3rd AMIREG International Conference (2009): Assessing the Footprint of
Resource Utilization and Hazardous Waste Management, Athens, Greece
The approximate cement production cost and the viability and
competitiveness of the Greek cement industry
K.G. Tsakalakis
National Technical University of Athens, Greece
ABSTRACT
In March 2007 the European Union (EU) agreed
to reduce greenhouse gas emissions by 2020 by
20% compared to 1990 levels. The European
Trading System (ETS) will be a key mechanism
to ensure the achievement of emission reduction
targets.
The current proposal of the EU ETS Direc-
tive (dated January 2008) for the 2013 to 2020
period limits overall emissions permits available
for ETS sectors to the equivalent of 79% of
2005 levels. From 2013, these permits will be
allocated through full auctioning for the power
generation sector while for all the other ETS
sectors (including the cement industry) 20%
will be auctioned in 2013 and then linearly in-
creased up to 100% by 2020.
In 2007, the cement production in the CEM-
BUREAU 27 Member Countries amounted to
283 million tonnes, representing about 10.22 %
of total world cement production (2.77 billion
tonnes). Thus, it is evident that the EU clinker
production is sustainable from an economic per-
spective with more than 30,000 people em-
ployed and more than €3,200M value added.
With net emission factors between 3% and
35% lower than non-ETS countries, this indus-
try meets the most demanding environmental
standards and provides a waste management so-
lution, as it replaces 18% of traditional fuels in
kilns with alternatives, including waste. Addi-
tionally, cement will be critical to ensure the
fulfillment of adaptation policies which are in-
strumental in reducing the total cost from sea
level rise due to climate change.
This paper examines the approximate current
cement production cost in Greece and how the
411
additional carbon cost, due to CO2 Emissions
Trading Scheme (ETS), will affect the competi-
tiveness of the Greek cement industry compared
with non-ETS countries.
In case of incorporation of the cost of CO2 in
the cement production cost, it is expected that
clinker and cement production in the EU will
not in the future be competitive without free al-
lowances allocation. As a consequence, the
Greek cement producers will also prefer to relo-
cate cement production to more competitive
countries and the above practice will lead to
production offshoring and put Greek cement
production at risk of carbon leakage.
1. INTRODUCTION
In 2007 the Greek cement industry produced
about 16.2 million tonnes from the 283 million
tonnes of the EU cement production and emitted
about 0.75 tonnes CO2/t cement via direct emis-
sions (raw material calcination and fuel com-
bustion) and around 0.05 tonnes of CO2/t ce-
ment via indirect emissions (use of electricity
from fuel based power plants). Thus, direct and
indirect emissions of CO2 together amounted to
about 0.8 tonnes of CO2/t cement.
It should be noted that the indirect emissions
of CO2 are not covered by the Emissions Trad-
ing Directive, which only intends to cap direct
emissions. Due to this environmental problem,
the European Union (EU) agreed in March 2007
to reduce greenhouse gas emissions by 2020 by
20% compared to 1990 levels. EU thought that
the EU ETS will be the key mechanism to en-
sure the achievement of emission reduction tar-
gets. The EU scheme used to be a system of
climate change policy that was completely in-
3rd AMIREG International Conference (2009): Assessing the Footprint of
Resource Utilization and Hazardous Waste Management, Athens, Greece
dependent of International Climate Change Pol-
icy (UNFCCC, 1992) or the Kyoto Protocol that
was subsequently (1997) established under it. It
must be mentioned here that, when the Kyoto
Protocol came into force on 16 February 2005,
the EU ETS had already become operational.
Under the EU ETS, large emitters of carbon
dioxide within the EU must monitor and annu-
ally report their CO2 emissions, and they are
obliged every year to return an amount equiva-
lent to their CO2 emission allowances in that
year to the government.
A new proposal of the EU, notified through
the EU ETS Directive and dated January 2008,
limits overall emissions permits available for
ETS sectors to the equivalent of 79% of 2005
levels for the period 2013 to 2020.
This paper records how the additional CO2
cost for the EU cement industry will affect the
competitiveness of the cement sector vis-à-vis
non-ETS countries, thus putting cement produc-
tion in the EU at risk of carbon leakage. In par-
ticular, the impact of the proposal of the Direc-
tive on clinker production, as the key intermedi-
ate material for producing cement, was ana-
lyzed. Since clinker is responsible for 100% of
cement’s direct emissions, it is more exposed to
the risk of offshoring. On the one hand, this is
due to its easy transport, without any need of
specific transport equipment, and on the other,
customers in the EU are already accustomed to
clinker produced in non-ETS countries.
2. CEMENT PRODUCTION COST
2.1 Overview
The Greek Cement Industry is a vital sector of
the Greek economy. With an annual production
of cement over 16.0 million tonnes, it contrib-
utes significantly to the national gross domestic
product (G.D.P.).
But the cement industry, as other mineralogi-
cal transformation process industries (lime,
glass, ceramics, extractive metallurgy etc.), is
high energy intensive. Each tonne of cement
produced requires not only large amounts of fu-
els (coal, fuel oil, natural gas), but additionally a
significant quantity of electrical power as well.
All fuels consumed by the Greek cement indus-
try are imported and energy accounts for about
40% (Fig. 1) of the cement production cost.
412
Therefore, it is of interest of the community and
the industry to increase energy efficiency, to re-
duce the quantities of fuels consumed in the
cement manufacturing process. It is also obvi-
ous that, like almost all manufacturing proc-
esses, the cement industry produces large
amounts of CO2 (combustion of fuels, calcina-
tion of limestone and use to electricity).
There are three measures by which the ce-
ment industry may save direct CO2 emissions in
the immediate future:
- Improvement of energy efficiency (a maxi-
mum of 2% is still feasible),
- Reduction of the clinker/cement ratio (intro-
duction of useful industrial by-products),
- Increase in the use of waste as alternative
fuel (national initiatives, adequate national
implementation of certain directives regard-
ing specific waste).
The utilization of wastes (principally as al-
ternative fuels, scrap tires, spent solvents, sew-
age sludges etc.), being compatible with the
general principles of waste management, is also
a common practice in the European Union and
the developed countries (Tsakalakis, 2007).
In 2006, the European cement industry used
an energy equivalent of about 26 Mt of coal, a
non renewable fossil fuel, for the production of
266 Mt cement. At the same time, alternative
fuels constituted 18% of this across Europe,
saving about 5Mt of coal and resulting in a
gradual decrease of the energy consumption in
cement production (Fig. 2).
2.2 Prediction of the cement production cost
From Figure 3, the cost of the cement produc-
tion can be predicted (Tsakalakis, 2005) as fol-
lows:
Let’s assume that, for the production of ce-
Figure 1: Distribution % of the cement production cost
before depreciation (Source: Katsamboulas, 2007).
3rd AMIREG International Conference (2009): Assessing the Footprint of
Resource Utilization and Hazardous Waste Management, Athens, Greece
Figure 2: Improvement of the energy efficiency in clinker
production (Source: Maringolo, 2009).
Figure 3: Raw materials and fuels used in cement produc-
tion (Source: Maringolo, 2009).
ment, 0.13 t coal (or petcoke)/t clinker are con-
sumed and additionally electric power
110 kWh/t cement.
Thus, assuming a mean current price (cif)
US$90/t, the coal or petcoke cost in clinker pro-
duction is:
90 x 0.13 = US$11.7/t clinker ≅ €9/t clinker
Similarly, for a mean price €0.07/kWh for
industrial users, the cost of electricity consumed
in the cement production approximately is:
0.07 x 1.3 x 110 = €7.7/t cement
Thus, the total energy cost in cement produc-
tion amounts to €16.7/t cement.
Since the energy cost represents 40% of the
total cement production cost, the cement pro-
duction cost is expected to be roughly:
16.7/0.4 = €41.75/t cement
In regions with very high fuel and energy
costs, the reported cement production cost
(Brahm Segal, 2004) was at the range of
US$45.0(≅ €34.)/t cement.
413
Figure 4: EU cement production at risk due to CO2 price.
2.3 Impact assessment of the 2013-2020 EU
ETS proposal
Many independent attempts have been until now
carried out in order to assess the impact of the
EU ETS Directive on the viability of the EU
cement sector after 2013.
Below, some of the main findings are con-
cisely summarized.
Boston Consulting Group (BCG), in collabo-
ration with and upon request of CEMBUREAU
argues, that, at CO2 prices above €35/t (expected
for the 2013-2020 period), the ETS Directive
will lead to the complete relocation of the EU
cement industry. At CO2 price of €25/t, more
than 80% of EU clinker production will be at
risk of offshoring by 2020.
Thus, 100% of the Italian, Greek, Polish and
UK production, almost 100% of Spanish, ~75%
of German and 65% of the French and ~70% of
the production of the smaller EU producers will
be at risk of relocation (Fig. 4).
In addition, with the unrealistic hypothesis
that the entire CO2 cost will be passed through
to consumers, the European cement industry
would still be vulnerable to carbon leakage, due
to the fact that cement and clinker are already
exposed to hard international competition.
Similarly, a separate study, prepared on be-
half of the German Cement Works Association
(Verein Deutscher Zementwerke e.V. or VDZ),
indicates that in 2020, around 50% of clinker
production in Germany will be threatened by
imports, assuming CO2 costs of €35/t (Fig. 5).
3rd AMIREG International Conference (2009): Assessing the Footprint of
Resource Utilization and Hazardous Waste Management, Athens, Greece
Figure 5: German clinker and cement production with in-
creased competitive pressure, 2020 (Source: VDZ, 2009).
Additionally, from the sensitivity analysis car-
ried out, it was examined how the clinker pro-
duction at risk would be affected by CO2 costs
of between €25 and €50/t. The results of the
various scenarios show that 25% to 86% of
German clinker production is at risk.
Similarly, due to the high cement production
cost and the proximity of Greece to the major
cement producers and exporters in the Mediter-
ranean, it is expected that, in the near future, the
international competitiveness of the Greek ce-
ment industry will also more significantly af-
fected, than the north European cement produc-
tion, from the EU CO2 trading procedure.
According to a realistic approach referred to
Phase II of the EU ETS procedure (Fig. 6), a
CO2 cost of €27/t, will cause an increase of
about 30% (€20/t) of the cement production
cost.
Hence, the production cost becomes ap-
proximately €65/t (Katsiamboulas, 2007).
In Figure 7, the indicative % impact on the
Figure: 6: Development of the CO2 price (Source: Kip,
2008).
414
Figure: 7: Impact of the CO2 price on the increase of the
corresponding product selling price (Source: Demján,
2005).
cement selling price, compared to steel, is
shown as a function of the CO2 price in €/t. This
means that this impact is greater for cement than
for steel, showing its energy intensity.
But, since the import freight rates are €11.5
to 13/t cement from the Mediterranean area and
about €20/t cement from the Far East, causing
with additional transport emissions 94 kg CO2/t
cement and 160 kg CO2/t cement, respectively,
the negative impact on the future competitive-
ness of the Greek cement industry and on the
global GHG emissions are evident (Fig. 8).
3. CONCLUSIONS
The European GHG Emissions Trading Scheme
(ETS) is the most important ETS worldwide and
arguably the most important European climate
change mitigation policy currently in place.
Assessing the environmental effectiveness
and economic efficiency of the EU ETS is
therefore of the utmost importance. Further-
more, since many other countries, including the
USA, have not implemented similar policies to
date, the EU ETS may impact the competitive-
ness of European CO2-intensive industries.
The European and the Greek as part of the
EU cement industry is highly vulnerable to car-
bon leakage. With full auctioning in 2020 and at
CO2 prices of €35/t, all integrated clinker-
cement production in the EU would be wiped
out of the EU, leading to a loss of approxi-
3rd AMIREG International Conference (2009): Assessing the Footprint of
Resource Utilization and Hazardous Waste Management, Athens, Greece
Figure 8: Global cement balance and cement trading
(Source: Mahony, 2007).
mately 40,000 direct jobs and € 4.2 billion gross
value added (GVA) per year. The replacement
of domestic production by imports would also
result in increased global CO2 emissions, as the
EU cement industry is demonstrably the best
world performer in lowering net CO2 emissions
compared to the more CO2-intensive cement
production in the exporting countries and as a
result of extra CO2 emissions from transport.
Based on the expected cost of production in
the EU assuming the carbon cost of CO2 versus
the cost of producing in non-ETS countries,
clinker and cement production in the EU will no
more be competitive without free allowances al-
location. As a consequence, the “wise cement
producers” will prefer to relocate production to
more cost competitive countries, thus leading to
the offshoring of EU cement production.
Hence, the international competitiveness of
the European cement industry will be at high
risk due to the cap proposed in the EU-ETS,
unless appropriate measures are taken to prevent
unfair competition from products (cement and
clinker) imported into the EU from regions
without any carbon constraints and zero CO2
costs.
Since, the EU integrated cement industry is a
positive contributor to the Sustainable Devel-
opment Initiative; its survival will benefit both
the environment and the economy. Additionally,
cement will be critical to ensure the fulfillment
of adaptation policies, which are instrumental in
reducing the total cost from sea level rise due to
climate change.
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415
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