I am chairman of the Cement Manufacturers Association of Ireland, a constituent body of the Building Materials Federation in IBEC which represents the three cement manufacturing companies in Ireland, namely, Quinn Cement Limited, Lagan Cement Limited and Irish Cement Limited. With me are my association colleagues Mr. Jack Duffy, the vice chairman, Mr. Colm Bannon, the chairman of the environment committee, Mr. Paddy Mohan, a council member, and Mr. Paul Kelly, the association's secretary.
I thank the Chairman and the committee for inviting the Cement Manufacturers Association of Ireland to make a presentation on the subject of the EU emissions trading scheme. This issue, particularly the forthcoming Government and EPA decisions in respect of the allocation of allowances, will define the future of the industry in this country and we, therefore, welcome this opportunity to explain our views.
Our companies operate four large industrial plants producing cement. These are located at Mungret, near Limerick city; Kinnegad, County Westmeath; Platin, near Drogheda, and Ballyconnell, County Cavan. They are wholly Irish owned and operated and represent a long-term fully committed asset value of the order of €1 billion. They employ approximately 2,000 people directly and indirectly in well paid and secure jobs. In each of the communities in which they operate they constitute an extremely important element of the local economic wellbeing and, together, purchase well in excess of €100 million of Irish goods and services annually. In addition to the existing capital base, there is an ongoing annual capital investment in the industry in the order of €20 million to €30 million, which is committed by our companies in plant upgrades with a significant proportion devoted to energy efficiency improvements and emissions reduction projects.
Our industry manufactures cement powder, which is one of the primary constituents of the fundamental building material concrete, which is the most consumed substance on Earth after water. The sustainable development of Ireland is only possible because of cement's ready availability and versatility. Life as we know it today would not be possible without the material. It is used in housing, water supply, sewage treatment, commercial, social and environmental infrastructure, agriculture and transport. It is worth noting in the context of the subject of today's meeting that cement is the only material capable of dealing in a sustainable way with the effects of climate change, irrigation projects, flood defences, structural foundations and durable infrastructure of all kinds.
The cement industry has been operating in Ireland since the 1930s when the Government initiated its establishment in recognition of the fact the emerging new State needed to be self-sufficient, not only in electricity supplies but in the manufacture of the primary building material. The four Irish plants currently produce in the order of 5 million tonnes of cement annually. This is over twice the production level of a decade ago and has only come about due to our investment in technology and people. In spite of the profound growth in cement consumption that has accompanied our economic growth as the construction industry delivered the projects required to fulfil the Government's national development plan, there has never been a shortage of product or a failure to supply.
A great deal of investment has taken place and continues to take place to upgrade factories to increase output to match demand. Indeed, two of the four factories have been commissioned since 2000. The industry takes great pride in the fact that its world class production units deliver consistently high quality products to the construction industry daily. This is a consequence of its understanding of the geology and chemistry of its raw materials, the skills of its operating staff and the extensive investment in the most modern of process laboratories. Our products enjoy a very high reputation with concrete producers, building contractors and consulting engineers and architects. We regard the security of supply and the reputation for quality of Irish-manufactured cement as being of fundamental importance to the construction industry, both now and in the future.
I will clearly explain to the committee how carbon emissions arise in our industry. When we mix cement, we do so by burning limestone and shale at high temperatures in a kiln, which produces cement clinker. This clinker is subsequently ground with gypsum and fillers to produce the final cement product, which is then mixed in various proportions with sand, gravel and water with our customers to make a wide range of concrete products for use throughout the construction industry.
Installations producing clinker are subject to the emissions trading directive and there are two distinct sources of carbon emissions involved, namely, process emissions and fuel emissions. Burning limestone releases carbon dioxide and these process emissions account for 60% of the carbon emissions in clinker production. It is not possible to eliminate or reduce these emissions, a fact that has been recognised in the national allocation plans of many EU member states, notably Germany, France and Spain, but has been ignored to date in Ireland. Many countries have not applied any reduction obligations to these emissions, which places the industry in Ireland at a competitive disadvantage to plants in Europe, not to mention plants outside Europe that also enjoy the advantages of cheap fuel and labour.
Fossil fuels used in our kilns to burn the raw materials give rise to the remaining 40% of carbon emissions in clinker production. Due to continuing investment, our plants are among the most energy efficient in the world and the scope for further improvement is limited. We are ready and willing to burn alternative fuels as a means of reducing our dependence on fossil fuels. However, there are significant regulatory issues to be overcome. The committee should realise that only bio-mass fuels are recognised as carbon neutral under the directive and the availability and suitability of such fuels is very limited in Ireland.
While process emissions cannot be reduced and there is limited scope for reducing fuel emissions, we have been exploring ways in which we can make our contribution to a reduction in our plants' carbon emissions. Some materials arising as by-products or waste from other industrial processes are also of interest to the cement industry. We use both pulverised fuel ash and ground granulated blast furnace slag in our operations. Pulverised fuel ash which arises from the burning of coal in power stations has been used by the industry since the early 1990s and slag which arises from the steel industry has been used for some specialised applications since the early 1980s. Both materials can be used to optimise the production process or to produce specific product characteristics in manufactured cement.
Slag is not produced in Ireland and is a by-product of the steel industry. It emits extremely large quantities of CO2 and other emissions elsewhere. In fact, slag production results in the emission of 5 tonnes of CO2 per tonne of slag as compared to less than 0.8 tonne per tonne of cement. The quality of the material is not consistent and supply lines are not reliable. It can, of course, be imported commercially and offered for supply and it has its applications and uses. However, we believe it would be wrong to base a national strategy on the use of such a material. From an environmental and economic perspective, indirect support for the steel industry and jobs in other countries does not appear sensible to us. The Irish construction industry steel competes with concrete produced from indigenous materials.
Mindful of our responsibilities, we carried out extensive research into the production of cements with limestone fillers. I am pleased to report to the committee we established that by grinding unburnt, locally-available limestone with our clinker, with relevant production modifications, we can produce cements to the European standard which will perform in a similar manner to Portland cement, currently produced by the industry in Ireland.
Limestone is available at our cement factories and is emissions-free when ground without the burning process. By replacing clinker with limestone we estimate we can deliver initial carbon emission savings of approximately 150,000 tonnes annually. We believe further savings could be developed in time. We have been in discussions on this issue with the Department of the Environment, Heritage and Local Government for a number of years in the hope of concluding a negotiated agreement. As an industry, however, we decided to proceed and the initial benefits will flow this year. This represents a pragmatic, realistic and totally sustainable approach to the production of "green cement" in this country. As an industry we are committed to ongoing research to establish how to develop innovative technologies in the future to further reduce emissions.
I will now present our views on the emissions trading scheme. I indicate our acceptance of the reality of the Kyoto Protocol and the EU emissions trading scheme. We recognise the international commitments entered into by the Irish Government and the need to minimise greenhouse gases both globally and nationally. The cement industry in Ireland is prepared to play its part in the national effort on climate change. However, we believe it is essential that an equitable approach be adopted and the particular nature of the cement industry's emissions be recognised.
The EU emissions trading directive was developed as a legislative instrument which affects the power sector and major industrial sites. While we welcome emissions trading as a flexible instrument in the context of the Kyoto Protocol, the fact that the scheme only applies to Europe means it has an inherent capacity to damage EU competitiveness with no net environmental benefit. Climate change is a global issue and equitable solutions must be developed on a global basis.
The scheme as constituted has the potential to have extremely serious consequences for our industry. We are now one third of the way through the introductory three-year period and already the cement industry in Ireland is bearing significant additional costs due to inadequate allowances being provided. Allocations for the Kyoto phase 2008-12 will shortly be determined and there is a real threat to jobs in the industry in Ireland if the forthcoming decisions on allowance allocation are not fair and proportionate.
It is important to put our contribution to national emissions in context. The cement industry in Ireland contributed 5% of national greenhouse gas emissions in the EPA verified database for 2003. It is entirely unacceptable that the recent draft report issued by consultants working to inform the Government as it moves to decision making for the Kyoto phase specifically singles out the cement industry within the industrial trading sector for reductions. Despite the 5% contribution noted above to total emissions, the consultants suggest the cement industry can contribute 50% of the possible potential savings they identified at an economic cost in the whole economy. We wish to place on record our profound disagreement with the analysis carried out. The analysis is not robust and the conclusions are flawed. The draft report should be revisited before any recommendation is placed before the Government for decision.
We have real concerns regarding the threat to jobs in our industry from any underallocation for the five-year period 2008-12. We already have insufficient allowances to cover our requirements for the pilot phase. Additionally, we operate to full capacity and import some cement and clinker to supplement production to ensure the market is supplied. All of this is against the background of a growing construction market and an increasing demand for cement. Any further reductions in allowances to the cement industry will result in significant additional costs. These costs are unquantified and could be anywhere between €30 and the Kyoto Protocol phase penalty price of €100 per tonne of CO2. These figures are not sustainable by the industry.
Competition from other EU countries will increase due to differences in the capacity and demand situation in member states and also due to competitive distortions introduced by varying approaches to the industry in other national allocation plans. Regarding countries outside the European Union, cement from both China and Indonesia has already landed in Europe and cement from Turkey and north Africa is regularly imported. There is a real danger that significant parts of the European cement industry will be replaced by plants operating outside the Union. In this context it is worth noting that one major international producer has already decided to build in Egypt rather than in Italy where this producer requires new capacity to service the market. Plants outside the European Union benefit, not only from a lack of a carbon constraint but also from low energy and labour costs. This threat to the Irish cement industry is real and could result in the closure of some operations, with consequent negative impacts on the economy and without any net environmental benefit.
When the Government comes to make its decision on the allocation to the trading sector and when it advises the National Allocation Authority on policy we hope it will ensure the following: equity between the trading and non-trading sectors of the economy, based on relative contributions to the problem and the capacity to deliver emissions reductions; recognition of the specific nature of process emissions and the fact they cannot be reduced; and recognition of the fact that the unilateral EU "cap and trade" scheme poses a substantial threat to an indigenous industry which produces a globally traded product.
The cement industry operates at full capacity and imports additional materials to meet the demands of the Irish construction industry. The allocation of allowances for the pilot phase of emissions trading to the cement industry does not cover current levels of production or demand and the industry will need to purchase allowances. We are extremely concerned about a possible significant further underallocation for the five-year Kyoto period and the potential that exists for a gross distortion of the basis of our business. The importation of cementitious materials from outside Ireland results in no net environmental benefit. We will do everything in our power to reduce emissions and will continue to work with the Government to optimise the contribution of the industry to the national effort to mitigate the effects of climate change.
As a result of past investment to optimise clinker production and utilise fillers, and because of our continuing efforts over many years to improve energy efficiency, there is little potential remaining to make significant further reductions in carbon emissions. However, based on our recent research we will make the best contribution that is technically feasible, using pulverised fuel ash and limestone which are available in Ireland. We commit to doing what we can to reduce the carbon intensity of our products.
Against the background outlined above we will request the Government to recognise the threats from both within and outside the European Union to the industry in Ireland, and ensure the EU authorities are aware of them.
We request that the Government recognise the uncertainty regarding the value of carbon allowances during the Kyoto Protocol phase and take into account the fact that the emissions trading scheme remains a largely untried and unpredictable instrument whose effects on normal commerce are entirely unknown at this time. We trust that our indigenous industry will be granted sufficient allowances in order that cement manufacturing can remain viable in the future and continue the tradition of long-term, stable employment that commenced over 70 years ago. I thank the Chairman and committee members for the opportunity to address this meeting and for their kind attention.
