Cement maker Holcim bags €51m from carbon EUA sales in 2012

Swiss cement maker Holcim continued selling surplus EU allowances (EUAs) in 2012, with falling carbon prices impacting the company’s results negatively, the company said in its annual results on Wednesday.

The statement could indicate that long-awaited industrial selling of EUAs has already kicked off, adding to their oversupply and pressure on their prices.

Holcim one of the biggest cement makers in the world realised revenues of Swiss francs (Swfr) 62m (€51m) from the sale of EUAs in 2012, some 2% less than in the previous year, when it made Swfr63m.

Given that carbon prices dropped in 2012 from their 2011 levels, the fact that revenues changed so little year on year could mean that the company sold more allowances.

In 2012, the last year of phase II of the EU’s emissions trading system (ETS), Holcim’s cement sales in Europe were also 2% lower year on year, at 26.3m tonnes, meaning that it could have had fewer production emissions to cover or surplus allowances to sell off.

Dividing the 2011 revenue generated from EUA sales at the ICIS-assessed average 2011 spot price of €12.97/tonne of CO2 equivalent (tCO2e) implies that the company sold 4m EUAs in that year. If the same method is applied to its 2012 figures, with an average EUA spot closing price of €7.37/tCO2e, then Holcim could have sold 6.9m EUAs in 2012.

Lower revenues from the sale of carbon permits were mentioned as one of the reasons leading the company to post a figure for operating earnings before interest, taxes, depreciation and amortisation (EBITDA) in Europe that was 32.6% lower year on year at Swfr627m (€515m), and an operating loss of Swfr360m (€296m) after an operating profit of Swfr47m (€38m) in 2011.

The company – which has committed to cut its 1990 level of CO2 emissions per tonne of cement by 25% by 2015 – said it used the revenues generated from carbon trading activities to increase its energy efficiency.

Holcim also has offset credits in its carbon portfolio, which could be used to cover its falling emissions, instead of using the more lucrative EUAs, which can fetch a higher price on the secondary ETS market.

It said it had received certified emission reductions (CERs) and emissions reduction units (ERUs) under the United Nation Framework Convention on Climate Change (UNFCCC) for projects in India and Indonesia in 2012, but no further detail was available. “It is expected that all these credits will continue to be received in 2013,” it said.

That could allow Holcim to cover its emissions using cheaper credits while selling any potential and more valuable EUA surplus.

To illustrate the principle, the spot EUA contract has closed at €4.452/tCO2e since the start of ETS phase III (2013-2020), while the equivalent CER contract has closed at an average price of €0.13/tCO2e and their ERU equivalent at €0.08/tCO2e.

“Modest declines” in European sales volumes are expected for 2013 after the economic crisis that impacted cement demand negatively in 2012.

Large industrials such as Holcim have been generally expected to hold on to their phase II surplus until the European Commission confirms its national implementation measures (NIMs), which outline the number of free allowances to be handed out in phase III to the sectors included in the ETS.

However, a final NIMs decision has been repeatedly delayed (see EDCM 28 January 2013), which might have prompted Holcim and other companies to sell surplus EUAs in the interim, particularly if the economic climate remains difficult. Silvia Molteni