Cement production plays an important role in the development of a country, but it is also energy-guzzling and polluting. EIB has implemented selection criteria that promote environmental and social responsibility in projects. The operations that are supported are located in Europe or elsewhere in the world and meet the same requirements. One of the main aims is to promote the “best available techniques”, energy efficiency and reduce CO2 emissions.
The European Investment mission Bank’s is to further the objectives of the European Union (EU) by making long-term finance available for sound investments. It does this inside the EU, but also beyond, where its lending is governed by a series of mandates from the EU in support of the EU development and cooperation policies in partner countries, like those in Latin America and Asia (ALA), Eastern Partner Countries under the EU Neighbourhood Policy, selected MENA countries under its Mediterranean Neighbourhood Mandate or African, Caribbean and Pacific countries in line with the ACP–EC Partnership Agreement (Cotonou Agreement).
While the EIB lends to the cement sector in the EU, projects typically have to meet environmental and energy-efficiency objectives – its primary aim is to aid sustainable, economic development. Financing foreign direct investment (FDI) receives particular emphasis, since transfers of both capital and know-how are strong drivers for economic modernisation, exports and higher productivity. It also supports public sector projects, typically in infrastructure, that are critical for private sector development and the creation of a competitive business environment.
Recipient project overview
Between 2000 and 2010, the EIB financed 14 cement projects, totalling EUR 770 million (Table 1). Total associated investment costs for these projects amounted to EUR 3,200 million. Of this, EUR 210 million (27% of lending) went to three projects in EU member states, and the remaining EUR 560 million (73%) went to 11 projects under the Cotonou mandate. Lending in the EU is typically geared towards energy efficiency and environmental protection, whereas lending under the external mandates is geared towards construction in line with lending objectives to promote sustainable, economic development. For industrial projects, like cement plants, this involves facilitating FDI and import substitution by local producers.
Meeting EIB’s sustainable development objectives
EIB financing of industrial investments inside the EU has to be consistent with EU objectives. In the context of energy efficiency, this is achieved by financing projects that reduce energy consumption by at least 20%. Projects are also considered eligible for financing if they significantly reduce industrial pollution. Finally, R&D investments or pilot plants are eligible if they involve new materials, drastic reductions in environmental pollution, or energy consumption.
The International Energy Agency (IEA, 2007) demonstrates that in manufacturing industries, there is a potential to save 18-25% in primary energy consumption (roughly 750 Mtoe/yr) and 19-32% in CO2 emissions (an average 2650 Mt of CO2/yr) from adoption of best practice technologies. Whereas this IEA study illustrates the potential for energy efficiency investments and CO2 abatement, the EIB looks at the economic performance of the investments. For instance, although it may seem cheaper to invest in emission reductions from power plants rather than investing in energy efficient buildings, the cost over the latter’s life may be much lower, resulting in the latter being more attractive. By promoting and supporting these higher-cost investments, multilateral financiers like the EIB can play a catalytic role.
With the EIB’s external mandates, efforts are directed at fostering private sector-led development that promotes economic growth and has a positive economic and social impact on the wider community and region. And this has been the main justification financing cement projects outside the EU. In the stages of a country’s economic development, production shifts from mainly unskilled, manual activities to basic industrial activities that cater for the expanding infrastructure – construction sectors and heavy industries. Local cement production is therefore important to regional infrastructure development, which is essential in reducing poverty, promoting social equity and enhancing a nation or a region’s industrial competitiveness.
This justifies international financing in support of expanding local cement-producing capacity. The relation between GDP and cement demand is clearly illustrated in the Figure 1, showing the steep increase in developing economies and the stabilisation of demand in Western economies. When countries achieve higher levels of economic development, production and therefore capital investment shifts to higher-value added goods (machinery, transport equipment), and economies become more service-oriented.
Technical and economic considerations
Once the EIB’s lending criteria have been met, a due diligence is undertaken, which takes into account the characteristics of the industry and addresses the technical and economic underpinnings of the project. For projects outside the EU, the due diligence incorporates social and economic development effects.
Given the EIB’s commitment to protecting the environment and promoting sustainable development, it places an emphasis on the use of best available technologies2 (BAT) in choosing processes and equipment. It also encourages using alternative fuels such as waste fuels (spent oils, tyres, animal feeds, pet coke, biomass, etc.) and reducing the CO2 component of the electricity used to operate the plant.
A lot of consideration is given to using alternative cementitious materials as a substitute for clinker. The EIB has instances of this in its portfolio, with up to 50% of steel slags being used in the Cementir plant in Taranto (Italy), and the promotion of modifications of the national technical specifications for cement by the Syrian plant, in order to allow the incorporation of up to 25% of puzolan. The EIB has defined an internal methodology (based on international greenhouse gas accounting standards) to assess the carbon footprint of its industrial projects, by calculating baseline emissions and absolute project emissions.
For the construction and equipment used in the plant, the EIB has established criteria in terms of cost of investment, timely implementation and reliability of operation, to ensure that design, procurement and management are effectively carried out in the project. These criteria have resulted in the Bank financing projects using Chinese technology. This may seem controversial, as it does not promote EU technology, and some Chinese equipment incorporates copied Western technology; however, in some instances, these choices of technology have proved favourable to projects. For instance, without compromising on the quality of equipment supplied, the low-cost delivery of equipment has permitted the improved profitability of a project in undertaken in difficult circumstances in Ethiopia.
For greenfield cement plants in the EU a full social and environmental impact assessment, including public consultations has to be undertaken. The EIB applies this criterion to all its operations worldwide, on all plant aspects. This results in choosing best available technologies in the design of projects. The social impacts of projects are consistently taken into account; in particular, issues such as resettlements of previous occupants of the sites, occupational health and safety, and engagement with communities are carefully monitored. Examples of this in EIB-financed projects can be found in Syria and Ethiopia.
Cement is the principal material used in construction (buildings and large infrastructure), and demand for cement is tightly linked to the social and economic development of countries. Investments in local cement production stimulate competition and often create surpluses, reducing local prices and improving product quality. In developing countries, due to deficient local capacity, it may release pent-up demand, resulting in development. Examples of significant cement price reduction (of up to 30%) and an immediate increase in demand (of up to 10%) were the results of projects financed in Bangladesh, Nigeria and Ethiopia. Thus, in addition to the financial underpinnings, such direct externalities are incorporated as the economic returns of a project.
Simultaneously, the EIB evaluates the environmental impact in its economic assessment, including a shadow price for greenhouse gas (GHG) emissions in the calculation of the project’s economic rate of return. The Bank’s current shadow prices for carbon are based upon an economic price of carbon proposed in 2006 by the Stockholm Environment Institute (SEI) to the Bank for its economic analysis of projects. SEI recommended values start from EUR 25/t of CO2 emitted in 2010 – increasing by EUR 1 every year – to reach EUR 45/t of CO2 in 2030 for the central range (baseline). The shadow prices of other GHG is based upon their global warming potential factors (where CO2 = 1), as proposed by the Intergovernmental Panel on Climate Change.
The EIB has continued its financial support of the cement industry, an energy- and carbon emissions-intensive sector, by considering its important impact on the economic development of countries. However, EIB-financing is increasingly being challenged because of its imperative to calculate the absolute and relative footprints of projects.
¹ The opinions expressed in this article are those of the authors, and not necessarily those of the EIB.
² Best available technology (BAT) is the advanced method used in industrial production that limits the emission of pollutants.
References / IEA, 2007. Tracking Industrial Energy Efficiency and CO2 Emissions, report.