report version two august 2006 entec uk...

DTI

EU Emissions Trading Scheme Phase II Review of New Entrants' Benchmarks - Cement

Report Version Two

August 2006

Entec UK Limited

Report for Peter Roscoe Senior Economist Energy Strategy Unit DTI Bay 286 1 Victoria Street London SW1H 0ET

Main Contributors Nick Wood Michael Sorensen Alistair Ritchie Jack Cunningham

Issued by ………………………………………………………… Nick Wood

Approved by ………………………………………………………… Alistair Ritchie

Entec UK Limited Windsor House Gadbrook Business Centre Gadbrook Road Northwich Cheshire CW9 7TN England Tel: +44 (0) 1606 354800 Fax: +44 (0) 1606 354810

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h:\projects\em-260\17000 projects\17304 ppaqcc dti eu ets ner spreadsheet\c - client\final reports - as issued (10-08-06)\cement phase ii benchmark review06188i2.doc

DTI

EU Emissions Trading Scheme Phase II Review of New Entrants' Benchmarks - Cement

Report Version Two

August 2006

Entec UK Limited

Certificate No. EMS 69090

In accordance with an environmentally responsible approach, this document is printed on recycled paper produced from 100% post-consumer waste, or on ECF (elemental chlorine free) paper

Certificate No. FS 13881

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Executive Summary

The purpose of this overall project is to review and validate the benchmarks that were used to determine the allocation of emissions allowances to new entrants and other installations for Phase I of the EU Emissions Trading Scheme (ETS), and to determine whether any changes to these benchmarking approaches should be considered for Phase II.

The benchmarks will be used to generate free allocations for Phase II new entrants and other incumbent installations lacking appropriate historical emissions data.

DTI has commissioned a number of separate contracts within this overall project, with each contract focussing on a specific sector covered under Phase II. This report covers the Cement sector.

The selection of benchmarks for Phase II has been based on the following agreed evaluation criteria, together with government steers on the application and weighting of these criteria.

• Feasibility: Can the input data to the benchmark be verified? Are benchmarks based on ‘best practice’ for new entrants? Can factors be replicated by third party? Are benchmarks based on readily available data?

• Incentives for clean technology for new entrants: Are benchmarks standardised, avoiding differentiation of raw materials, technologies and fuels?

• Competitiveness and impact on investment: Is the proposed benchmark likely to meet needs for a future new entrant? If not, what is the potential impact in emissions and monetary terms?

• Consistency with incumbent allocations: How would an allocation using the proposed Phase II benchmark compare against Phase I allocations & relevant emissions?

Furthermore, for Phase II, government is proposing to move away from the integrated approach1, which applied to a few sectors in Phase I and to focus on developing benchmarks that correspond only to the direct emissions from equipment covered by the scheme. As such, the agreed focus of this project is on potential benchmarks under a direct approach.

This report is intended to accompany the overall allocation spreadsheet for the calculation of benchmarked allocations, available separately.

The work, undertaken within a tight timescale, has involved extensive information collection and analysis including contacts with key stakeholders for this sector. The previous version of this report was consulted on as part of DTI’s consultation on Phase II new entrants’ benchmarks in March and April 2006. Furthermore, the work has been subject to peer review by a sector expert appointed by DTI.

1 Under the integrated approach, the benchmark corresponded not only to the direct emissions from the new / modified equipment, but also to emissions arising elsewhere at an affected site as a result of the new / modified equipment, for example due to an increase in capacity utilisation of existing equipment.

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To provide context, a brief overview of the sector is given, including details on Phase I installations and possible new entrant technologies in Phase II. It is these technologies that the benchmark methodology is primarily focussed on. Relevant data supporting benchmarks is presented, together with a characterisation and validation of Phase I benchmarks. This is followed by an assessment of potential benchmarks, leading to the identification of a proposed Phase II benchmark. The evaluation of this benchmark against the four main criteria, mentioned above, is then presented.

In summary, the proposed Phase II benchmark formula for this sector is as follows:

The emission from combustion is given by:

A = P * EF combustion

Allocation = Annual Production * Emissions Factor

tCO2 Tonnes of clinker per year tCO2 / tonne clinker

And the emission from the process by:

A = P * EF process


tCO2 Tonnes of clinker per year tCO2 / tonne of clinker

Where the annual production is defined by:

P = C * D * U

Annual Production = Stated Design

Capacity * Days operation per year

* Utilisation

Tonnes of clinker per year

Tonnes of clinker per day Days %

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Where:

Parameter / Variable Value

C Capacity tonnes per day

D 330 days per year

U 95 % utilisation,

EF (combustion including effect of non carbonate carbon and moisture)

0.324 tCO2/ t clinker (Note 1)

EF (process) 0.532 tCO2/ t clinker

Note

1. Comprising combustion emissions factor of 0.269 tCO2/ t clinker based on top decile SEC figure of 2902 MJ/ t clinker (net basis), UK fuel mix in 2004 and EU ETS emission factors. In addition, the effect of a UK weighted average for moisture of 13.2% and non carbonate carbon of 0.64% in the raw feed stock has been determined to contribute 0.019 and 0.036 tCO2 / t clinker respectively

Further details are given in the main section of this report, with a summary of the contents of the report given in Section 1.3.

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Contents

1. Introduction 1

1.1 This Project 1 1.2 Evaluation Criteria and Principles for Benchmarks 1 1.2.1 Evaluation criteria 1 1.2.2 Integrated vs. direct approach 2 1.3 This Report 2

2. Background and Sector Description 3

2.1 Background 3 2.2 Phase I Incumbent and New Entrant Installations 7 2.2.1 Identification of how sector is covered under EU ETS 7 2.2.2 CO2 emissions from sector 7 2.2.3 Identification of Non-benchmarked incumbents, Benchmarked

incumbents and New Entrants 7 2.3 Possible New Entrant Technologies in Phase II 9

3. Review of Relevant Data 11

3.1 Data Sources 11 3.2 Data from Literature 12 3.3 Benchmarks Used in Other Contexts, Including Other

Member States 13 3.3.1 Denmark 13 3.3.2 Germany 13 3.3.3 Netherlands 13 3.3.4 Sweden 14 3.3.5 Other Member States 14

4. Review of Phase I Benchmarks 15

4.1 Characterisation of Existing New Entrant Allocation Benchmarks 15

4.2 Validation of Existing New Entrant Allocation Spreadsheet 18

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5. Assessment of Phase I Benchmarks and Proposed Revisions to these Benchmarks 21

5.1 Introduction 21 5.2 Moisture Value Input 22 5.3 Kiln Bypass Value 23 5.4 Fuel Mix Standard Factor 24 5.5 Kiln Capacity or Clinker Production Input 25 5.6 Specific Energy Consumption Factors 26 5.7 Process Emission Factors 27 5.7.1 Non Carbonate Carbon Factor 27 5.7.2 Ramp up factor 28 5.7.3 Summary 28

6. Evaluation of Proposed Benchmarks 31

6.1 Feasibility 31 6.2 Incentives for Clean Technology 32 6.3 Competitiveness and Impact on Investment 32 6.4 Consistency with Incumbent Allocations 34

7. Stakeholder Comments 39

8. References 43

Table 2.1 Potential Use of Substitute Fuels by the Cement Industry1 5 Table 2.2 Total CO2 emissions from the cement sector covered by the EU ETS 7 Table 2.3 Non-benchmarked Incumbents 8 Table 2.4 Benchmarked Incumbents 9 Table 3.1 Data from literature searches and other sources 12 Table 4.1 Characterisation of the existing New Entrant allocation spreadsheet 17 Table 4.2 Comparison of Phase 1 NE Spreadsheet Allocation with UK Phase 1 NAP Allocation 18 Table 4.3 Comparison of Phase 1 New Entrant Spreadsheet Allocation with Annual Average

Emissions for 2000 -2003 (Lowest Omitted) 19 Table 4.4 Comparison of Phase 1 NE Spreadsheet Allocation with UK NAP Allocation 20 Table 5.1 Phase 1 NE Spreadsheet Sensitivity Analysis for 2500 t clinker / day kiln 21 Table 5.2 Current NE Spreadsheet Fuel Mix 24 Table 5.3 Cement Industry Fuel Data 2004 24 Table 5.4 Summary assessment of key elements of existing New Entrant allocation spreadsheet

and proposals for potential revision 29 Table 6.1 Comparison of Phase 2 NE Spreadsheet Allocation with UK Phase 1 NAP Allocation 35 Table 6.2 Comparison of Phase 2 NE Spreadsheet with Average Emissions for 2000 -2003 (Lowest

Omitted) 36 Table 6.3 Comparison of Proposed Phase 2 NE Spreadsheet with Phase 1 NE Spreadsheet for

Benchmarked Installations in Phase 1 37

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1. Introduction

1.1 This Project This research project, undertaken for DTI, is entitled “EU Emissions Trading Scheme (ETS) Phase II – UK New Entrants Spreadsheet revisions”.

The purpose of this project is to review and validate the benchmarks that were used to determine the allocation of emissions allowances to new entrants and other installations for Phase I (2005-2007) of the EU ETS, and to determine whether any changes to these benchmarking approaches should be considered for Phase II (2008-2012). The benchmarks will be used to generate free allocations for Phase II new entrants and other incumbent installations lacking appropriate historical emissions data.

DTI has commissioned a number of separate contracts within this overall project, with each contract focussing on a specific sector covered under Phase II.

The output of this research consists of an overall allocation spreadsheet for the calculation of benchmarked allocations for all sectors, as well as individual reports documenting the basis of the benchmark for each sector.

This report covers the Cement sector.

1.2 Evaluation Criteria and Principles for Benchmarks The framework within which this research has been undertaken has been defined by evaluation criteria and principles, as provided by a government Steering Group. These are briefly summarised below.

1.2.1 Evaluation criteria The research takes as its starting point the benchmarks developed for Phase I, reviewing and revising these as appropriate. The selection of benchmarks for Phase II has been based on the following agreed evaluation criteria, together with government steers on the application and weighting of these criteria.

Feasibility:

• Can the input data to the benchmark be verified?

• Are benchmarks based on ‘best practice’ for new entrants?

• Can factors be replicated by third party? Are benchmarks based on readily available data?

Incentives for clean technology for new entrants:

• Are benchmarks standardised, avoiding differentiation of raw materials, technologies, and fuels?



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Competitiveness and impact on investment:

• Is the proposed benchmark likely to meet needs for a future new entrant?

• If not, what is the potential impact in emissions and monetary terms?

Consistency with incumbent allocations:

• How would an allocation using the proposed Phase II benchmark compare against Phase I allocations & relevant emissions?

1.2.2 Integrated vs. direct approach During Phase I, most sectors’ benchmarks were based on the principle that allocations would be made to the direct emissions associated with new or modified equipment covered by the EU ETS. For the iron and steel and refining sectors, however, the benchmark corresponded not only to the direct emissions from the new / modified equipment, but also to emissions arising elsewhere at an affected site as a result of the new / modified equipment, for example due to an increase in capacity utilisation of existing equipment. This is termed the integrated approach.

For Phase II, government is proposing to move away from the integrated approach, and to focus on developing benchmarks that correspond to the direct emissions from equipment covered by the scheme. As such, the agreed focus of this project is on potential benchmarks under a direct approach.

1.3 This Report This is the report for the Cement sector, within the overall DTI project “EU Emissions Trading Scheme (ETS) Phase II – UK New Entrants Spreadsheet revisions”.

This report is structured as follows:

• Section 2 presents the background and sector description, including a brief overview of relevant processes within the sector, details on Phase I installations and details of possible new entrant technologies in Phase II;

• Section 3 presents a review of relevant data supporting benchmarks, including details of data sources and available information on benchmarks in other Member States;

• Section 4 presents a review of Phase I benchmarks including characterisation and validation of these benchmarks;

• Section 5 presents an assessment of proposed Phase II benchmarks;

• Section 6 presents an evaluation of proposed Phase II benchmarks against the agreed evaluation criteria, summarised in Section 1.2;

• Section 7 presents stakeholder comments received during DTI’s consultation related to this project in March and April 2006; and

• Section 8 presents references.

In addition to the stakeholder consultation, this report has been subject to peer review by a sector expert appointed by DTI.



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2. Background and Sector Description

2.1 Background The basic process of the cement industry is the thermal conversion in a kiln of calcium and magnesium carbonate aggregate into the oxide form, which then reacts with silica, alumina and ferrous oxides to form a material called clinker. In order for calcination and clinkering to take place it is necessary to maintain the material at temperatures within the range 1400 – 1500 C. The processes are therefore very energy intensive with fuel accounting for 30 - 40 % of the variable production costs. The clinker is then blended with other substances, such as gypsum and blast furnace slag to make cement.

The main greenhouse gas emitted by the sector is carbon dioxide derived from the combustion of the fuel used to heat the kilns (combustion CO2) and from the chemical reactions that liberate CO2 from the carbonate aggregates (process CO2). The UK cement sector is made up of 23 operational kilns at 16 sites; there are 13 sites1 in England and Wales of which an estimated four kilns could be closed or replaced in the next few years, one site in Scotland and two sites in Northern Ireland. Fifteen sites were eligible for an allocation in phase I; 3 of these sites were classified as new entrants; 1 as an incumbent new entrant. One site, Lafarge Barnstone, was below the Directive threshold.

Thirteen of these 15 sites have received an allocation under the UK NAP for Phase 1 with one site, Buxton Lime’s cement plant at Tunstead classed as a new entrant and another site, Lafarge Barnstone, being too small to be included in the EU ETS.

The ownership of the facilities is concentrated among three companies: Lafarge, CEMEX (formerly Rugby Limited) and Castle Cement. In addition to these, Buxton Lime also operates a cement kiln that utilizes waste arising from their extensive lime manufacturing operations at Tunstead. The majority of the output from these sites is used to supply the UK construction sector.

Over the last 20 years the production of cement in the UK has been in the range 10 - 15 million tonnes per year but with a generally declining trend. The production data for finished cement in 2004 was approximately 11.4 million tonnes and for cement clinker the figure was 10.4 million tonnes9 (This compares with figures provided by the BCA of 11.8 and 10.8 respectively.) There has also been a decline in the amount of mineral quarried from a value of 16 million tonnes of limestone and chalk in 2000 to approximately 15 million tonnes in 2004. The consumption of cement in the UK has risen slightly over the same period with the difference being made up from bulk imports9.

The technology that forms the basis of cement production is the rotary kiln in which the feedstone is calcined. The original cement kilns, dating from the 1890 were simple large metal cylinders built on a slight incline that slowly rotated. The stone (and in some cases lump fuel) was put into the top end as a wet slurry (wet process) and slowly moved down the incline towards the burner mounted at the lower end.



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The original wet process rotary kilns were inefficient in terms of energy and fuel consumption. Technological development in the 1920s 13 lead to the construction of kilns with pre heaters mounted at the stone input end of the rotary kiln unit. The basic principle of preheating is that part of the calcination occurs outside the kiln which allows it to be shorter and more energy efficient. The first designs of pre-heaters were simple grates but as the technology evolved to semi dry and then dry production process12 it became possible to make use of suspension cyclones which provided significant improvements in the thermal efficiency. Modern dry kilns typically use a five cyclone preheater arrangement depending upon the moisture content of the raw material.

The most significant development in kiln design since the 1970s has been the inclusion of a precalciner unit between the preheater and the kiln. The basic principle of a precalciner is that heat input is divided between two points, namely the kiln burner and a secondary chamber between the kiln and the preheater.

The use of the cyclone technology had a disadvantage in that it can lead to the generation of enriched cycles of substances such as chlorides, sulphur and alkalis in preheater, which when the concentration becomes high enough, get deposited on the inner surfaces of unit. The source of these substances can be from the feed and/or fuel. In order to prevent the deposition occurring, kilns were fitted with a bypass system by which an amount of the substance rich gas is diverted away from the preheater. This acts to reduce the concentration of substances in the gas and hence prevent deposition. The dust collected from the bypass gas is fed back into the cement production process unless the alkali levels are too high in which case it is sent to landfill.

The use of a bypass leads to the loss of heat from the kiln, and a corresponding increase in relative fuel consumption and emissions. It also leads to a loss of calcined matter from the kiln resulting in a lower production yield (although this dust can be collected and combined with the products at a later stage). In certain situations the use of sea dredged raw material and alternative fuels means that in the main no bypass dust can be returned to the process.

The kiln technology may be the principal deciding factor in energy efficiency and consequently emissions of CO2 from fuel combustion but the choice of technology is in part based upon the moisture content and geology of the aggregate used as the raw feedstock. This in turn is partially determined by the location of the plant and the proximity to market. Globally the dry process is the most commonly used for new developments while the wet process is applied in situations where the available limestone has a moisture content >20%. Certain limestone deposits of the UK and Ireland are known to have high moisture content as determined by location.

The moisture content is an important consideration for kiln fuel consumption and consequently emissions as the energy required to drive off moisture is 2,450 MJ/t moisture7. This can represent a significant additional energy consumption when the moisture content of the raw material is >20% for example. There is some indication that modern kiln and pre-treatment technology is better able to deal with relatively high moisture content. For example, some cement sites in the UK include both older kilns that use the wet technology and newer kilns that use the dry process—which suggests that geology may not be a limiting constraint in many cases. (An examination of the site information in Table 2.3 shows that most UK sites use a have a mixture of wet and dry processes. Two of the Phase I benchmarked sites use wet or semi-wet processes.)



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The Phase 1 NE spreadsheet includes a calculation that takes account of non-carbonate carbon in feedstock. The manner in which this input parameter is handled in the Phase 1 NE spreadsheet means that it has a large effect on the allocation. This variable is specified as requiring separate monitoring and reporting in the EU ETS guidelines 18 although it does not seem to be included in the World Business Council for Sustainable Development (WBCSD) cement industry reporting guidelines2.

Historically the cement industry in the UK has used coal and petroleum coke (petcoke) and these can be regarded as standard fuels for the sector. However, the cement industry has the technical ability to make use of a wide range of support fuels including tyres, fuel derived from municipal waste, waste liquid solvents and bio-mass. The choice of fuel can affect the energy efficiency of the production process, but of more critical importance for the emissions of CO2 is the carbon intensity of the fuel mix. One way that the cement sector (like many other sectors) may choose to reduce its net emissions of CO2 is through the use of biomass fuels, or bio-fuels. The potential amounts of substitute fuel that could be used by the UK cement sector in the next few years are shown in Table 2.1 It is recognized that delays incurred as a result of planning, permitting, legal challenges and public opposition may reduce the level of the estimates provided. However, some new cement kilns are equipped with the infrastructure to burn high levels of substitute fuels and so it is possible that the estimates could also be higher that indicated.

Table 2.1 Potential Use of Substitute Fuels by the Cement Industry1

Fuel Estimates of potential substitute fuel use in next 3-5 years (2005 base) (tonnes)

Waste derived liquid fuels 200,000

Tyres 290,000

Packaging and packaging waste 500,000

Waste oils 90,000 – 345,000

Meat and bone meal 140,000

Processed sewage pellets 40,000

Maximum total 1,515,000

It is expected that the level of waste burnt in kilns may rise significantly due to the changes in the UK’s landfill regulations. The cement operators charge a gate fee for the acceptance of waste. This has the economic effect of acting like a subsidy on fuel. The level of incentive that this represents is dependent upon the relative price of this and other fuels, adjusted for the subsidy.

Furthermore, the use of tyres in cement kilns is known to be an effective means of reducing NOX emissions, and, depending on site specific circumstances, could represent a Best Available Technique (BAT) for NOX abatement, with regard to a site’s PPC permit. The use of a wide range of alternative support fuels is steadily expanding across the EU, partly due to economics and partly because the cement kiln acts as a scrubber for heavy metals and other trace



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pollutants, thus providing some inherent level of environmental protection for the disposal of waste materials for which other disposal methods may be less environmentally acceptable.

The issue of substitute fuels and how they interact with the level of emission is complex and includes possible contributions from moisture level and bypass use. These issues are discussed in the section on the proposed revisions to the Phase 1 spreadsheet.

The most commonly used conventional fuels used in cement firing across the EU are12:

• Pulverized coal and pet coke

• Heavy fuel oil

• Natural gas

The cement sector has given consideration to switching to lower carbon fossil fuels and the issue was examined in the report “Towards a Sustainable Cement Industry” 3 published by the World Business Council for Sustainable Development (WBCSD). The text from that report is reproduced below:

Switching from high-carbon to low carbon content fuels is an additional approach for reducing on-site fuel related emissions. Petroleum coke and biomass release approximately 110kg of CO2 per GJ of fuel combusted at the point of combustion. Coal, fuel oil and gas release 14% less, 30% less and 50% less than petroleum coke respectively, for each GJ of produced energy. Therefore, from a CO2 reduction perspective, switching to a low-carbon fuel like natural gas can have benefits. For example, in Japan where coal fuel most plants, fuel related CO2 could be cut substantially by shifting to natural gas as the dominant fuel. However, coal and petroleum coke provide necessary minerals needed for cement production, so the use of natural gas would require the addition of these materials.

In relation to this, the BREF Note12 states:

The main fuels in the European cement industry are petcoke and coal (black coal and lignite). Cost normally precludes the use of natural gas or oil but the selection of fuels depends upon the local situation (such as the availability of domestic coal).

Another technique that the cement industry can use to reduce its CO2 emissions is to use alternatives to mineral raw materials. The best example of this is the use of pulverized fly ash from coal fired power stations. PFA contains a significant amount of calcined material so it can either be used to make clinker, using less energy than would be used with stone, or it can be blended with clinker to make cement (see below).

The cement industry can also reduce its CO2 emissions by producing cement with lower clinker content. In principle the amount of clinker can be reduced and replaced with fly ash from coal-fired power plants, blast furnace slag and other materials with cement-like properties. Some research suggests that the potential reduction in CO2 emissions from changing the blend is significantly greater than could be realised through energy efficiency improvements alone. Fly ash, or pozzolan, can readily be substituted for 15% to 35% of the clinker in concrete mixes. The types of cement that can be used for the production of concrete in Europe under the standard BS EN 197-1 include CEM1 Portland cement (which is Portland cement clinker and up to 5% of minor additional constituents) and CEM2 Portland cement (which is Portland cement clinker and up to 35% of other single constituents)9.



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One issue with the development of lower clinker cements is that companies that produce clinker may not be able to benefit from this unless they blend cement from their own production. Companies such as Buxton Lime (a division of Tarmac) produce cement for their own use and Castle Cement supply some 25% of the cement sold in the UK. However, the degree to which the production of clinker is related to the production of cement will vary by company in the UK.

2.2 Phase I Incumbent and New Entrant Installations

2.2.1 Identification of how sector is covered under EU ETS The emission of carbon dioxide from the cement sector is covered under EU ETS by the following clause in the Emissions Trading Directive4.

Installations for the production of cement clinker in rotary kilns with a production capacity exceeding 500 tonnes per day

2.2.2 CO2 emissions from sector Total CO2 emissions from the cement sector in recent years are presented in Table 2.2. Emissions data for individual installations in the sector are presented later in this section.

Table 2.2 Total CO2 emissions from the cement sector covered by the EU ETS

Total emissions (tCO2)

2000 2001 2002 2003

9,399,228* 9,439,131* 9,879,189* 9,926,960*

9,425,658** 9,465,199** 9,922,655** 9,979,226**

* Source: NAP database ** Source: British Cement Association

2.2.3 Identification of Non-benchmarked incumbents, Benchmarked incumbents and New Entrants Non-benchmarked Incumbents

The vast majority of the installations covered by Phase 1 of the EU ETS were given allocations based upon the assessment of their historical emissions over the years 1998 – 2003. This approach, often called “grandfathering”, is not dependent upon any performance benchmark. The incumbents in the UK cement sector that have received this type of allocation in Phase 1 are listed in Table 2.3 below.



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Table 2.3 Non-benchmarked Incumbents

Company Plant Location NAP ID Capacity (‘000 tpa)

Process Raw materials

Aberthaw S Glamorgan 633 550 Dry Carboniferous limestone and Lias limestone

Cauldon Staffordshire 629 930 Dry Carboniferous limestone and mudstone

Cookstown Tyrone 643 470 Semi-dry Carboniferous limestone and mudstone

Dunbar East Lothian 644 850 Dry Carboniferous limestone and mudstone

Hope Derbyshire 627 1,400 Dry Carboniferous limestone and mudstone

Northfleet Kent 623 1,200 Semi-wet Chalk and London clay

Lafarge Cement UK

Westbury Wiltshire 631 765 Wet Chalk and Kimmeridge clay

Ketton Rutland 635 1,300 Dry Jurassic limestone and mudstone

Ribblesdale Lancashire 2205 1,300 Wet/dry Carboniferous limestone and mudstone

Castle Cement

Padeswood (new dry kiln under construction)

Flintshire 637 500 Wet/dry Carboniferous limestone and mudstone

Barrington Cambridgeshire 639 250 Wet Chalk and Gault clay

Rugby Warwickshire 641 1,250 Semi-wet Chalk and Jurassic mudstone

CEMEX*

South Ferriby Lincolnshire 640 750 Semi-dry Chalk and Kimmeridge clay

Source: UK Cement Works – Raw Materials and Capacities5 and BGS Cement Raw Materials November 20059

*Rugby Cement is now owned by Cemex of Mexico

A description of the different main types of raw material is given below. In addition to the non-benchmarked incumbents sites there is a site operated by Lafarge at Barnstone in Nottinghamshire that uses a wet kiln process with a feedstock of carboniferous limestone and mudstone. This site has a stated production capacity of 100,000 tpa (270 tpd) and consequently is below the threshold for inclusion in the EU ETS.

Quinn Cement owns a site at Derrlylin in Northern Ireland and has done so since 1989. It is not listed in the UK NAP, having ceased production in 2000. However, Quinn Cement began recommissioning the site in 2004 and it is operational for Phase I. Quinn also commissioned the new cement plant in Ballyconnell in the Republic of Ireland.6

Benchmarked Incumbents

The only benchmarked incumbent in Phase 1 is the new Rugby Cement plant at Rugby (NAP ID 641). This has received a benchmarked allocation because “the base-line data provided is not representative of the plants design operation due to a problematic and extended commissioning period”.7 The entry for the site in the UK NAP 8 is reproduced in Table 2.4 below.



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Table 2.4 Benchmarked Incumbents

Company Plant Location NAP ID Capacity (‘000 tpa)

Process Raw materials

Rugby Cement

Rugby Warwickshire 641 1,250 Wet Chalk and Jurassic mudstone

The issue of the use of the Phase 1 NE spreadsheet to make an allocation to this site is discussed below. The site is located near to deposits of Jurassic limestone9, that have a relatively low moisture value compared to chalk, but for historical reasons the feedstock is delivered to the production site from a more distant quarry as slurry. This has implications for the emissions from the site as additional fuel needs to be consumed to drive off the moisture in the feedstock.

New Entrants in Phase 1

New entrants to EU-ETS during Phase 1 of the scheme are:

• Buxton Lime Industries’ new cement kiln at the Tunstead lime works (NAP ID 1552). Commissioning of the new kiln began in March 200410.

• Castle Cement’s new kiln at Padeswood in North Wales. (NAP ID 637 for existing installation).

• Quinn Cement’s kiln at Derrylin in Northern Ireland. This was previously mothballed but has been brought back into operation (NAP ID 687).

2.3 Possible New Entrant Technologies in Phase II The Minerals Planning Guidance11 makes the following statement about the projected development of the cement sector in the UK.

Location of plant and production capacity

32 The high capital cost of investment in the cement industry means that, in the short run at least,

investment in new capacity is most likely to take the form of the up rating of existing plant or the creation of

additional capacity at existing plant, rather than the building of new plant on greenfield sites. The

rationalisation of production capacity into larger more economic units may lead to the closure of some

small plants. In the longer term, the possibility of greenfield sites cannot be ruled out.

The potential growth rates for the cement sector were investigated for the DTI by Oxford Economic Forecasting as part of the DTI’s updated energy projections. The conclusions of that report are presented below.



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Oxford Economic Forecasting 12 The IoP data for this sector have been badly distorted in recent years by company/business units being reclassified into and out of the sector. Hence, for the purpose of this analysis it is better to focus on the physical output measure – there is a good relationship between the IoP measure and the tonnes of cement produced for most of the period since 1980 up until recent years. Typically, international trade is largely insignificant for this sector, meaning that demand is driven by developments in the UK. However, for the 2004, study the British Cement Association (BCA) supplied confidential information demonstrating that cement output was depressed in recent years by temporary company/Group specific factors. Cement production should benefit from further increases in construction output, increased production capacity and a reversal of company/Group specific factors that previously depressed output. However, it remains the case that although cement and construction share a similar cycle, historically their trend growth rates have been very different. The increase in cement output is therefore expected to be less than the forecast increase in construction output. It should be noted that 2002 is a particularly low year for comparison.

Forecast cumulative change in tonnage of cement output, %

On the basis of the information and opinions presented above it is possible that additional kiln capacity may need to be developed. However, it is known from consultations with the BCA that despite earlier indications there are now no known new entrants currently anticipated in Phase II.



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3. Review of Relevant Data

3.1 Data Sources The British Cement Association

Entec has held detailed discussions and requested information. Information on recent fuel mix (2002 – 2004), and copies of submissions made by companies applying for allocations for new kilns in Phase 1 have been received along with a number of other sets of confidential data from the BCA covering some of the New Entrant allocation spreadsheet parameters for incumbents.

The industry consultant, Whitehopleman Ltd, has provided key information on the current best practice SEC figure and clarified the issue of the kiln design capacity adjustment figure.

Cembureau

Entec attempted to contact staff at Cembureau in order to obtain contact details and references to sources of information that could be used to in the project. Entec received a communication from Cembureau that expressed their view that although the existing NE uses a higher specific energy factor for clinker production than was specified in the sector BREF Note12 this could be justified by reference to actual kiln operation data. No information was provided as to why this view was held. No information was received for recently built kilns in other EU MS.

Individual cement companies

Individual companies have provided very useful background information on the new entrant process and have commented on the likelihood of types of new entrants in Phase 2. In addition, Entec already has some data on individual cement companies from other sources.

The Environment Agency

Entec held discussions with the EA’s sector expert for cement on the issues of allocation to new entrants in Phase 2. Their views were very similar to those of the DTI discussed below.

DTI

Entec held a discussion with the DTI sector expert for the cement industry. They were of the opinion that there would not be any significant changes in the technology base and energy efficiency of the UK cement sector between now and the end of Phase 2. The sector has potential to use substitute fuels and feedstock materials, see Table 2.1, but there are limitations on this due to EA permitting and other factors. The DTI were also of the opinion that if operators in the sector wish to use biomass fuels they will need to compete with power generators for these fuels and that the power generators are able to claim renewable obligation certificates for using bio-mass whereas the cement kilns cannot. They anticipate that there would be some sector production growth but it is difficult to predict. The P2 data trawl exercise revealed only one potential NE in Phase 2 although it now appears that this development will not take place.



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3.2 Data from Literature Data from the literature on emission factors for various cement plants is summarised in Table 3.1.

Table 3.1 Data from literature searches and other sources

Reports / contacts / information sources

Plant Details

Country Technology type(s)

Year Output (T clinker per day)

Energy Consumption Values by Fuel

Energy Consumption Values

Dry BAT Europe 5-stage preheater precalciner

1997 3000 2900-3200 MJ/ t clinker

Lampang Thailand 5-stage, 2 string preheater, PYROCLON Precalciner

1998 5700 Oil

2977 MJ/ t clinker

3014 MJ/ t clinker

Bernburg Germany 6-stage, 2 string DOPOL-90 with precalcination

1997 5000 3008 MJ/ t clinker

Rajashree Cement

India 6-stage, 2 string preheater precalciner

1997 3500 2931 MJ/t clinker

Tepeaca Mexico 5-stage preheater precalciner

1995 6500 Oil

3030 MJ/t clinker

Evaluating Clean Development Mechanisms.13

Hypothetical plant

5-stage, 2 string preheater, PYROCLON Precalciner

Fuel Oil

2000 3200

RPS Emissions Trading Scheme report for Quinn Cement

Quinn cement plant

Ireland 2003 0.12 t coal/t cement

Energy Efficiency Benchmarking Covenant in the Netherlands 1999-2012. 14

BAT = Japanese plant

1990 2700 MJ/t clinker

Mitsui Japan Clinker production15

2850 fuel, 0.36 electricity (MJ / t clinker)

Blast furnace slag drying16

750 fuel (MJ / t BF slag)

SEC values represent the lowest SEC observed in a fully operational plant worldwide 1995-1996

Grinding/Blending17

160 electricity (MJ / t cement)



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The different benchmark values cited in the table above show that there is a good degree of consistency in the SEC value for clinker production for recently built kilns across the world. It is not known on what basis these kilns were selected so the information should not be taken as a conclusive statement of what can be achieved in all situations. It is known to Entec that the BCA consider that the reference to the 2700 MJ/t Japanese plant is invalid in any discussion on BAT but nevertheless it is cited as a reference in research work on the benchmarking system used in the Netherlands. It should be pointed out that measures of energy per tonne of clinker and energy per tonne of cement are not directly compatible for the reasons discussed in the background section above.

3.3 Benchmarks Used in Other Contexts, Including Other Member States

Investigations have been undertaken to try to identify benchmarking approaches for new entrants in other Member States. Overall, the extent of information available within the tight timescales of this study has been limited. Furthermore, information will tend to relate to Phase I approaches, and hence may not be indicative of approaches in Phase II, which this study is focussed on. Notwithstanding this, it is useful to consider these approaches, as briefly summarised below.

3.3.1 Denmark The Danish NAP assumes an efficiency factor of 0.9 for new entrants but no distinction is made between sectors for this factor. No discussion of new entrant benchmarks or formula.

3.3.2 Germany New entrants are granted allocation on BAT benchmarks. These benchmarks are established for installations with comparable products, and derived from BAT for new installations in that class. Also, each product category will have a benchmark. New entrants that don’t have defined benchmarks will be granted allowance based on BAT.

New entrant formula (industry non-specific);

Allocationi = Ci · PiU ·BAT,

where

i is an index for the installation;

Ci is the installation-specific output capacity in MW;

PiU is the projected utilisation or load factor by installation; and

BAT BAT benchmark for emissions per output unit. Cement; Fuel emissions - 275 g CO2/kg clinker (for 5/6 cyclone stages). Process emissions – 530 g CO2/kg

3.3.3 Netherlands Ai = Ev · P · β · C



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Where

Ai = Allocation (tCO2/year);

Ev = Emissions from combustion averaged for 2001 to 2002 (tCO2/year), information not readily available on the specific approach for new entrants operational after that time;

P = Production growth as a factor for the total of the years 2003-2006 (relative index);

β = energy consumption of the world’s best divided by the installation’s actual energy consumption in the benchmark year 1999 (relative index);

C = Allocation factor (relative index).

3.3.4 Sweden Allocation05-07 = k x Projected output05-07 x BM / BAT

Where

k = Scale factor applied to fuel-related emissions from combustion installations in the energy sector. For non energy sector sites, k = 1.0;

Projected output05-07 = emissions in accordance with projected produced quantity of installation-specific product 2005-2007. Only production based on fossil fuels is meant for electricity and heat production;

BM = Benchmark emission factor;

BAT = Corresponds to estimated specific emissions at installation (tCO2/t product).

3.3.5 Other Member States For a number of other Member States, the readily available information simply indicates that new entrant allocations are to be based on BAT levels of performance. This applies to Czech Republic, Ireland, Malta, Portugal (explicitly stating BAT Reference Documents), Slovenia (also referencing BAT Reference Documents), and Spain.

The values obtained from the evaluation of the German system show that process emission factor of 0.530 t CO2 / t clinker is similar to the UK factor of 0.532 t CO2 / t clinker. The process emission factor specified in the EU ETS Monitoring and Reporting Guidelines is 0.525 t CO2 / t clinker18. The fuel emission factor in the German system is 0.275 t CO2 / t clinker, compared with a combined combustion emission factor proposed for Phase II in the UK of 0.324 t CO2 / t clinker (comprising fuel emission factor of 0.269 t CO2 / t clinker and an allowance for moisture and non-carbonate carbon equivalent to 0.019 and 0.036 t CO2 / t clinker respectively).



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4. Review of Phase I Benchmarks

4.1 Characterisation of Existing New Entrant Allocation Benchmarks

The existing NE spreadsheet contains a number of input and calculation steps that allow applicants to the NER to calculate the number of allowances they can claim as part of the overall application process. The allocation amount, A, for a year in t CO2 is given by the sum of the combustion emissions and process emission with a reduction for the commissioning of a new kiln.


A = P * EF



The emission factor for combustion is adjusted for the moisture content of the raw material and for the energy lost due to the use of kiln bypass.

For a full derivation of these please refer to the Phase 1 NE Spreadsheet.


A = P * EF



The process emission factor is adjusted for the dust lost through the use of the kiln bypass and the inclusion of non carbonate carbon.

For a full derivation of these please refer to the Phase 1 NE Spreadsheet

The reduction for the commissioning of a new kiln is given by:

R = C * T *( EF combustion

+ EF process

)* L

Ramp up Reduction = Stated design

capacity * Commissioning period * Emissions

Factor * Emissions Factor * Commissioning

Load

tCO2 Tonnes of clinker per day

Days tCO2 / tonne of clinker

tCO2 / tonne of clinker

%



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P = C * D * Fc * U

Annual Production = Stated design

capacity * Days operation per year

* Capacity Adjustment Factor

* Utilisation of production days

Tonnes of clinker per year Tonnes of

clinker per day Days % %

Where:


C Stated design capacity tonnes per day

D 330 days per year

Fc 109.2%

U 95 % utilisation,

EF (combustion) 0.291 tCO2/ t clinker

EF (process) tCO2/ t clinker

T 50 days commissioning period

L 50% load during commission period

The combustion emissions factor of 0.291 tCO2/ t clinker is based upon an energy use of 3169 MJ/ t clinker (net CV basis) and the fuel mix for the UK cement industry in 2002. This fuel mix assumes 0.1% of bio-mass from packaging waste. The combustion emission factor can be adjusted to account for the energy required to drive off moisture and for that lost due to kiln bypass. These elements are discussed below. The SEC value was supplied to FES by Whitehopleman Ltd on behalf of the BCA and is based upon upper quartile performance of all kilns in the Whitehopleman Ltd global database that are dry process kilns less than 10 years old operating on coal and dry raw materials.

The process emissions factor in t CO2 / t clinker is a site specific value and is input by the applicant. The spreadsheet can use a default value of 0.532 tCO2 / t clinker based upon data supplied to FES by the BCA. This is close to the WBCSD 19 process emission factor of 0.525 tCO2 / t clinker. The process emission factor can be adjusted for the loss of material associated with any kiln bypass and for any non carbonate carbon in the feedstock.

A characterisation of the existing New Entrant allocation spreadsheet is given in Table 4.1.



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Table 4.1 Characterisation of the existing New Entrant allocation spreadsheet

Item Parameter value / details

Justification for choice of parameter value / details given by FES

Source of data

Coverage of activities (how does the coverage of activities included in the spreadsheet compare to the activities in the sector that are covered by EU ETS)

Covers the clinker production not any of the associated milling and blending

The associated activities are usually electrically driven and therefore outside the scope of the EU ETS

EU ETS Directive 4

Level of sector differentiation (Is there one set of formulae / parameter values for the whole sector, or are there separate formulae / parameter values for different technologies, fuels, products etc)

A single set of formula are used for the whole cement sector. There are different parameter values for moisture, kiln bypass and non-carbonate carbon.

The main elements have been justified by FES’ analysis of the industry 20

20

Degree of standardisation of formulae (ie what types of input parameters are required in the formulae?)

Standard formula requiring 5 input parameters

The main elements have been justified by FES’ analysis of the industry

20

Technology / process types (What types of technologies / processes are used as the basis for the parameter values?)

A standard type of technology has been used to define the main parameters. The emission factor in the spreadsheet assumes dry process kilns less than 10 years old operating on coal and dry raw materials.

The main elements have been justified by FES’ analysis of the industry and by data submitted by the BCA on energy consumption

20

Fuels assumed (What types of fuels are used as the basis for the parameter values?)

Fuel types for 2002, 90% of which are coal and PET coke with the majority of the balance waste derived liquid fuels

Data submission made to FES by BCA.

BCA

Emission factors (What are the fuel CO2 and Process CO2 emission factors?)

Standard combustion emission factor and either a default or user input process emission factor.

The analysis of real energy data from a selection BAT kilns in the EU and the analysis of quantities of calcined product.

BCA, Whitehopleman Ltd and WBCSD Report19

Capacity utilisation factors / load factors (What are the values for these factors?)

Standard load factors with user defined design capacity.

1.09 adjustment to design capacity.

330 days operation per year and 95% load factor

FES analysis of the industry

1.09 figure based on data from Whitehopleman

20

Non carbonate raw material User input of % of non carbonate in feedstock to which an oxidation factor of 85% is applied.


20



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Item Parameter value / details

Justification for choice of parameter value / details given by FES

Source of data

Heat loss in bypass Industry standard factors for the heat lost due to kiln by pass, 0.28% increment in the combustion emission factor per % bypass.


Process emission loss in bypass Industry standard 0.001 tonnes per % bypass, per t clinker for the process emission factor


4.2 Validation of Existing New Entrant Allocation Spreadsheet

The results of the validation exercise are presented in the tables below. The first comparison is between the Phase 1 allocations as stated in the UK NAP (final version May 2005) and the most recent input data that are available for the incumbent sites.

The Phase 1 NE spreadsheet contains a number of input variables that can be used to allow for site specific adjustment to a range of factors such as feedstock moisture, kiln bypass and process emissions. In order to test the NE spreadsheet it is necessary to obtain all of these values for the incumbents for recent years. The NE spreadsheet has been used to calculate allocation with the published clinker capacity data for the UK cement sites, along with other confidential input parameters. Unless there have been major modifications this kiln capacity data is a constant for any given site and it is reasonable to expect that the data reflects the position in 2005. The value calculated for the allocation excludes kiln bypass (and therefore process dust) and uses a default process emission factor rather than a site specific value (The sensitivity of these and other factors is examined below). This information is shown in Table 4.2 below.

Table 4.2 Comparison of Phase 1 NE Spreadsheet Allocation with UK Phase 1 NAP Allocation

Site Phase 1 NE Spreadsheet Allocation / UK Phase 1 NAP Annual Allocation

1 99%

2 90%

3 93%

4 122%

5 121%

6 98%



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7 111%

8 89%

9 101%

10 103%

11 76%

12 105%

Weighted Average 101%

UK NAP Approved May 2005

FES Allocation Spreadsheet Version 23rd May 2005

The comparison made between the UK NAP annual allocation for Phase 1 and annual allocation calculated using the Phase1 NE spreadsheet shows that for the majority of sites the NE produces an under-allocation. The average ratio, weighted by production capacity, between the NE spreadsheet value and the Phase 1 allocation is 101% with a range of 76 - 122 %. This range of results is not unexpected as it was not possible to test the NE spreadsheet using the full range of input parameters such as kiln bypass. The variation will also be due to the level of utilisation of the kiln capacity at each site. Each of these input parameters acts so as to increase the allocation calculated so a full set of input parameters would result in a higher allocation amount. The particular issues on over and under allocation are discussed later in this section. The sensitivity of the allocation to the input parameters is described below.

It is important to note that the NAP allocations are already 3.5% below the figure for the average emission derived from the lowest five years emissions between 1998 and 2003 due to other adjustments made in the calculation of allocations. As well as making a comparison of the NE calculation to the actual allocation as defined in the UK NAP it is also possible to examine the recent performance of the incumbents. This information is shown in Table 4.3, which compares allocations obtained by using the existing spreadsheets with the average emissions in 2000-2003, dropping the lowest year.

Table 4.3 Comparison of Phase 1 New Entrant Spreadsheet Allocation with Annual Average Emissions for 2000 -2003 (Lowest Omitted)

Site Phase 1 NE Spreadsheet Allocation / Average Emissions 2000- 2003 (lowest omitted)

1 95%

2 87%

3 91%

4 118%

5 118%

6 93%



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Site Phase 1 NE Spreadsheet Allocation / Average Emissions 2000- 2003 (lowest omitted)

7 102%

8 86%

9 96%

10 98%

11 72%

12 104%


The comparison made between the most recent emission data available, the NAP data for 2000 – 2003 with the lowest value dropped, and an annual allocation calculated using the Phase 1 NE Spreadsheet (version 23rd May 2005) shows that for the majority of sites the NE produces an under allocation. Again this is most likely due to the fact that a full set of input parameters has not been used. The production weighted average ratio between the NE spreadsheet value and the average emission value is 97% with a range of 72 – 118 %. This result is not un-expected as it has not been possible to obtain the full parameter sets for incumbent sites required in order to fully utilise the NE spreadsheet. This may explain under-allocation, but not the over-allocation at Sites 4, 5, 7 and 12. As noted above, the omitted factors can only increase allocations, so this seems to imply that an application of the most stringent version of the Phase 1 benchmark to incumbents actually over-allocates. It is not known why this has occurred but it is not possible to resolve this without up to date information on plant performance. A possible explanation is that the assumed utilisation factor is too high for these sites.

The comparison of the recent performance of the benchmarked incumbent, reported in Table 4.4, shows that the allocation applied for by the company, using input values for moisture, bypass and other parameters is 8% higher than the value calculated from the NE spreadsheet using an incomplete set of input parameters. This illustrates the significant effect that these parameters can have on allocation calculations.

Table 4.4 Comparison of Phase 1 NE Spreadsheet Allocation with UK NAP Allocation

Site Adjusted Phase 1 NE Spreadsheet Allocation / UK Phase 1 NAP Annual Allocation (based upon full P1 NE System)

Benchmarked incumbent 92%

The UK NAP Phase 1 allocation is based on the NE Spreadsheet with user specified input variable while the allocation calculated using the Adjusted NE Spreadsheet has been performed without the full set of parameters.



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5. Assessment of Phase I Benchmarks and Proposed Revisions to these Benchmarks

5.1 Introduction There is the need to establish that all the input parameters required for the NER spreadsheet are consistent with the agreed evaluation criteria for benchmarked allocations and that they are scientifically and statistically valid. The origins of the emission factors and validity of them as applied to new entrants in Phase 2 need to be transparent. The issues and data requirements for each of the main input parameters and standard factors for the existing NER spreadsheet are discussed below.

It has been difficult to get sufficient information on the recent performance of the recently built kilns in the UK and the EU. This has prevented a full analysis of the different input parameters in the existing NE spreadsheet. A process of sensitivity analysis has been used instead in an attempt to gain some understanding of the effects of each input parameter on the allocation calculation. The inputs and the calculated output from the sensitivity test are shown in Table 5.1 below. The calculations were carried out using a test kiln with a nominal production capacity of 2500 t clinker / day.

Table 5.1 Phase 1 NE Spreadsheet Sensitivity Analysis for 2500 t clinker / day kiln

Moisture (%) Bypass (%)

Non-carbonate carbon (%)

Process Emission Factor (t CO2 / t clinker)

Allocation (t CO2)

Sensitivity Measure (∆y /∆ x)

8.5% 0% 1% 0.532 739,918

15% 0% 1% 0.532 762,918

21% 0% 1% 0.532 786,222

28% 0% 1% 0.532 819,175

0.55

8.5% 0% 1% 0.532 739,918

8.5% 7% 1% 0.532 747,927

8.5% 14% 1% 0.532 755,935

8.5% 20% 1% 0.532 762,800

0.15

8.5% 0% 1% 0.532 739,918

8.5% 0% 2% 0.532 780,508

8.5% 0% 3% 0.532 821,098

5.5

8.5% 0% 1% 0.500 711,861 0.62



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Moisture (%) Bypass (%)

Non-carbonate carbon (%)

Process Emission Factor (t CO2 / t clinker)

Allocation (t CO2)

Sensitivity Measure (∆y /∆ x)

8.5% 0% 1% 0.532 739,918

8.5% 0% 1% 0.560 764,463

The results for the sensitivity analysis reveal that the allocation is relatively insensitive to the amount of kiln bypass selected; i.e. a large change in the input value only makes a small change in the allocation. The allocation is reasonably sensitive to both moisture and the process emission factors. The value for the sensitivity measure is however less than one. A key finding of the analysis is the high level of sensitivity, five fold, of the allocation to the non-carbonate carbon content of the feedstock. A check calculation has shown that in order to achieve the same effect on the allocation as a 3% non carbonate carbon input it is necessary to raise the process emission factor from 0.532 t CO2 / t clinker to approximately 0.680 t CO2 / t clinker, a figure significantly higher than any in the standard references12,19.

There are a number of potential revisions that can be made to the spreadsheet. These are discussed in turn below.

5.2 Moisture Value Input The discussion with the BCA has suggested that the main factor that determines the moisture value is the geology of the aggregate extraction site. However it appears that other factors are also relevant. Various documents refer to the moisture levels of “raw materials” and not just the minerals. The moisture content of the kiln feed is dependent upon geology and material handling practice.

Geology of Kiln Location

The British Geological Society has conducted an extensive review of the UK cement industry9. This report includes details of the kiln capacities, the location and the type of mineral raw material used by each cement plant in the UK. The main types of limestone are Cretaceous (Chalk), Carboniferous and Jurassic.

Cretaceous Limestone

This mineral, commonly known as chalk, is found in thick deposits in southern and eastern England and can have a moisture content of over 20%. This material is used by the cement plants at Northfleet in Kent, Westbury in Wiltshire, Kenilworth in Bedfordshire, Barrington in Cambridgeshire and South Ferriby in Lincolnshire. The extraction of chalk is carried out by wet processes whereby the material is handled as slurry.

Carboniferous Limestone

This mineral is found in deep layers extensively in northern and western England, Wales and Northern Ireland. The resources in Peak District are of particular value to the cement industry as they are available in deep uniform layers of relatively high purity. The mineral typically has moisture content of 3% or above. The extraction of this type of limestone is carried out by quarry processes such as blasting and crushing.



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Jurassic Limestone

This mineral is found in relatively thin layers in the Dorset, the Vale of Glamorgan and in a band from central England to the Yorkshire coast. The mineral typically has moisture content of 3% or above. The extraction of this type of limestone is carried out by dry quarry processes such as blasting and crushing.

Materials Handling

In addition to the geological factors the moisture level of the raw material is also determined by the handling techniques. This leads to sites having high moisture levels in the feedstock despite being in areas of low moisture geology. There are two examples of this in the current Phase 1 NE process. In the first case a cement company makes cement from the waste slurry from an extensive lime production process. This is a good use of the waste material and in keeping with the principles of best practicable environmental options. A second example is a site where dry quarried material is converted into slurry and delivered to the kiln by pumping. This greatly reduces the amount of heavy traffic through the town adjacent to the kiln.

Proposed Revision

A Government steer, in order to incentivise clean technology for new entrants and to avoid rewarding use of higher moisture raw materials, is to standardise the moisture input value and to set it at a UK average level, weighted by capacity. As such, there is to be an additional allocation given for moisture content equivalent to the UK weighted average figure of 13.2%. (The contribution only applies to moisture levels above an 8.5% threshold; below that level, the kiln is able to deal with the moisture without the need for additional energy input). This gives a contribution to the fuel emission factor of 0.019 t CO2 / t clinker.

5.3 Kiln Bypass Value The existing NE spreadsheet gives additional allowances for % of bypass to process and combustion emissions. Through the process of consultation with the BCA and indirectly with Whitehopleman it has become apparent that the SEC figure used in the Phase I NE spreadsheet did not exclude any contribution from kilns with a bypass system. The effect of this is that to a certain degree the bypass effect is counted twice.

Proposed Revision

The proposed revision is that the kiln bypass factors, both energy and process, should be removed from the Phase 2 NE spreadsheet altogether. The main reasons for this are that:

• It seems to be mostly required in order to use certain types of waste / substitute fuels, which is a discretionary choice by the cement company. A government steer is to avoid such differentiation by fuels / raw materials. If certain fuels lead to higher emissions because they require bypass, it arguably is not for the new entrant allocations to remove all of this emission cost by providing extra allowances; and

• It is minimal in its effect on the overall allocation and it is cross linked to a number of operational decisions in a complex manner making it difficult to give it a sufficient degree of transparency.



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5.4 Fuel Mix Standard Factor The issue of the mix of fuels that will be used by new entrants to the cement sector is a complex one. The key point for the revision is to what represents the best prediction for mixture of fuels that will be used within Phase 2. The fuel mix values in the Phase I NE spreadsheet are derived from the year 2002 and are in Table 5.2 below. The emission factors used in the Phase 1 NE spreadsheet are not the same as the DEFRA standard values nor are they the same as the default values specified in the EU M&R 20.

Table 5.2 Current NE Spreadsheet Fuel Mix

Fuel Net factors used

kgCO2/GJ

Composition

%

Energy Contribution

kgCO2/GJ

Coal 93.6 70.5% 66.02

Pet coke 93.8 19.8% 18.54

Oil Products (includes Waste Oil and Gasoil/Diesel)

65.5 1.7% 1.11

LPG 56.5 0.4% 0.24

Tyres 85.1 1.6% 1.35

Waste derived liquid fuels 75.0 5.9% 4.41

Packaging waste (fossil content) 80.0 0.1% 0.05

Packaging waste (biomass content) 0.0 0.1% -

Total 100.0% 91.72

The BCA have provided data for the average industry fuel mix for 2004 21. This is presented in Table 5.3 below.

Table 5.3 Cement Industry Fuel Data 2004


kgCO2/GJ

Composition

%

Energy Contribution

kgCO2/GJ

Coal 93.6 66.10 61.85

Pet coke 99.4 20.83% 20.71

Oil Products (includes Waste Oil and Gasoil/Diesel) 73.1

0.92% 0.91

LPG 64.6 0.58% 0.38

Tyres 85.1 4.48% 3.81



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kgCO2/GJ

Composition

%

Energy Contribution

kgCO2/GJ

Waste derived liquid fuels 75.0 5.40% 4.05

Packaging waste (fossil content) 80.0 1.17% 0.93

Packaging waste (biomass content) 0.0 0.52%

Total 100.0% 92.64

There is evidence that the UK cement companies are increasing the amount of waste that they burn as fuel with the overall amount rising from approximately 100,000 t in 2000 to just below 200,000 t in 20031. The use of waste fuel has two effects on the fuel emission factor. Firstly waste such as tyres has a lower CO2 emission factor than many of the fossil fuels used, and can be regarded as BAT for control of NOX emissions. Secondly biomass has a zero emission factor.

The ability of the sector to make use of biomass is difficult to predict. There are a number of arguments both for and against its inclusion in the allocation system but it would not be possible to analyse these fully without significantly more data on planned use from the different cement companies.

Proposed Revision

The proposed revision is that the fuel mix in the NE spreadsheet be updated and be based upon the actual fuel use in UK kilns for latest year for which data is available, in this case 2004.

An alternative approach of basing allocations on an emission factor for a low carbon fossil fuel such as natural gas is not proposed, as there are technical reasons for the use of current fuel types, eg in providing necessary minerals for cement production.

5.5 Kiln Capacity or Clinker Production Input The kiln capacity is another key input parameter to the Phase 1 NE allocation spreadsheet. The kiln design capacity is linked directly to the calculation of the clinker production by the use of three constant factors, 330 operating days per year, 95% load and 109% capacity adjustment.

The design capacity is a figure which the kiln construction company will be prepared to guarantee, based on the physical capacity of each of the various stages in the cement manufacturing process.

The figure itself can be “verified” to the extent that it is written in a contract but it is acknowledged that it is not the same as verifying the “true” production capacity, as illustrated by information from Whitehopleman via the BCA (e mail 8th Feb 2006):

“When a cement company has made the major capital investment to establish a new cement kiln they then seek to maximise the output from that kiln. All equipment suppliers apply margins in the design of their cement kilns to ensure they meet their guaranteed performance. The cement companies then take up the slack in the design to increase productivity. This is the reason Whitehopleman benchmarking comparisons are based on the dimensions of the equipment



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rather than the "name" plate capacity. The name plate capacity is in part a commercial number rather than one based purely on engineering considerations.

The Irish EPA have taken this into consideration in their stipulation that a cement kiln cannot be granted a CO2 allocation equivalent to greater than the capacity at which the kiln is licensed”.

What causes the difference observed between the two variables? There could be a number of contributing factors to this difference including: under specification in the design capacity, de-bottlenecking actions taken subsequent to commissioning (actions not eligible for new entrant allocations under EU ETS rules), difficulty in getting feedstone supplies or different level of expertise in kiln operation between sites.

Notwithstanding the above comments, where EU ETS emissions allocations for cement kilns are based on design capacity, then design capacity as a parameter takes on greater significance than perhaps it had historically. Essentially there will be more of an incentive for ‘design capacity’ not to be underestimated so much in future, as it directly links with allocations. As such, this may tend to reduce any gap between design capacity and production capacity in future. Furthermore, this will also tend to reduce the future relevance of historic data (such as from Whitehopleman) on the relationship between design capacity and actual production.

Proposed Revision

Based on currently available information, Entec considers that the capacity adjustment factor lacks transparency. Furthermore, as it is based on historic performance it is difficult to see how it will be a good measure of future performance, particularly as the significance of ‘design capacity’ will change for those installations for which this will be a parameter for emissions allocation.

It is proposed to retain the design capacity as the input parameter but to remove the capacity adjustment factor. This proposal is further supported by the statement from Whitehopleman that it would be optimistic to expect design capacity to be reached within three years on starting a new kiln and that reaching 109% of that capacity (the Phase 1 NE adjustment factor) would be dependent upon market conditions and might not be achieved within five years.

Whilst there may be other potential measures of production capacity (such as kiln dimensions), there is currently a lack of available data to fully assess and evaluate such alternatives within a benchmark methodology.

The 330 days per year and the 95% utilisation factor should be retained.

5.6 Specific Energy Consumption Factors The value provided in the BREF note12 is “about” 3000 MJ/ tonne clinker for a dry process, multi stage cyclone preheater and precalciner kiln (it is not known at present if the SEC value quoted here is on a gross or net calorific value basis). Information on kilns built around the world in the last 10 years shows that this is realistic, as shown in Table 3.1. Work on the Dutch allocation system cites 2700 MJ/ tonne clinker as being BAT.

The BCA and Cembureau have stated that the BREF figure is not appropriate as it does not represent true operating conditions and the BAT figure is not from an operational kiln.



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The kiln data set upon which the 3169 MJ/ tonne clinker figure 22 (it is not known at present if the SEC value quoted here is on a gross or net calorific value basis but it is expected to be net.) is based is for all kilns in the Whitehopleman Ltd global database that are dry process kilns less than 10 years old operating on coal and dry raw materials, with the SEC figure reflecting upper quartile performance of these kilns. It has become apparent that this figure already includes the effect of kiln bypass.

Proposed Revision

The proposed revision is to set the SEC value to the top 10% of all kilns in the latest available Whitehopleman database. Whitehopleman Ltd has provided Entec with the top decile (10%) specific energy consumption figure (MJ / tonne clinker), based on the latest information in their 2005 global database, for dry process 4/5 stage pre-heater / calciner kilns, built in last 10 years, and excluding the effect of kiln by-pass. The figure is 2902 MJ/tonne of clinker (net).

5.7 Process Emission Factors The process emission factor is currently an input parameter and can be well established by the applicants. However, as one of the objectives of the revision of the NE allocation system for Phase 2 is to reduce the level of differentiation by raw materials it is proposed that the process emission value is set at a standard level of 0.532 t CO2 / t clinker, the default value used in the Phase 1 NE spreadsheet, which is the UK average for 2002 23 (this is slightly higher than the value of 0.525 t CO2 / t clinker cited in the WBCSD reporting guidelines2). This expected to be broadly applicable to most UK kilns, with actual values expected to be within a narrow range of this average.

5.7.1 Non Carbonate Carbon Factor A key finding of the analysis is that the allocation is very sensitive, (five fold) to the level of non-carbonate carbon content of the feedstock. A check calculation has shown that in order to achieve the same effect on the allocation as a 3% non carbonate carbon input it is necessary to raise the process emission factor from 0.532 t CO2 / t clinker to approximately 0.680 t CO2 / t clinker, a figure significantly higher than any in the standard references. The same issue does not seem to arise in the lime sector even though cement and lime sites are often located on the same geological source material.

The EU ETS monitoring and reporting guidelines 18 state in the section on combustion emissions from clinker production that emission from the combustion of the organic content of (alternative) raw materials should be calculated in accordance with Annex II. The Phase 1 NE spreadsheet included the non carbonate carbon as a process emission with an 85% oxidation value whereas the reporting requires it to be treated as a combustion emission with a 100% oxidation factor. It has been confirmed by the BCA that the individual companies are required to report emissions from non carbonate carbon to the EA on an annual basis.

There is concern as to how this factor is linked to the monitoring and reporting if it is neither fuel nor process and over the possible effect on the allocation if material with elevated non-carbonate carbon were involved (possibly PFA).



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Proposed Revision

The proposed revision is that the non carbonate carbon be included as a standardised parameter based upon the UK average as weighted by current capacity. This is a figure of 0.64% and it gives a contribution to the fuel emission factor of 0.036 t CO2 / t clinker.

5.7.2 Ramp up factor The Phase 1 NE spreadsheet includes a 50 day ramp-up factor that allows for the fact that the BCA considered that it took that amount of time for new kilns to achieve the assumed capacity factor. Entec have been informed by the BCA that there is evidence from Phase I new entrants that suggests that ramp up to the assumed capacity factor can occur within this period however other interruptions to production resulting from the commissioning process are likely to affect the kiln production rate during the early commissioning periods. The BCA have suggested that the ramp up factor could be increased to 100 days.

Proposed Revision

In accordance with the standard commissioning approach being applied to all sectors, all Phase II new entrants are to have a 50-day 50% reduction in allocation. For the cement sector this will not represent a change compared to Phase I. The load reduction factors would not be applied to benchmarked incumbents.

5.7.3 Summary The following table briefly considers the key elements of the existing NE allocation spreadsheet and summarises details of proposed revisions. The proposals are then justified against the agreed evaluation criteria in the following section.



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Table 5.4 Summary assessment of key elements of existing New Entrant allocation spreadsheet and proposals for potential revision

Tests to be applied to existing NE allocation spreadsheet

Answer / Details of proposed revision

Differentiation: should there be less or more differentiation within the sector (i.e. differentiating based on sub-product, raw materials, technology, fuel, efficiency etc)? If so, what should it be?

Less differentiation is proposed by removing all parameter inputs except design capacity. Under this option it is proposed to remove the kiln bypass correction. The process emission factor would be set at a standard value as would the non-carbonate carbon content and moisture content of the feedstock.

Is the emission factor consistent with sector best practice2? If “No”, what should it be?

The emission factor in the NE spreadsheet is based on the combination of specific energy consumption (SEC) per tonne of clinker and the average industry fuel mix. It is proposed to update the factor to reflect the average sector fuel mix for the latest year for which data is available. The SEC figure will be based upon the latest data on performance of the top 10 % of dry kilns in the world. This figure is 2902 MJ / t clinker.

Level at which benchmark is set

Is the load factor realistic for new entrants in that sector? If “No”, what should it be?

It is proposed that the NE spreadsheet be revised so as to use the design capacity figure without capacity adjustment

The 330 days per year and the 95% utilisation factor should be retained.

2 Interpreted as ‘Best Available Techniques’ (BAT), as defined in the IPPC Directive. In practice, within the scope of this study it will only be possible to assess this in broad indicative terms at a sectoral level. It is clearly not within our scope to define BAT at the level of detail that would be required for a site specific PPC Permit.



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6. Evaluation of Proposed Benchmarks

The analysis of the current NE allocation spreadsheet has shown that the impact of several of operator determined variables could be potentially significant on the resulting allocation. The cement sector is one of the sectors where the potential impact of the EU ETS is very significant.

The aim of having a benchmark allocation method that meets the criteria of ‘feasibility’ and ‘incentives for clean technology for new entrants’ would suggest removing as many of the operator determined variables as possible. There is therefore a trade-off, however, between such an approach and one that meets sites’ needs and thereby reduces possible competitiveness distortions.

Because of the weightings the Government has applied to ‘feasibility’ and ‘incentives for cleaner production for new entrants’, as well as achieving consistency with approaches adopted for other sectors, the standardised option is proposed as the NE allocation benchmark.

The evaluation of this standardised approach is given in the remainder of this section.

6.1 Feasibility • The fully standardised approach will be the most simple and transparent. This

involves removing the inputs of kiln bypass and the adjustment capacity factor and standardising the process emission, non-carbonate carbon and moisture factors. This minimises the use of unverified and/or non-standardised inputs. The standardised approach will allow the factors to be replicated and verified by third parties.

• The specific energy consumption (SEC) currently assumed in the NE spreadsheet is a figure based on the upper quartile performance of worldwide kilns entered into the Whitehopleman database and represents modern dry process technology. It is proposed to set the SEC factor at the upper decile figure from the latest version of this data base to more closely reflect BAT performance for new installations.

• The fuel mix currently assumed is the 2002 UK average fuel mix. The gradual uptake of lower carbon intensity substitute fuels (e.g. tyres) means that a more up to date fuel mix would more closely reflect BAT. A more radical option would be a shift to a gas based emission factor. However fuel switching to gas in practice would require the addition of necessary minerals needed for cement production that would otherwise have been provided by coal and petroleum coke; and this approach would not recognize that cement kilns can be an environmentally sound disposal / energy recovery option for a range of substitute fuels.

• In principle, a non-standardised approach with moisture and non carbonate carbon retained as site specific inputs would be feasible. Such an alternative option would have implied a simplification compared to the current version as it removes the kiln bypass and the adjustment capacity factor and standardises the process emission factor. All of the cement production companies in the UK are accredited under the ISO 9000 standard and consequently the results that they report for various



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parameters, e.g. raw material moisture, and non-carbonate carbon should be traceable through this system. Thus, a differentiated alternative would be feasible though less transparent, and would not perform well against the next criterion, as discussed below.

6.2 Incentives for Clean Technology • In general there is always an incentive to apply the cleanest technology unless the

benchmark directly includes technology as a parameter. The fully standardised option does not contain technology as an operator choice. It therefore maintains the incentive to apply the most energy efficient kiln and the least energy demanding raw material.

• Allowing for moisture content and non-carbonate carbon as operator specified input variables in the formula could be viewed as weakening the incentive to apply the cleanest technology. As described in the analysis, the moisture content is largely related to the raw material. Standardising the moisture content adjustment would give an incentive for new entrants to use raw material with the least moisture content. It means that it would not encourage the use of chalk as raw material, which can have moisture content over 20%. This raw material is predominantly found in the southern part of England where also the demand for cement is the highest.

• In relation to the issue of incentives for clean technology it should be mentioned that from an environmental point of view it is not that simple to determine what is clean technology. If increased production of cement in the UK or in specific parts of the UK is discouraged, e.g. due to high moisture content of raw material in the southern part of England, longer transport distances for cement also imply more CO2 from transport (not covered by the EU ETS). Cement also competes with other building materials calling for a life cycle assessment (LCA) type of assessment to determine whether there could be reasons for promotion/discouraging of the use of cement.

• It is noted that for the existing cement plants that the Phase II benchmark method will apply to, as they have already selected their sites (hence feedstock) and technology, the incentive effect is clearly less than for a new entrant where site and technology decisions may not yet have been made. Notwithstanding this point, the government steer is to focus on development of methodologies applicable to potential new entrants in Phase II.

6.3 Competitiveness and Impact on Investment • The degree of international competition within the cement industry is disputed.

Traditionally, the industry has been a domestic industry with limited trade because of the costs of transport compared to the (relative low) value of cement per unit weight. It has been claimed that competition from imported cement plays an increasing role on the UK market22. Import data for cement show no clear trend over the most recent years. In terms of the effect on prices and the possibility of



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cost pass on, the mere existence of a potential import can be sufficient to prevent a cost pass on. It is not within the scope of the study to explore the market situation in detail. What should be noted is that because cement has very high CO2 emission per tonne of product and the value per tonne is relatively low the potential cost increase is significant. At an allowance price of £15 per tonne CO2 the value of the CO2 emissions would amount to about 20% of the cement price and this would probably exceed the profit margin. Any shortfall in the free allowances could therefore have a potentially significant impact on financial viability of cement production. As mentioned above, the possibility of passing on the additional costs to the consumer price is a key factor in determining how the sector will be affected.

• The cement industry do not consider that new entrants are likely in Phase II, in which case the main question of competitiveness would be the impact on the three benchmarked incumbents. If the benchmarked incumbents receive allocations at a different ratio to their actual emissions compared to the rest of the incumbents the domestic cement market could in principle be distorted. However, there are no currently available data for the actual emissions and levels of production for the benchmarked sites with which to investigate this further. The next section includes the results of applying the NE Phase II methodology on the non-benchmarked incumbents. The analysis shows that on average, an allocation based on the NE Phase II methodology is of the order of 10% lower than Phase I allocations. This is not surprising, however, as the newer benchmarked incumbents would be expected to perform better than the average performance across the sector, including all ages of plants.

• What can be assessed is the variation among currently benchmarked sites and the level of impact on their profitability from alternative degrees of standardisation. Taking the three benchmarked sites that are also expected to be benchmarked in Phase II, the net effect on these plants of standardising moisture and non-carbonate carbon at UK average levels, compared to using site specific data for these two parameters, ranges from a potential reduction in allowances of approximately 3% for one site to a potential increase in allowances at two sites of 4%.

• For illustrative purposes, the effect of a 5% shortfall of allowances is approximately £0.50 per tonne of cement assuming an allowance price of €25 per tonne of CO2. Assuming a price of £70 and profit margin of 15%, the impact of this shortfall could be 5%-7% of the profit. How this will affect a benchmarked incumbent and how it will affect the domestic market cannot be assessed before data on the actual emissions become available. If the allocated allowances based on the NE Phase II spreadsheet on average meet the site’s needs this level of impact is not likely to result in any change in the activity at the affected sites.

• Increased competition from abroad depends on the cost differences between domestic producers and overseas competitors. EU ETS is one factor that influences such differences. Precise data on transport costs are not available, one source quotes the cost of transporting cement from the Far East of at least £15-20 per tonne29. Though transport costs within Europe are much lower it is not likely that differences in EU ETS allocations could fully off-set such transport costs. But they are sufficiently high to impact on the competition situation if currently importing is on the margin of being competitive.



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• Overall, alternative benchmarks for the NE spreadsheet could impact on the investment decision establishing new cement production capacity. It could impact whether such capacity is established in the UK or not, where in the UK it is established and how the individual companies would be affected.

• The above analysis has indicated that there could be a negative impact on competitiveness from using the proposed Phase II approach, in relation to the benchmarked incumbents. Given the government’s high priority to ‘feasibility’ and ‘incentives for cleaner production for new entrants’, the standardised approach has been selected by government.

• It should be noted that it has not been within the scope of this report to undertake a detailed assessment of competitiveness and investment impacts.

6.4 Consistency with Incumbent Allocations • The proposed Phase 2 NE spreadsheet will contain a number of input and

calculation steps that allow applicants to the Phase 2 NER to calculate the number of allowances they can claim as part of the overall application process. The allocation amount, A, for a year in t CO2 is given by the sum of the combustion emissions and process emission with a reduction for the commissioning of a new kiln.


A = P * EF




A = P * EF




P = C * D * U

Annual Production = Stated Design

Capacity * Days operation per year

* Utilisation

Tonnes of clinker per year Tonnes of

clinker per day Days %

Where:



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C Capacity tonnes per day

D 330 days per year

U 95 % utilisation,

EF (combustion) 0.269 tCO2/ t clinker

Contribution to combustion emission factor from the effect of UK weighted average moisture of 13.2%

0.019 tCO2/ t clinker

Contribution to combustion emission factor from the effect of UK weighted average non carbonate carbon of 0.64%

0.036 tCO2/ t clinker

EF (combustion) including contributions from moisture and non carbonate carbon

0.269 +0.019 +0.036 = 0.324 tCO2/ t clinker

EF (process) 0.532 tCO2/ t clinker

• The combustion emissions factor of 0.269 tCO2/ t clinker is based upon a top decile best performance SEC figure of 2902 MJ/ t clinker (net basis), the fuel mix for the UK cement industry in 2004 and the EU ETS emission factors. The effect of a UK weighted average for non-carbonate carbon of 0.64% in the raw feed stock has been determined to contribute 0.036 tCO2 / t clinker. The effect of a UK weighted average for moisture of 0.019 tCO2 / t clinker. These two factors have been combined with the combustion emission factor to give a resultant figure of 0.324 tCO2/ t clinker.

• The process emissions factor is standardised at a value of 0.532 tCO2 / t clinker. The process emission factor has not been adjusted for the loss of material associated with any kiln bypass.

• In order to test the applicability of the proposed Phase 2 spreadsheet it has been used to calculate a series of allocations for non-benchmarked incumbents. The ratio of these values compared to the allocations received by the sites in Phase 1 is shown in Table 6.1.

Table 6.1 Comparison of Phase 2 NE Spreadsheet Allocation with UK Phase 1 NAP Allocation


1 94%

2 78%

3 82%

4 112%

5 97%



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6 90%

7 103%

8 75%

9 83%

10 96%

11 65%

12 98%


UK NAP Approved May 2005

• The comparison made between the annual allocations calculated using the proposed Phase 2 NE spreadsheet and the UK NAP annual allocation for Phase 1 provides an average value, weighted by production capacity, of 91% with a range of 65 - 112 %. This would seem to indicate a relative under allocation for an average plant, although potentially not for a best practice new plant. Most of this effect is due to the revision of the capacity adjustment and SEC figure.

• It is important to note that the NAP allocations are already 3.5% below the figure for the average emission derived from the lowest five years emissions between 1998 and 2003 due other adjustments made in the calculation of allocations. As well as making a comparison of the NE calculation to the actual allocation as defined in the UK NAP it is also possible to examine the recent performance of the incumbents. This information is shown in Table 6.2, which compares allocations obtained by using the proposed Phase 2 NE spreadsheet with the average emissions in 2000-2003, dropping the lowest year.

Table 6.2 Comparison of Phase 2 NE Spreadsheet with Average Emissions for 2000 -2003 (Lowest Omitted)

Site Phase 2 NE Spreadsheet Allocation / Annual Average Emission 2000 – 2003 (lowest omitted)

1 90%

2 76%

3 81%

4 109%

5 95%

6 85%

7 95%

8 72%

9 80%



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Site Phase 2 NE Spreadsheet Allocation / Annual Average Emission 2000 – 2003 (lowest omitted)

10 92%

11 62%

12 97%


• The comparison made between the most recent annual average emission data that is available, the NAP data for 2000 – 2003 with the lowest value dropped, and an annual allocation calculated using the proposed Phase 2 NE Spreadsheet shows that for the majority of sites the P2 NE produces an under allocation. The production weighted average ratio between the Phase 2 NE spreadsheet value and the NAP data for 2000 – 2003 with the lowest value dropped is 87 % with a range of 72 – 109 %.

• The proposed Phase 2 NE spreadsheet can be tested by comparing the allocation that it calculates compared to the Phase 1 allocations received by the three benchmarked installations in Phase 1, that are expected to be benchmarked in Phase 2. This is shown in Table 6.3, which reveals that there is a reduction in the annual allocation of between 10 and 20%. This reduction is almost entirely due to the lowering of the SEC figure from 3169 to 2902 MJ / t clinker and the removal of the capacity adjustment of 1.09.

Table 6.3 Comparison of Proposed Phase 2 NE Spreadsheet with Phase 1 NE Spreadsheet for Benchmarked Installations in Phase 1

Site Phase 2 spreadsheet / Phase 1 spreadsheet

1 82%

2 90%

3 88%




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7. Stakeholder Comments

Responses to DTI’s consultation on the EU ETS Phase II New Entrants’ Benchmarks Review for this sector were received from:

• BCA

• CEMEX

• LaFarge

• Castle Cement

• Buxton Lime

The specific details in the responses have been noted and taken into account where appropriate. The key specific elements of the response which have not resulted in modifications are summarised below, for the reasons outlined.

Stakeholder response Entec comment

We are of the opinion that certain differentiating factors are essential in our industry and do not constitute unwarranted allocation. In the communications from Entec they have stressed the Dti objective of ‘simplicity and transparency’ concerning the phase 2 benchmark methodology. We consider the existing Phase 1 benchmark methodology as both simple and transparent to those installations using the spreadsheet and those installations affected by its use. It is apparent that Entec regard ‘simplicity and transparency’ as ‘standardization’. This bias toward standardisation is unscientific and commercially blind.

Phase 2 is now unlikely to yield a new entrant cement kiln, however the Phase 2 benchmark methodology proposed will be used to determine the ‘relevant emission’ for incumbents allocated in phase 1 on a benchmark basis. Entec appear to have failed to recognise this important functionality of the revised benchmark methodology by for example ‘standardising’ to the extent that there is only one input variable for the benchmark compared to five in the Phase 1 methodology. This has serious implications for those modern state of the art plants in operation. These plants cannot for example relocate to geological locations where the raw material moisture contents are lower. It is important to recognise that these substantial investments took place only after extensive discussions with planning and regulatory authorities ensuring that the proposals met the planning and permitting regulations and that the installations were BAT and used the available raw materials and fuel to best effect. [We] therefore insist that the site specific variables (differentiators) such as moisture content, by-pass use, non carbonate carbon and capacity factors are maintained in the Phase 2 methodology. To think otherwise for an industry such as this is naïve in the extreme.

This response indicates that site specific variables linked to raw materials and fuels should be maintained in the Phase II benchmark. This would not be consistent with the evaluation criterion to incentivise clean technology for new entrants.

Contrary to what the response is saying, simplicity and transparency are not regarded as the same as standardisation.

An example of where the Phase I methodology was not transparent related to the basis of the SEC figure.

Entec recognises that the Phase II benchmark will be applied to incumbents allocated in Phase I on a benchmark basis. However, the government steer is to develop a benchmark method with potential new entrants in mind. Potential impacts on benchmarked incumbents are discussed as far as data allows in the evaluation section.

A variable which is site specific is required for the moisture content of raw materials fed into the Schedule 1 process i.e. the clinker manufacturing process.

This is necessary because in the UK cement manufacturers do not have unlimited choice where their facilities are located and hence the moisture characteristics of the material sources are pre determined.

New entrants potentially have a choice of a range of existing sites where new kilns could be built, including several sites with low moisture (for example Padeswood).

A Government steer, in order to incentivise clean technology for new entrants and to avoid rewarding use of higher moisture raw



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This input variable is transparent and independently verifiable for input into the benchmark spreadsheet. Indeed any new entrant plant and plants that were already benchmarked in Phase 1 are already considered BAT by the Regulators for the location where they operate. We cannot chose any location in the UK where the geology provides a low moisture process option as implied by Entec as we are constrained by such restrictions as planning permission, consents on reserves, who owns the reserves, the lifetime of the reserves, proximity to the market to be supplied and most importantly public opposition to having cement factories built in their environs.

materials, is to standardise the moisture input value and to set it at an average level. As such, in the case of the cement sector, there is to be an additional allocation given for moisture content at a value of 13.2%. This additional allocation currently only applies if the moisture is greater than 8.5% because below that level, the kiln is able to deal with the moisture without the need for additional energy input.

Eliminating by-pass variable from the benchmark does not provide incentive to utilise waste derived fuels or the recovery of heat for other purposes on the sites. [We] insist that a variable input parameter remains in the Phase 2 new entrant benchmark spreadsheet.

As the need for kiln by-pass is linked to usage of specific fuels and raw materials it represents a form of differentiation that government does not believe meets its evaluation criteria for the Phase II benchmark methodologies – specifically in relation to the criterion of incentivising clean technology. See also Section 5.3.

In the Phase 1 spreadsheet there is an assumed capacity factor for kiln production. This factor allows for the fact that there is a difference between ‘design capacity’; which is a commercial warranty that the plant or equipment manufacturer agrees with the client for contract reasons and the ‘true capacity’ of the system. Operators of the kiln can achieve ‘true capacity’ from the plant after commissioning and optimisation of control, product chemistry suited to customers and ironing out bottle necks in the systems following operational experience. [We] believe a capacity factor should be maintained in the Phase 2 benchmark spreadsheet. Removing this component will discourage optimisation of efficient production capacity by effectively placing a CO2 cap and hence production cap on new plants.

It is proposed to remove the capacity factor for reasons including (a) new entrants may seek to maximise their stated (and verified) design capacity anyway as this will result in more allowances; (b) it’s derivation is not fully transparent, e.g. the underlying dataset and how this relates to new entrant operation; and (c) there is evidence that it could lead to over allocation for a new kiln, which according to an industry consultant may only optimistically achieve design capacity within three years and reaching any higher level would be dependent upon market conditions and might not be achieved within five years.

In terms of impact on UK competitiveness we believe that the ‘standardised approach’ will impact negatively on UK competitiveness and inward investment for reasons given above. The Entec evaluation comparing incumbent installations to NE’s using the proposed spreadsheet is unscientific. The NE spreadsheet is only appropriate for new entrants, to compare a BAT technology against a range of incumbent old technologies does not add value to the development of a benchmark methodology which could form the basis for further development and possibly be a standard for implementation Europe wide in our industry.

Consistency with incumbent allocations is a criterion within the scope of this project.

See Evaluation section for details of impacts on competitiveness.

In particular, the net effect on the sites expected to be benchmarked in Phase II of standardising moisture and non-carbonate carbon at UK average levels, compared to using site specific data for these two parameters, ranges from a potential reduction in allowances of approximately 3% for one site to a potential increase in allowances at two sites of 4%.

Energy Efficiency - ENTEC have chosen to not to use the value of 3169 used in Phase I. We do not understand why this evaluated data from an international benchmarker should not be acceptable. We are talking of new entrants here and there have only been three completely new kilns in Western Europe in the last 10 years (as far as we know) and these are Rugby, BLI and Castle Padeswood. We have no doubt that an average figure for these three plants would be close to or above the 3169 standard. Castle cement has to comment on its Padeswood plant; here we have a five stage preheater plant; and there are very few of these around the world; but this is only possible because of the good raw materials and we do expect to see better than 3169 when verified results emerge latter this year. It is very important to note that as further stages of preheat are added to a kiln system design, so the pressure drop increases and the consequential

We believe that BAT for Phase II new entrants is better reflected by the top decile (10%) specific energy consumption figure (MJ / tonne clinker), based on latest data (Whitehopleman’s 2005 global database), for dry process 4/5 stage pre-heater / calciner kilns, built in last 10 years, and excluding the effect of kiln by-pass. The figure is 2902 MJ/tonne of clinker (net).

The reasons for excluding the effect of kiln by-pass are detailed above.



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electricity consumption increases and so it is not necessarily correct to suggest that a benchmark from an overall CO2 position should be a five or even six stage preheater. We believe that the 3169 benchmark is appropriate for this application.



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8. References

1. Measuring Environmental Performance; Sector Report for the Cement Industry, British Cement Association: www.bca.org.uk

2. The Cement CO2 Protocol: CO2 Emission Monitoring and Reporting Protocol for the Cement Industry, Guide to the Protocol, Version 1.6, October 2001,WBCSD Working Group Cement.

3. Towards a Sustainable Cement Industry, Climate Change , March 2002, World Business Council for Sustainable Development.

4. The Emission Trading Directive, http://europa.eu.int/eur-ex/pri/en/oj/dat/2003/l_275/l_27520031025en00320046.pdf

5. http://www.cementindustry.co.uk/main.asp?page=119( accessed on 27th February 2006)

6. Report of the Chief Alkali Inspector, 2000 – 2001: http://www.ehsni.gov.uk/pubs/publications/Alkali%20Report%20(2000-2001)screen.pdf

7. EU Emission Trading Scheme – Calculating the free allocation for new entrants, AEAT, June 2004.

8. UK NAP Approved May 2005

9. Cement Raw Materials, British Geological Survey, Minerals Report, November 2005.

10. Tarmac Central Overview, by Clive James, 17th June 2004; http://www.angloamerican.co.uk/static/uploads/Tarmac%20Central.pdf, accessed on 5th February 2006

11. Minerals Planning Guidance 10: Provision Of Raw Material For The Cement Industry, Http://Www.Odpm.Gov.Uk

12. Research on Output Growth Rates and Carbon Dioxide Emissions of the Industrial Sectors of EU ETS, Feburary 2006, Oxford Economic Forecasting

13. Reference Document on Best Available Techniques in the Cement and Lime

Manufacturing Industries, December 2001, European Commission

14. Energy Analysis Department report 'Evaluating Clean Development Mechanism Projects in the Cement Industry Using a Process-step Benchmarking Approach' (2000) for USEPA and USDOE, University of California, Berkley

15. Wim Iestra. Energy Efficiency Benchmarking Covenant in the Netherlands 1999-2012. Dialogue on Future International Actions to Address Global Climate Change, Oslo, April 2005



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16. Park, H.C., 1998. ‘‘Strategies for assessing energy conservation potentials in the Korean manufacturing sector ’’, 1998 Seoul Conference on Energy Use in Manufacturing: Energy Savings and CO 2 Mitigation Policy Analysis, Korean Energy Economics Institute, Korean Resource Economics Association, Seoul. IN Phylipsen, G.J.M., Block, K., and Bode, J.-W., 2002, Industrial energy efficiency in the climate change debate: comparing the US and major developing countries, Energy for Sustainable Development, Volume VI No. 4 December 2002.

17. Worrell, E., Smit, R., Phylipsen, G.J.M., van der Vleuten, F., and Jansen, J., 1995. ‘‘International comparison of energy efficiency improvement in the cement industry’’, in Proceedings of the ACEEE 1995 Summer Study on Energy Efficiency in Industry, Grand Island, ACEEE, Washington D.C., August. IN Phylipsen, G.J.M., Block, K., and Bode, J.-W., 2002, Industrial energy efficiency in the climate change debate: comparing the US and major developing countries, Energy for Sustainable Development, Volume VI No. 4 December 2002.

18. Cembureau, 1997. Best Available Techniques for the Cement Industry, Cembureau, Brussels. IN Phylipsen, G.J.M., Block, K., and Bode, J.-W., 2002, Industrial energy efficiency in the climate change debate: comparing the US and major developing countries, Energy for Sustainable Development, Volume VI No. 4 December 2002.

19. Commission Decision of 29th January 2004 establishing guidelines for the monitoring and reporting of greenhouse gas emissions pursuant to Directive 2003/87/EC of the European Parliament and of the Council. Official Journal of the European Union (OJ) L 59, 26.2.2004

20. The Cement Protocol: CO2 Emission Monitoring and Reporting for the Cement Industry, WBCSD Working Group Cement, October 19th , 2001.

21. EU Emission Trading Scheme – Calculating the Free Allocation for New Entrants, AEAT, Issue 7, November 2004

22. Communication between BCA and Entec, 7th February 2006

23. Lime Cements, Plasters, Mortars and Concretes: University College London,http://www.ucl.ac.uk/~ucfbrxs/limes/G123notes.htm ( accessed 14th February 2006)

24. See for example Carbon Trusts report: EU ETS Implications for international competitiveness. June 2004. http://www.thecarbontrust.co.uk/carbontrust/about/publications/European%20Emissions%20Trading%20Scheme_Implications%20for%20industrial%20competitveness.pdf. The report includes an assessment of the implications of the EU ETS for the cement industry.

25. British Cement Association Homepage: Performance Review

26. British Cement Association Homepage: Cement Statistics

27. Rienaud (2005) “Industrial competitiveness under EU ETS” by J. Rienaud, IEA Information Paper, 2005