building a STRONGER foundation - Cemex

As required by the directive, each of the member states established a NAP that defines the free allocation to each industrial
facility for Phase II (2008 through 2012). Although the overall yearly volume of allowances in Phase II is significantly lower than that
during Phase I of the ETS (2005-2007), we do not see any significant risk that CEMEX will be short of allowances in Phase II. This
assessment stems from various factors, notably a reasonable allocation policy in some countries, our efforts to reduce emissions per
unit of clinker produced, reduced demand for our products due to the current economic circumstances, and the use of several risk-free
financial instruments. We expect to be a net seller of allowances over Phase II. In addition, we are actively pursuing a strategy aimed
at generating additional emission credits through the implementation of CDM projects in Latin America, North Africa and Southeast
Asia. Despite having already sold a substantial amount of allowances for Phase II, we believe the overall volume of transactions is
justified by our most conservative emissions forecast, meaning that the risk of having to buy allowances in the market in the remainder
of Phase II is very low. As of April 30, 2011, the price of carbon dioxide allowances for Phase II on the spot market was
approximately €16.75 per ton (approximately U.S.$24.83 as of April 30, 2011, based on an exchange rate of €0.6745 to U.S.$1.00).
We are taking appropriate measures to minimize our exposure to this market while assuring the supply of our products to our
customers.
The Spanish NAP has been approved by the Spanish Government, reflecting the conditions that were set forth by the European
Commission. The allocations made to our installations allow us to foresee a reasonable availability of allowances; nevertheless, there
remains the uncertainty regarding the allocations that, against the reserve for new entrants, we intend to request for our new cement
plant in Andorra (Teruel), whose construction has been postponed.
In the case of the U.K., Germany, Poland and Latvia, NAPs have been approved by the European Commission, and allowances
have been issued to our existing installations.
On January 9, 2009, we received a positive answer from U.K. authorities to a request we filed in late 2008 to retain the
allocation of allowances for our Barrington plant after this facility was closed permanently in November 2008 and its production
moved to our South Ferriby plant.
On May 18, 2009, the Environment Ministry of the Republic of Latvia published the amount of allocation of EUAs from the
New Entrants Reserve to our Broceni plant expansion project.
On May 29, 2007, the Polish government filed an appeal before the Court of First Instance in Luxembourg regarding the
European Commission’s rejection of the initial version of the Polish NAP. The Polish government has issued allowances at the level
already accepted by the European Commission, which is lower than the Polish government proposal by 76 million EUA per year.
However, on September 23, 2009, the same Court annulled the European Commission’s decision that reduced the number of EUAs in
the Polish NAP. The Court found that such reduction was not justified, arguing that the European Commission should not ignore the
historical and forecasted data that Poland used to establish the basis of the NAP allocation. On March 19, 2010, the European
Commission and the Government of Poland reached an agreement to maintain the originally approved cap for 2010 through 2012 (the
remainder of the EU ETS Phase II period). On December 4, 2009, the European Commission appealed the Court of First Instance’s
decision to the European Supreme Court, as its resolution could impact similar cases against the European Commission raised by other
Eastern European member states.
Croatia has implemented an emissions trading scheme designed to be compatible with the one in force in the European Union,
although no emission allowances can be exchanged between the two schemes. The first period of compliance is 2010-2012, and the
final NAP was published in July 2009. We do not expect the commencement of the Croatian emissions trading scheme to substantially
affect our overall position, particularly as the allocation to CEMEX Croatia is larger than previously anticipated.
In December 2008, the European Commission, Council and Parliament reached an agreement on a new Directive that will
govern emissions trading after 2012. One of the main features of the Directive is that a European-wide benchmark will be used to
allocate free allowances among installations in the cement sector, according to their historical clinker production.
On April 27, 2011, the European Commission adopted a Decision that states the rules, including the benchmarks of greenhouse
gas emissions performance, to be used by the Member States in calculating the number of allowances to be annually allocated for free
to industrial sectors (such as cement) that are deemed to be exposed to the risk of “carbon leakage”. Based on the criteria contained in
the adopted Decision we expect that the aggregate amount of allowances that will be annually allocated for free to CEMEX in Phase
III of the ETS (2013 – 2020) will be sufficient to operate.
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