Quick reading of the draft for comments on the inclusion of cement in the national carbon trading market-smooth transition of unlimited total volume during the start-up stage, and gradual and appropriate tightening of quotas during the deepening stage

The policy-making department comprehensively considered factors such as greenhouse gas emission control requirements, industrial development, contribution to pollution reduction and carbon reduction, data quality basis, and response to international carbon barriers, and conducted a comprehensive assessment of the maturity of building materials (cement) into the carbon market, and concluded that the cement industry has mature basic conditions and has a data foundation, institutional foundation and hardware foundation, and can be included in the national carbon emissions trading market management starting from 2024.

(1) 7+1 local carbon emissions trading pilot work

In October 2011, the National Development and Reform Commission agreed to launch carbon emissions trading pilots in seven provinces and cities including Beijing City, Tianjin City, Shanghai City, Chongqing City, Guangdong Province, Hubei Province and Shenzhen. In 2016, Fujian Province became the eighth pilot regional carbon market.

In accordance with the relevant requirements of the Ministry of Ecology and Environment, cement-related companies have carried out greenhouse gas emission accounting reports and verification for many years. About 170 cement companies have participated in the 7+1 local carbon emissions trading pilot project, accumulating a relatively rich data foundation and Practical experience.

(2) Carbon emissions based on cement clinker product characteristics and process characteristics

Cement is a key industry for carbon emissions.As of the end of 2023, there are 1537 new dry-process cement clinker production lines nationwide.(Note: Excluding shut down and demolished production lines, excluding production lines with a daily output of less than 700 tons), the designed production capacity of cement clinker that has been filed and obtained approval documents is approximately 1.84 billion tons.Carbon dioxide emissions from the cement industry account for about 13% of the country's carbon emissions, second only to the power and steel industries.

The cement process is relatively simple and data is easy to obtain. In the cement clinker production process, industrial process emissions account for about 60%-65%, mainly carbon dioxide emissions generated by carbonate decomposition; energy activity emissions account for about 35%-40%, mainly due to the combustion of fossil fuels such as coal. Carbon dioxide emissions. Indirect emissions are mainly caused by purchased electricity. The National Carbon Trading Plan (Draft for Comments) no longer controls indirect emissions from purchased electricity.

(3) Impact of international carbon barriers

The EU Carbon Border Regulation Mechanism (CBAM) covers six major industries including electricity, steel, cement, and aluminum. At present, my country's carbon trading market only includes the power industry, which means that when companies that are not included in the carbon trading market industry export products to the EU, they cannot temporarily reduce or exempt carbon tariffs by paying domestic carbon emission costs. At present, my country's cement product export volume is very small. The total cement and clinker export volume in 2023 will be 3.833 million tons, less than 0.2% of the national cement output. Relatively speaking, the cement industry has little impact on CBAM.

(4) Cement companies plan in advance to be included in the carbon market

Many large enterprises in the cement industry have a deep understanding and sufficient preparation for inclusion in the carbon market. They have established carbon asset management platforms, carbon reduction research institutes, established new energy companies, used digitalization to develop carbon emission and carbon verification management systems, and explored carbon dioxide in the cement industry. Online monitoring and measurement project.

The start-up and implementation phase (2024-2026) will achieve a smooth start-up and expansion. The main goal is to be familiar with market rules, adopt the idea of carbon emission intensity control, and implement free quota allocation. The number of quotas obtained by enterprises is linked to product output (output). Link, no upper limit on the total quota is set, and the enterprise's quota surplus and deficit ratio is controlled within a small range. The profit and loss amount account for a small proportion of the enterprise's operating income.

The preparation instructions for the "National Carbon Trading Plan (Draft for Comments)" propose that during the start-up and implementation phase (2024-2026), the quota surplus and gap of individual enterprises will be controlled to a small range according to a pilot period similar to the "experience period". Within, narrow the "gap between rich and poor" quotas between enterprises.

The start-up implementation phase (2024-2026) adopts a performance evaluation method, and performance management is carried out based on the carbon emission intensity per unit of output. The absolute total amount of quotas is not preset.There is no restriction on enterprise production capacity. Enterprises with low carbon emission intensity can earn benefits through quota surplus, while enterprises with high carbon emission intensity pay carbon emission costs due to quota shortages; the larger the product output (output), the greater the quota. This stage is mainly to achieve the purpose of reducing carbon emissions by reducing carbon emission intensity, and will not have too much impact on the production and operation of the company.

The cement industry belongs to the basic raw material industry with a large coverage and is in a period of transformation and development and in-depth adjustment of industry structural adjustment. Affected by factors such as real estate decline, infrastructure slowdown, and population decline, demand in the cement industry has dropped sharply. The utilization rate of cement clinker production capacity is less than 60%. The total profit of the cement industry has dropped from 183.3 billion yuan in 2020 to 32 billion yuan in 2023., the cement industry lost about 1 billion yuan in the first half of 2024. The cement industry is facing multiple pressures from declining profits, binding targets for energy conservation and carbon reduction during the "14th Five-Year Plan" and ultra-low emission transformation.

The industry is very concerned about whether future policies will control cement production through quota allocation plans.

Judging from the "National Carbon Trading Plan (Draft for Comments)" and preparation instructions, the national carbon market policy orientation will not restrict output in the past three years, and the probability of the total tightening mechanism in the launch implementation phase (2024-2026) is small., which is conducive to enterprises with good intensity indicators to give full play to their advantages. The mechanism for reducing the total amount of carbon emission quotas will not be established until 2027, and will be gradually and moderately tightened. How to control the total amount and to what extent to tighten it at that time, in addition to the principle of gradual moderation, the experience of the current 7+1 local carbon emissions trading pilot may also be referred to.

Judging from the quota allocation principle of the 7+1 local carbon emissions trading pilot, for the clinker production section, except for Tianjin City that adopts the historical intensity method and Hubei Province that adopts the benchmark method, the rest of the pilot projects are approved using the baseline method. For example, in the pilot approved using the baseline method, Fujian Province and Guangdong Province set different benchmark values for clinker production lines of different sizes. The larger the production line, the lower the benchmark value.

Judging from the 7+1 local carbon emissions trading pilot quota allocation calculation method, local pilot quota allocation is basically based on actual output. Some pilots adjust the total amount of carbon quotas or output by adopting emission control factors, market adjustment factors, setting annual output ceilings (such as 1.2 times the designed annual production capacity of the clinker production line), and annual decline coefficients.

In general, subsequent carbon quota allocation plans may be based on carbon emission intensity and cement product production. Whether the benchmark for intensity will vary depending on the region and production line specifications depends on the final formulation of the "National Carbon Trading Plan (Draft for Comments)" and the subsequent release of the implementation plan for carbon emission quota allocation in the cement industry.

The registration system for the carbon emissions trading market is set up in Wuhan, and the carbon quota trading system is set up in Shanghai.

The "National Carbon Market Development Report (2024)" of the Ministry of Ecology and Environment shows that the closing price of the comprehensive price of the second performance cycle of the national carbon emissions trading market fluctuates between 50-82 yuan/ton. At the end of 2023, the comprehensive price closing price was 79.42 yuan/ton. On April 24, 2024, the closing price of the comprehensive price exceeded 100 yuan/ton for the first time. Judging from the closing prices in recent years, the carbon market trading prices have basically fluctuated between 40-100 yuan/ton, with steady and rising.

Judging from the relatively active carbon pilot in Guangdong, under the premise of implementing free quotas as the main component, the profit and loss amount of carbon emission rights trading accounts for a small proportion of the cost of cement clinker. For example, in 2023, the cost of purchasing and obtaining carbon emission quotas by a listed cement company is approximately 30.97 yuan/ton, and the carbon emission quota used for performance is approximately 0.16 yuan/ton.

In accordance with the "National Carbon Trading Plan (Draft for Comments)", the established implementation stage will be launchedFree quotas, unlimited production, and small fluctuations in profits and shortagesBased on other ideas, combined with the carbon emission intensity of the cement industry and the current average carbon price, compared with the cost of cement clinker in the past two years (190-245 yuan/ton), the performance cost of carbon trading (excluding the enterprise's own energy-saving and carbon-reduction transformation costs) has less impact on cement.

The main purpose of establishing a national carbon market is to use market mechanisms to control and reduce greenhouse gas emissions.Integrating the cement industry into the national carbon market is to implement the dual control policy of carbon emissions.

On May 29, 2024, the State Council issued the "2024-2025 Action Plan for Energy Conservation and Carbon Reduction"(Guo Fa [2024] No. 12). On June 7, the National Development and Reform Commission, the Ministry of Industry and Information Technology, the Ministry of Ecology and Environment, the State Administration for Market Regulation, and the National Energy Administration issued the "Special Action Plan for Energy Conservation and Carbon Reduction in the Cement Industry"(Development, Reform and Environmental Security [2024] No. 733). It is required that from 2024 to 2025, through the implementation of energy-saving and carbon-reduction transformation in the cement industry and the renewal of energy-using equipment, approximately 5 million tons of standard coal will be saved and about 13 million tons of carbon dioxide will be reduced. By the end of 2025, the comprehensive energy consumption per unit product of cement clinker will be reduced by 3.7% compared with 2020; the proportion of cement kilns using alternative fuel technology production lines will reach 30%, and the proportion of alternative fuel consumption in the cement industry will strive to reach 10%; the cement industry will comprehensively utilize waste The total amount reaches 800 million tons, etc.

Combined with the "National Carbon Trading Plan (Draft for Comments)" mentioned in the start-up and implementation stage"Performance evaluation method, performance management is carried out based on the carbon emission intensity per unit of output"To optimize the carbon emission intensity indicator, the idea of reducing carbon is to reduce the carbon emission intensity of the process, or reduce the carbon emission intensity of energy activities, or a combination of the two.

Reducing the carbon emission intensity of the process means replacing carbonate raw materials such as limestone, but it is very difficult.Cross-industry alternative limestone resources (such as carbide slag, etc.) can be obtained in Xinjiang, Ningxia, Inner Mongolia and other places, and saturated cement clinker production capacity with alternative raw materials has been formed. In addition, cement clinker production in most areas of the country still uses limestone as the main raw material. The ratio of alternative raw materials for cement clinker production lines (including cement projects that co-dispose of waste) is not large, so the difference in process emission factors between clinker production lines is not obvious.

Obtaining limestone mine resources is of great strategic significance to the development of enterprises. The cement process with limestone as the main raw material is mature and fixed investment has been formed. Limestone resources are relatively cost-effective and easy to obtain. Cement clinker production uses limestone as the main raw material. The mainstream process route will not change easily. Therefore, from a national perspective, it is difficult to significantly reduce carbon dioxide emissions caused by the decomposition of limestone calcined carbonates, that is, industrial process emissions (accounting for about 60% of carbon dioxide emissions sources).

In view of the national energy policy orientation and the technological potential of reducing the use of fossil fuels to reduce costs, increase efficiency, and improve energy efficiency, that is, carbon dioxide emissions generated during the combustion of coal and other fossil fuels are the focus of carbon reduction.Reducing the carbon emission intensity of energy activities can continue to promote energy efficiency improvements, alternative fuels and collaborative disposal.

Increasing the carbon emission efficiency per unit of output value or unit of product through technological innovation and production process improvement, and carrying out technological transformation to improve energy efficiency can reduce carbon emission intensity, but the marginal effect of carbon reduction is decreasing.According to the "Energy Consumption Limits per Unit of Cement Products"(GB16780 -2021) and the "Energy Efficiency Benchmarking Levels and Benchmark Levels in Key Industrial Fields (2023 Edition)" issued by five departments including the National Development and Reform Commission, the comprehensive energy consumption benchmark level per unit of clinker products (100kgce/t) is nearly 15% lower than the benchmark level (117kgce/t), and then multiplied by the carbon emission contribution factor of energy activities of 40%, the carbon reduction potential is only about 6%. In addition, a considerable number of cement companies have completed energy efficiency improvements and achieved primary or secondary energy efficiency levels.

Through measures such as reducing the use of fossil fuels and increasing the proportion of clean energy, there is still room for the potential of using alternative fuels to reduce carbon.Cement kiln fuel replacement technology has gradually matured. In some projects, the fuel replacement rate can reach more than 60%, and the comprehensive energy consumption of cement clinker is less than 50kgce/t. Given that coal prices are still relatively high, coal costs account for more than half of the cost of cement clinker,Reducing coal has the great advantage of reducing costs and increasing efficiency.The cement industry will use alternative fuels and increase the types of non-fossil fuels for collaborative disposal, which will usher in a new round of peaks.

The cement industry has been working hard to reduce energy consumption and carbon emission intensity. Carbon reduction is a systematic project, with the ultimate goal of sustainable and high-quality development."Guiding high-carbon enterprises to develop towards low-carbon" involves policies such as scientific and technological innovation, industry entry thresholds, environmental protection, finance, taxation, energy, mineral resources, etc., and requires overall consideration. Form policy synergy. The carbon market can give full play to the decisive role of the market in resource allocation, and companies with better carbon emission indicators will benefit from it.