High electricity must not wreck industry - EuroChlor

21 April 2008 12:17  [Source: ICIS news]

By Adal Rafiq

EuropeLONDON (ICIS news)--Europe's ever increasing electricity prices, pushed higher by new schemes for carbon trading, will damage chlor-alkali producers competing in a global market, Euro Chlor executive director Alistair Steel said on Monday.

Speaking to ICIS news following a presentation at the chlor-alkali industry association's 7th International Chlorine Technology conference in Lyon, France, Steel outlined a number of measures to safeguard the industry’s competitiveness.

With electricity accounting for up to 60% of the cash cost of production at the top end and costs set to rise, Euro Chlor has called for the recognition of producers as an energy-intensive industry (EII).

One of the main reasons for high European electricity prices has been the much criticised emissions trading scheme (ETS) which entered its second phase in January this year.

“Under the initiative, CO2 emitters have been given permits free of charge to cover a large portion of their emissions with the balance of their needs purchased on the market”, said Steel.

“The price paid has been applied to all electricity generated, and has led to cash transfers from consumers to generators and windfall profits.”

The situation was unique to Europe, Steel said. Some sources have gone further in saying the scheme disadvantages Europe’s producers and encourages further chemical capacity growth outside the EU.

The impact of the scheme is particularly hard on the chlor-alkali market. To make one electrochemical unit (ECU), or one tonne of chlorine and 1.1 tonnes of caustic soda, producers require around 3 MWh (megawatt hours) of electricity.

According to Steel, a 500,000 tonne/year chlor-alkali plant, using membrane electrolysis technology, has a total production cost of €541.80/tonne ($862/tonne), of which electricity constitutes €210/tonne, or 39%.

Similarly, mercury-based production, which is gradually being phased out across Europe, amounted to €566.10/tonne, with electricity coming to €250/tonne, roughly 44%.

“It would be safe to say between 40-50% of cash costs on average [are accounted for by electricity], but this depends on the type of technology used and the efficiency at which you are able to operate it”, said Steel.

With this in mind, a quick glance at forecasts for phase 2 of the ETS, which began in January this year, and phase 3 which is due to begin in 2013, make grim reading.

“For the last couple of years, carbon prices have been below €1/tonne,” said Steel before reeling off a series of forecasts -€20/tonne during phase 2 and up to €50/tonne in phase 3.

For the chlor-alkali industry, this would be a disaster.

“At the moment, with the chlor-alkali industry at the top of its cycle, and electricity around €45/MWh, it is still possible for producers to exist at this level”, said Steel.

“But as the price of carbon, and hence electricity, increases, the industry will be severely impacted. We are looking at €75/MWh, which only European producers will have to bear”, he added.

“Caustic soda is a globally traded commodity, so it will be hard for producers to pass these increases onto consumers."

“Margins will be slashed to the point where producers at the bottom end of the cycle end up losing money. Even at the top end, investment decisions become very difficult,” he added.

This is harder for producers to bear considering the fact that the European chlor-alkali industry has entered into a voluntary commitment with the European Commission to switch from mercury to the more efficient and less environmentally damaging membrane-based production by 2020.

The investment required for such a phase-out in Europe has been estimated at around €3bn.

Currently around 40% of chlor-alkali production still uses mercury technology and with these margins, it would be hard to justify the costly investment of change.

Steel has called for the recognition of the chlor-alkali industry as an EII or perhaps even as an indirect emitter to ensure the industries’ competitiveness, in light of global energy prices.

"The EC does acknowledge that EIIs do warrant particular examination, so our objective is recognition as such. At the moment this is only a concept, and we are elaborating our position to the commission since there is nothing specific in any of its literature which refers to the chlor-alkali industry," he said. 

“Even though we are not a direct emitter of carbon we are still paying for it. We have to buy it, but it is the electricity producers who are emitting the CO2.”

Assuming the industry does gain the recognition Steel is looking for, a starting point would be to gain the free permits, which have so far been reserved for the electricity producers, which could then be remitted as part of payments for electricity.

The reaction from a largely technical audience to Steel’s presentation was of “astounded silence”, Steel said.

"This was not a business conference. Many of the other presentations were on new technologies to improve efficiency, but we cannot completely eliminate the problem," he said.

"The very nature of our industry makes it impossible to detach it from movements in electricity. We need those electrons to separate the sodium and the chlorine."

On 25 January, the EC made its proposals to the European parliament and the European Council where the debate continues, Steel said. So far, despite the efforts of industry, the reaction of the regulatory authorities has been at best mixed. 

“It is important to tackle climate change, but we have to make sure we do no wreck our industries. It is a delicate balance to strike and clearly it is no longer enough to just defend the status quo,” added Steel.

($1 = €0.63)

For more on chlor-alkali visit ICIS chemical intelligence

By: Adal Rafiq
+44 20 8652 3214

AddThis Social Bookmark Button

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly

Get access to breaking chemical news as it happens.
ICIS Global Petrochemical Index (IPEX)
ICIS Global Petrochemical Index (IPEX). Download the free tabular data and a chart of the historical index