Reaping the carbon rent: Abatement and overallocation profits in the European cement industry, insights from an LMDI decomposition analysis

- We analyse variations of carbon emissions in the European cement industry.
- We apply a Log-Mean Divisia Index (LMDI) method.
- Most of the emission changes can be attributed to the activity effect.
- The EU ETS brought small but positive technological abatement.
- The European cement industry has gained 3.5 billion Euros of “overallocation profits”.

We analyse variations of carbon emissions in the European cement industry from 1990 to 2012, at the European level (EU 27), and at the national level for six major producers (Germany, France, Spain, the United Kingdom, Italy and Poland). We apply a Log-Mean Divisia Index (LMDI) method, cross-referencing data from three databases: the Getting the Numbers Right (GNR) database developed by the Cement Sustainability Initiative, the European Union Transaction Log (EUTL), and the Eurostat International Trade database.Our decomposition method allows seven channels of emission change to be distinguished: activity, clinker trade, clinker share, alternative fuels, thermal and electrical energy efficiency, and electricity decarbonisation. We find that, apart from a slow trend of emission reductions coming from technological improvements (first from a decrease in the clinker share, then from an increase in alternative fuels), most of the emission change can be attributed to the activity effect.Using counterfactual scenarios, we estimate that the introduction of the EU ETS brought small but positive technological abatement (2.2% ± 1.3% between 2005 and 2012). Moreover, we find that the European cement industry has gained 3.5 billion Euros of “overallocation profits”, mostly due to the slowdown of production.