Call for 80% tax on windfall cement profits

The cement industry is getting tens of millions of euro annually in windfall profits, at the exchequer’s expense, because of anomalies in the EU Emissions Trading Systems (ETS), according to a senior figure in the sector.

The anomalies could cost the exchequer more than €250 million over the coming seven years and has already cost in the region €120 million since 2005, according to Donal O’Riain, chief executive and founder of Ecocem.

Ecocem is a majority Irish-owned “green” cement producer with plants in Ireland, the Netherlands and France.

Mr O’Riain said the anomaly arose from the fact that the Irish cement sector had lost 75 per cent of its demand since the peak of the Celtic Tiger years, yet the allocation of ETS credits to the sector was based on its historical sales levels.

The over-allocation of credits to the sector represents a windfall gain as the credits can be sold. It also represented a loss to the exchequer as the credits could be sold by the State instead of being given to the sector, he said.

Tax increased

The Department of Finance has increased the tax being paid on profits from the sale of the credits, from 12.5 per cent to 30 per cent, by ruling that they have to be taxed as a capital gain rather than at the corporation tax rate, but Mr O’Riain said they should be taxed at up to 80 per cent.

He said the effect was that a system designed to encourage cement producers to reduce their CO2 emissions was instead incentivising them to produce CO2 – at the public’s expense.

This is because installations lose their allocations if they are operating at less than 50 per cent capacity. “The net impact is an increase in global CO2 emissions subsidised by the Irish taxpayer.”

Mr O’Riain has called on the Government, while it holds the European presidency, to change the rules governing the ETS system. He said one of the effects of the way the system operated was to subsidise those plants using environmentally unfriendly practices .

“Every tonne of polluting cement in Ireland is sold with a taxpayer subsidy of 17 per cent of the selling price.”

The Irish cement sector is dominated by Irish Cement, owned by CRH and with more than 50 per cent of the market, Quinn Cement, which is 25 per cent State-owned, and Lagan Cement.

The latter two companies are considering a merger. Such a development would require approval from the Competition Authority.

Mr O’Riain said the cement sector had argued successfully at the European level that any reductions in its ETS allocation would benefit non-European competitors and would not reduce global CO2 production.

He said the overly generous allocations given to the cement and steel sectors were being sold to the energy sector, which has an inadequate allocation. The cost of this is then passed on to domestic and commercial energy consumers, he added.

Purchasing power

Mr O’Riain also suggested that the State, as the largest purchaser of cement in Ireland, should use its purchasing power to recoup part of the loss to the exchequer arising from the ETS.

Ecocem has a plant near the Pigeon House in Dublin where it produces approximately 150,000 tonnes of cement a year.

It is 70 per cent owned by Irish investors, including Mr O’Riain, and 30 per cent owned by the French Saint Gobain Group.