The Final Carbon Fatcat

This report by Sandbag analyzes how flaws in the EU Emissions Trading Scheme (ETS) have created perverse incentives for the European cement sector, leading to over-allocation of free allowances and a failure to incentivize deep decarbonization. The authors argue that the ETS has effectively subsidized the production of high-carbon clinker, resulting in a net import of emissions into the EU.

• The EU ETS has failed to incentivize emissions cuts in the cement sector, with the sector's allowance surplus continuing to grow while other industrial sectors face reducing surpluses. The report estimates that perverse incentives in free allocation design likely caused cement sector emissions to rise by more than 15 million tonnes beyond business-as-usual levels.
• Five major cement companies, termed "Carbon Fatcats," collectively received nearly €1 billion in spare EU allowances (EUAs) for free between 2008 and 2014. These companies include Lafarge-Holcim, Heidelberg-Italcementi, CRH, Cemex, and Buzzi Unicem.
• Current free allocation rules create a production subsidy for high-carbon clinker. Because rules only adjust allocation if production falls by 50% or more, firms are incentivized to keep production just above this threshold to retain 100% of their free allocation, leading to the export of subsidized clinker to non-EU markets.
• The cement sector is over-allocated because it is treated as fully leakage-exposed based on carbon cost intensity alone, despite not meeting the minimum threshold for trade intensity. This allows the sector to receive 100% of its benchmarked free allocation, which in turn triggers a cross-sectoral correction factor (CSCF) that reduces allowances for other, potentially more risk-exposed sectors.
• The report identifies six levers for decarbonizing cement: CCUS, cleaner fuels, kiln efficiency, reducing clinker shares, non-Portland cements, and carbon-negative cements. While the ETS can influence the first four, the latter two require additional policy incentives and updated product standards.
• Carbon Capture, Utilisation, and Storage (CCUS) is essential for the future of Portland cement in Europe because process emissions—which account for two-thirds of total emissions—are unavoidable under the Portland paradigm. However, retrofitting is expensive, potentially doubling construction costs and increasing production costs by 40-90% per tonne of clinker.
• Progress in fuel switching to biomass and waste has been driven by policies outside the ETS, such as the Renewables Directive (2009/28/EC) and national landfill taxes. This has led to uneven progress across Member States, with Germany (64.4%) and the Czech Republic (59.5%) showing higher use of alternative fuels than Italy (13.0%).
• The report recommends replacing the binary carbon leakage system with a tiered system based on combined trade and emissions intensity. Sandbag estimates this could reduce the cement sector's free allocation application to 60%, making millions of EUAs available to other sectors.
• To prevent windfall profits and the gaming of production thresholds, the report proposes introducing 10% adjustments to free allocation for every 10% variation in activity levels. It estimates this would have withheld nearly 180 million EUAs during Phase 3.

APA

Luta, A., & Lytton, W. (2016). The Final Carbon Fatcat. Ember. https://ember-energy.org/app/uploads/2020/03/The-Final-Carbon-Fatcat-Sandbag-March-2016.pdf

Chicago

Luta, Alex, and Wilf Lytton. The Final Carbon Fatcat. Ember, 2016. https://ember-energy.org/app/uploads/2020/03/The-Final-Carbon-Fatcat-Sandbag-March-2016.pdf.

Wikipedia

{{cite report |last1=Luta |first1=Alex |last2=Lytton |first2=Wilf |title=The Final Carbon Fatcat |publisher=Ember |date=March 2016 |url=https://ember-energy.org/app/uploads/2020/03/The-Final-Carbon-Fatcat-Sandbag-March-2016.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{luta2016final, author = {Luta, Alex and Lytton, Wilf}, title = {{The Final Carbon Fatcat}}, institution = {Ember}, year = {2016}, month = mar, url = {https://ember-energy.org/app/uploads/2020/03/The-Final-Carbon-Fatcat-Sandbag-March-2016.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }