Ref. Ares(2020)2296938 - 29/04/2020
Carbon Border Adjustment
LafargeHolcim Perspectives, January 2020
LafargeHolcim supports the objectives of the Green Deal and is comitted to contributioning to the
achievement of a carbon-neutral economy by 2050
Competitive EU manufacturing, driven by investments and anchored in the carbon-neutrality transition,
requires a level playing field with non-EU importers with regards to carbon costs
The objective must be for non-EU importers to bear the same CO2 costs as EU domestic producers. Free
allocations that are awarded to EU producers must therefore be discounted from the carbon costs levied on
importers. This allows for the BAM to be compatible with the EU ETS, while remaining a mirror measure
that does not interfere with the EU carbon budget and its associated mechanisms
The BAM mechanisms must be dynamic in order to automatically factor-in the unpredictable
variations in free allocations and carbon prices
(vs. being based on fixed averages), and must be based
on verified emissions of imports.
The BAM mechanism must be tested and phased-in in parallel with the continuation of the EU
, until it is fully and successfully operational and legally secured.
Achieving the common objective of transitioning to carbon-neutral construction relies on:
Ensuring the attractiveness of local production, with local resources, for local use, which among many
other things allows to minimize transportation, energy use and associated emissions;
Promoting and incentivizing investments and innovation in circular solutions, renewable energy and
advanced technologies such as carbon capture use and storage;
Creating a demand for low carbon building materials and solutions.
Competitive EU manufacturing, driven by investments and innovation and anchored in the low-carbon transition, is
conditional on a level playing field with non-EU importers with regards to carbon costs.
With reduced Historical Activity Level (HAL) and emission factor benchmark, this prerequisite will be accentuated
during phase IV of the EU ETS. The expected allocation deficit puts some 40 million tonnes of EU-manufactured
clinker at risk of being offshored by 2030 (equivalent to >20% of the EU demand).
The construction sector’s transition towards carbon-neutrality will significantly contribute to reaching Europe’s
ambition to be a carbon neutral continent by 2050. The import of more carbon-intensive products to meet the
demand for construction materials in Europe will slow down this transition and hamper low-carbon investments
and innovation in European assets.
In this context, LafargeHolcim takes the view that the existing EU ETS needs to be complemented by a
carbon border adjustment mechanism. It is a necessary measure to maintain a fair competition as the free
allocations under ETS phase IV will not be sufficient to enable EU-based manufacturing to compete fairly
with non-EU imports that do not have equivalent carbon costs. In turn, it will provide the necessary
assurance to invest in low carbon technology across European assets.
BAM design options for the cement sector
Compatibility with EU ETS and free allocation
: As EU ETS phase IV comes into force, free allocations
are unlikely to cover the full carbon cost paid by EU manufacturers. A BAM should cover that cost
difference and does not require any changes to the EU ETS as it is fully compatible and complementary.
© 2019 LafargeHolcim
A BAM should take into account the free allocations received by EU manufacturers in order to calculate
the carbon adjustment in a non-discriminatory manner. This allows to ensure that it does not interfere with
the EU’s carbon budget, that it remains separate from the EU ETS but be made compatible with it.
Carbon cost not covered by ETS
mechanisms and to be “levied on
Total carbon cost for
EU ETS Benchmark (free
Measuring the CO2 content of imported clinker / cement
: CEN EN 19694-31 is the standard used by
the cement industry to measure and report its CO2 emissions. It forms a globally harmonised methodology
for the calculation CO2 emissions from clinker and cement production. It also provides the basis for the
GCCA (Global Cement and Concrete Association) Guidelines
for the monitoring and reporting of
CO2 emissions from cement manufacturing. These guidelines are intended as a tool for cement
companies worldwide and form the basis for the GNR (Getting the Numbers Right) database which
addresses all direct and the main indirect sources of CO2 emissions related to the cement manufacturing
process. This standard is used by the industry globally and forms an adequate basis to report the verified
emissions of any import.
A dynamic BAM
: the system must take into account the unpredictable variations in carbon prices and free
allocations (e.g. in case a Cross Sectoral Reduction Factor applies which would have significant impact on
the level of free allocations and thus carbon cost imposed on EU producers). Therefore, it must be based
on a dynamic methodology that enables to factor-in the variability and uncertainty of the regulatory regime,
and must not be based on fixed EU averages of past performances (which in most case would not be an
accurate reflection of the current situation).
In practice, the charge (for the cement sector) could look like as follows:
Carbon import charges (€/t clinker) = (verified emissions2 of import + associated transport
emissions in kg CO2/t clinker) - (EU ETS clinker benchmark in kg CO2/t clinker * CSRF) multiplied
by the carbon price (€/kg CO2)
Carbon content of
imported clinker (kg
EU ETS Benchmark
(kg CO2/t CK)
multiplied by CSRF
Carbon content to
subject to BAM (kg
Carbon content (kg CO2/t Clinker)
Figure 1: hypothetical calculation of carbon content of imported clinker submitted to BAM
1 Stationary source emissions – determination of GHG emissions in energy-intensive industries – Part 3: cement industry
2 Calculated on the basis of EN19694-3
3 If import verified emissions are not available, a global penalised average must be applied.
© 2019 LafargeHolcim
: The carbon price used to calculate the charges must be as close as possible to actual spot
prices, given the significant volatility that currently exists on the carbon market and uncertainties linked to
large list of factors (Brexit, coal plant closures, etc.). The use of past annual averages would more than
likely not be representative of the situation in a future transaction.
Ability of the cement sector to pass-through costs:
The methodology for calculating the carbon border
adjustment should not consider cost-pass through in the case of cement. Numerous studies have shown
how cement is, economically speaking, a commodity product with a high level of demand- and supply-side
substitution, thereby limiting cost pass-through. Long business cycles and moderate or no growth
restraints the possibility to implement cost pass-through. Furthermore, cost pass-through is specifically
unlikely in the presence of high price elasticity, which is the case for cement, and especially in border
markets (e.g. along the Mediterranean coast).The inability to pass through costs has been exemplified
recently with specific product offerings that included a specific carbon price.
1. We fully support the principle of a BAM that would at first be introduced in a pilot phase as off 2021 in
parallel with EU ETS
(incl. free allocation).
2. A gradual phase-out of ETS mechanisms could be envisaged, but only after the trial phase and only when
the mechanism is fully tested, operational and legally secured
3. The full deployment of a BAM, and phase-out of ETS mechanisms, requires to ultimately encompass all
sectors that compete in downstream markets to avoid distortions of competition
4. The system must be based on verified emissions
to be adjusted compared to the EU ETS benchmark
(incl. any adjustments applied to the benchmark over time such as a cross-sectoral correction factor). It
should not be based on EU averages of past performances as these would be meaningless for non-EU
5. Given the significant fluctuations in carbon prices, the system must take into account the actual spot
and not yearly averages.
LafargeHolcim is the global leader in building materials and solutions. We are active in four business segments:
Cement, Aggregates, Ready-Mix Concrete and Solutions & Products. LafargeHolcim experts solve the challenges
that customers face around the world, whether they are building individual homes or major infrastructure projects.
Demand for LafargeHolcim materials and solutions is driven by global population growth, urbanization, improved
living standards and sustainable construction. Around 75,000 people work for the company in around 80 countries.
LafargeHolcim supports the objectives of the Green Deal and is committed to contribute to the achievement of a
carbon-neutral economy by 2050.
We aim to lead the transition towards low-carbon and circular construction by
introducing more low-carbon products and solutions to our customers worldwide and by being at the forefront of
innovation in construction materials and solutions.
Brussels, January 2020
© 2019 LafargeHolcim
LafargeHolcim, Rue Vilain XIIII, 53-55, 1000 Brussels, Belgium