading Scheme.

A report by investment bank Dresdner Kleinwort Wasserstein revealed that cement producers such as Lafarge and Castle Cement would be better off importing the material from non-European Union countries such as Egypt and Turkey because they would be unable to pass increased costs due to emission trading on to customers.

Under the ETS, companies are allocated carbon dioxide emission allowances each year.

Should a company exceed its allowance it would be forced to pay fines on each extra tonne of carbon dioxide produced or buy more allowances on the open market from companies that have managed to come in under their emission targets.

With the current market price of carbon dioxide standing at around £15.5 per tonne, cement producers could stop production in the European Union and replace it with imports from non-EU countries without hitting profits.

The report said: 'Cement companies could reduce seaborne cement exports from EU countries as long as carbon dioxide prices exceed 15 Euros per tonne (£10 per tonne). Also we estimate that EU cement producers may replace EU cement production with imports from non-EU countries at the margin if carbon dioxide prices exceed the current price.' Carbon dioxide prices spiralling past the £40 per tonne mark could see EU cement producers quit production and concentrate on trading emission allowances.

One analyst admitted that this was an unlikely, worst case scenario but claimed that reduced EU seaborne imports would benefit producers and could help keep costs down for contractors.

He said: 'Most producers have significant production facilities outside the EU. These will not be hit by increased ETS costs and would act to cap the price of EU cement.' UK cement producers said they had no intention of reducing cement production and that the industry had enough carbon dioxide allowances to avoid the need to buy in extra.

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