Aluminium demands are driven principally by the development of transportation, electronics, building and construction as well as other industries. However, some factors cannot be ignored, such as the environment and climate change, population growth and urbanization, innovation and new products. Especially following COP26, manufacturers are compelled to improve sustainability in their operations. It is important to note, however, that long and complex supply chains can involve thousands of suppliers throughout the world, making it difficult to ensure end products are sustainable.
The aluminium industry is a contributor to the sustainable economy, but as a carbon-intensive industry, it needs to take proactive measures to reduce its sectoral carbon footprint. Globally, a tonne of aluminium typically requires 14.2 megawatts (MWh) of total energy while the average intensity of the process uses 13.4 MWh. The aluminium industry generates more than 1.1billion tonnes of CO2e (carbon dioxide equivalent) emissions annually – around 2% of global human-caused emissions. Over two-thirds of these gases are released because the electricity used for electrolysis is derived from fossil fuel sources, mainly coal and natural gas. By maximizing aluminium production using green electrical energy from renewable sources, the best result can be achieved.
The demand for aluminium, production and usage is increasing, as are its emissions. There is a large variation in the literature for total global average emissions from bauxite mining to primary aluminium production, but most reported values range between 12 and 17 metric tonnes of CO2-equivalents per tonne of aluminium, depending on the assumptions and estimates made. We all have seen carbon emissions fall by 17% in April 2020 at the height of the pandemic lockdowns as reported in a study in the Natural Climate Change journal. It is clear from the decrease that going green can happen quickly when sources of carbon emissions are eliminated.
Short term difficulties & opportunities for low-carbon aluminium:
Carbon policy risk associated with aluminium
To meet the requirements of the Paris Agreement (2015), direct emissions from metal production must halve over the next 20 years. Carbon pricing will be vital, but, to date, of the 196 signatories to the ‘Paris Agreement’ only 58 jurisdictions have implemented such a regime.
According to a report by Wood Mackenzie, global emissions must reach net-zero by the second half of the century to keep global temperature rises below 2°C. Emissions from metal production will need to halve over the next 20 years to hit this target. Furthermore, under Wood Mackenzie’s 2-degree scenario, the price of carbon dioxide per tonne must rise to US$110 everywhere by 2030. These taxes aim to spark massive technological change across emissive industries like metals production. Among all metals, aluminium stands to be the metal most affected by carbon pricing as a result.
Energy source issue
The cradle-to-gate C02 equivalent emissions ranging per tonne of aluminium produced, when compared to a European hydro-powered smelter that sources alumina from the Atlantic market to an integrated, coal-powered operation in India that sources alumina domestically, the latter’s emissions are immense, mainly due to the energy source in smelters. Fossil fuel usage in countries like China and India is one of the major challenges in the aluminium industry to lower the emissions and this depends on a lot of political, economic and policy decisions.
The demand-supply gap in recycling
Increased recycling will also be vital as aluminium production from scrap consumes only 5% of the energy required to produce aluminium from the raw ore. While miners will face more competition from scrap recycling, but still they will play an important role, as it needs to be noted that not all applications can use the scrap as feed, and there isn’t enough metal in circulation to meet global demand.
Supply chain localization
Supply chain localization will also contribute to greener aluminium. Reducing freight emissions and migrating smelting to locations with renewable energy sources may be necessary for the long term. But the relocation of smelters and refineries will take a lot of effort from global giants.
Higher cost compared to high carbon aluminium
The cost per tonne of low carbon aluminium is not openly available with sales today limited to private transactions. Until open trading backed by buyer demand starts on markets like the LME, pricing remains a mystery except for the few anecdotal reports on the public record.
Low carbon aluminium emits three times less CO2 into the environment than primary aluminium made from coal-fired electricity. Apart from all of the above, China itself has taken tough decisions to pull down high carbon aluminium production. With China producing around 53-55% of the world's total aluminium will be forced gradually to adopt the production of low carbon aluminium.
Long term difficulties & opportunities for low-carbon aluminium:
Investor motivation
Across industries, investors are increasingly rewarding companies that have the “greenest” operational profiles; aluminium companies will have to adjust accordingly. Apart from emission reduction, another important aspect in this regard is to solve the issue of “red mud” in the refining process of alumina production. A growing focus among investors, customers, governments, and society on sustainability is a long-term game changer for green aluminium.
Carbon-taxation schemes
The second development poised to change the industry’s competitive terrain is the strong likelihood of the near-term introduction of a carbon-taxation scheme by European governments (and, possibly, the US government). The introduction of carbon taxes, including carbon border taxes on imports, would have a material impact on the global supply curve of producers selling in those regions.
Changing global trade patterns
The third factor that stands to alter the industry’s competitive dynamics is a set of changes in global trade patterns. The COVID turned destabilized economies, trade disputes and the exacerbated geopolitical frictions are the major owners of these caused changes. On the other way, it has also strengthened many companies’ growing resolve to make their supply chains more resilient and less vulnerable to shocks and interruptions.
November 10, 2021