Focus on emissions - regulations and the ceramics industry

Clay Technology magazine
,
12 Jun 2011

David Beardsworth, Technical Director for the British Ceramic Confederation, explains how a shift in focus has substantially changed the regulatory landscape for the ceramics industry

In a previous article (Clay Technology, May/June 1998), the then Chief Executive of the British Ceramic Confederation, Kevin Farrell, wrote about the changes to regulations following the introduction of Integrated Pollution Prevention and Control (IPPC) and the effect this was having on the UK Ceramic Industry, alongside energy reduction pressures coming from the targets associated with Climate Change Agreements (CCAs).

In the following period, the regulatory landscape changed substantially – there are now overlapping schemes and the focus has shifted from energy alone to energy and emission reduction. While an Energy Intensive Industry (EII) must take the responsibility for its emissions, the introduction of these schemes is placing severe financial and administrative burdens on industry. There is a real danger of losing UK manufacturing capacity, the employment this provides, and becoming open to the import of goods and their associated emissions from countries without the carbon burden or with less regulated economies.

The question of internationally competitive industrial energy supplies will also have a major impact on the performance of UK industry. This short report only includes the effect of emission reduction schemes. However, energy and carbon pricing are inevitably linked. Government policy to promote investment in low carbon electricity generation does not seek to mitigate the effects on EII, and the cumulative burden of policies in Europe and the UK, which is now skewed by a proposed UK-only carbon price floor, will double energy costs by 2020 in real terms.

The schemes

The ceramic industry is facing overlapping emission control legislation from the CCAs and The CRC Energy Efficiency Scheme (formerly known as the Carbon Reduction Commitment) in the UK, and from European Union Emissions Trading Scheme (EU ETS). All three schemes are being reassessed or revised. It is unfortunate that many companies find themselves in a situation where it is not possible to make internal strategic decisions until the interactions are known. Until this time, it will be easy to make the wrong decision in terms of determining the correct company strategy.

It is difficult to accurately compare the schemes, due to the developing position in all three, however, the table below summarises some of the expected differences:

The interactions

A colleague has described the proposed EU ETS small emitter opt out as ‘the new window tax’ – the similarity being that an overlap of EU ETS and CCA is likely to persuade companies they would be better in CCA rather than EU ETS. Large brickworks where investment has been made to achieve the economies of higher production levels, hence a reduction in specific energy consumption (SEC), may seek to continue in CCA in preference to EU ETS. This will require sites to limit production (brick up the windows, it may help sales) to keep annual emissions below the potential 25,000te CO2 threshold.

This is unfortunate on a number of counts. The CCA has been a successful instrument in advancing both emission reduction and energy efficiency across the ceramic sector. Some of this achievement is due to companies increasing the capacities at sites where investment had the better chance of success at the expense of older, less efficient sites. In some cases, this resulted in the closure of older sites – something the CCA was intended to promote.

So now the UK has some of the most energy efficient brick plants in Europe. However, if a corporate decision is taken to stay within CCA and avoid EU ETS, then most of the successes of CCA will be reversed, as site output would have to be reduced to keep emissions below 25,000t CO2 per annum. Subsequent investments will be cancelled and the short to medium term prospects for the UK brick industry diminished.

Compelling case for change

The case to reduce emissions is compelling – EII must play a major part if we are to achieve the Government’s target of an 80% reduction in carbon emissions by 2050. Energy efficiencies will not deliver this ambitious target. They will only bring a small element to the party, but they will still be vital in maintaining the industry mindset necessary to reduce emissions. To approach anywhere near 80% there has to be fundamental process change and innovation to develop new low carbon technologies.

There is a real fear that, by placing such a high burden on manufacturing industries in the UK and Europe, we will see increasing investment being made in international production where there is less emission control and where products do not carry the equivalent cost of carbon. We then begin to export jobs and import carbon, and there is definitely no net improvement in global emissions.

Large international companies now own much of the UK manufacturing base and investment decisions are made in boardrooms outside the UK. So our companies compete for investment against global competition within their own organisation. If the UK has the extra burden of high energy and high annual carbon costs, then it is conceivable that the UK could be unsuccessful in attracting necessary finance to produce the new technologies needed for the future.

The 80% emissions reduction figure also depends massively on a move to a decarbonised electricity supply. The cost of such a shift in energy production will be enormous – we are now moving towards major changes in the electricity market, which are forecast to at least double the cost to industry. This report does not include an in depth analysis of the potential effects of this change, but it must be obvious that the cumulative UK burden of high energy tariffs and the cost of carbon cannot be met without a robust, negotiated, international climate change accord. Without such a deal, competitiveness will be eroded, putting the UK at a distinct disadvantage in the marketplace.

The uncertain future

We can illustrate the uncertainties facing ceramic sites by taking a brief overview of the regulation covering a medium to large UK brickworks as an example of the ceramic sector, using actual average figures for the sector.

The sites entered into a CCA (with the then Department of the Environment, Transport and the Regions) in April 2001, agreeing to reduce Specific Energy Consumption (SEC) by 12% by 2010. Until 2008, the sites met the milestone targets by energy efficiency measures. The effect of the recession did mean, however, that the site had to buy carbon to meet the 2010 target, which was compounded by the double counting adjustment to take account of the double benefit or jeopardy in CCA and EU ETS. Over this time energy and carbon emissions were reduced by over 20%.

The plant output being over 75t per day meant that the site became eligible for EU ETS in 2005. However, for the first three years, the UK Government (by now the Department for Food and Rural Affairs) allowed sites to opt out of Phase 1 as long as they were in an equivalent national scheme, for example CCA. From 1 January 2008, this exemption lapsed and the sites entered Phase II, which runs until 31 December 2012.

So the plants now have to have the annual EU ETS performance verified within three months of the year-end and retain carbon allowances to meet the calculated cumulative emissions from combustion and process sources. In Phase II, companies have been allocated free allowances that, in most cases, are sufficient to meet their emissions cap.

The negotiations (now under the Department of Energy and Climate Change) have moved on to the conditions that will apply in Phase III, beginning on 1 January 2013. At this point, allowances will be allocated by benchmark and, it is estimated that the clay brick sector is one of the small minority of sectors to be excluded from this status. Free allocation will cover 70% of what will be needed in 2013, falling to 15% by the end of the phase in 2020. This represents a cost of £145,000 in year one, rising to £410,000 in 2020, assuming a carbon cost of £15p/t, although the cost of carbon is forecast to rise to a minimum of £25p/t during this period.

The March 2011 Budget announced that CCAs would continue until 2023 – the development of EU ETS in Brussels indicates there could be a small emitter exemption for installations emitting below 25,000t CO2 per annum that operate within an equivalent national scheme. At the present emission level, this exemption would not apply to the example used here, but it begins to look attractive to reduce output and avoid the annual carbon costs. However, the lack of final detail of both schemes means that logical strategic decisions cannot be made – there are too many unanswered questions to make a firm and qualified decision.

After carbon leakage status, the single most important factor is the timing of the two schemes – there will be two further consultations on CCA, one in July 2011 and the other at the end of the year. Only then, will companies have some certainty on the operation of the CCA scheme. However, by this time, installations will already have been specified in the UK National Implementation Measure for EU ETS. Will the UK introduce the optout of EU ETS for small emitters? If CCA is deemed as an equivalent national scheme under EC rules, it would permit sites below the expected small emitter thresholds of 25,000 tonnes CO2 to opt out of EU ETS and into CCA. There are other significant issues to be resolved in both EU ETS and CCA/CRC.

Looking forward

Brick is used in more than 70% of the nation’s walls – the aesthetic appeal of clay brick construction will not disappear, even if the UK brick manufacturing industry does not have the capacity to meet demand. We will increase imports from the present level of nine per cent to meet whatever demand is required. We could have strangled our industries and employment through overzealous carbon costs and energy market reform without achieving the primary objective of reducing emissions. This is not a scenario unique to ceramics – there are the same trends in other energy intensive sectors. Some UK stakeholders have the view that this is the direction in which we should travel, but if we lose our manufacturing base, will we really see a revolution in low carbon technologies that will provide the employment of the future?

Further information

Author details

David Beardsworth, Technical Director, British Ceramic Confederation, Federation House, Station Road, Stoke on Trent, ST4 2SA. Tel: 01782 744631. Email: davidb@ceramfed.co.uk

Latest update

On 19 May the European Commission Climate Change Committee determined that clay construction products should be added to the list of sectors considered at risk of carbon leakage in Phase III of the EU Emissions Trading Scheme. The UK voted in favour. This decision, and particularly the reversal of the earlier policy of the UK Government, resulted from a concerted industry campaign in both London and Brussels. The outcome not only guarantees that the industry will qualify for enhanced free allowances in Phase III, but also ensures equal treatment with other energy intensive industries and construction sectors.