Carmakers Rejoice as Bumper Production of Green Aluminium Promises Climate Benefits

LONDON [England]: Aluminium is one of the most energy-intensive metals to be produced, responsible for approximately 1.1 billion tonnes of global CO2 emissions yearly. This year, an estimated increase in production of "green Aluminium" could result in a reduction of 13 million tonnes of Carbon Dioxide, which is equivalent to 1.2 per cent of total emissions.

Aluminium makers are ramping up their production of low-Carbon metal in 2023 with the aim of reducing costs for carmakers while also shrinking their industry's massive Carbon footprint.

The process of producing Aluminium is far more energy-intensive than other metals, resulting in around 1.1 billion tonnes of global CO2 emissions every year. The increase in output of "green Aluminium" next year could cut these emissions by 13 million tonnes, an estimated 1.2 per cent, making it a crucial step toward reducing overall CO2 emissions.

Governments across the world are pushing for drastic reductions in greenhouse gas emissions, and Aluminium producers have become an unlikely beneficiary of this movement. Aluminium has a much lower Carbon footprint than the global average, emitting only 4 tonnes of CO2 per tonne of metal, compared to 16.6 tonnes elsewhere. This shift has left many countries with an unexpectedly surplus of "green" Aluminium - which is predominantly produced from hydropower or recycled sources - leading to a decrease in premiums that producers can charge buyers such as automakers, beverage can companies and construction suppliers.

"It's (the premium) been very modest now for the last couple of years," Ivan Vella, chief executive of Rio Tinto Aluminium. Vella mentioned that premiums had gone up recently, although no specifics were offered.

Global supplies of low-Carbon Aluminium have remained strong in recent years but experienced a dip in 2022 due to provincial restrictions in top producer China that depended on hydro power for production. Willingness for the global supplies to make a comeback next year is positive - reports estimate that it will rise by 10 percent to 18.56 million tonnes and account for 26 percent of total world Aluminium production.

Europe is leading the way in terms of low-Carbon production, with a proportion of such products expected to surge to 83 per cent by next year. This is due to large Scandinavian producers who utilize hydro power for their manufacturing processes. Consequently, Europe's low-Carbon products far exceed those from the rest of the world.

The push for more sustainable supplies has grown as companies strive to demonstrate their environmental commitment to consumers. BMW, a German auto giant, announced last year that they would purchase aluminum made from solar power from Emirates Global Aluminium, while Audi, Volkswagen's premium brand, is testing out a revolutionary ELYSIS technology developed by Alcoa and Rio Tinto. This technology promises to eliminate CO2 emissions and release oxygen instead.

Polestar, an electric vehicle (EV) maker, has teamed up with Norway's Norsk Hydro to incorporate green Aluminium into the production process of their vehicles. This project will ensure that every aspect of the production is zero emissions and sets a powerful example for other companies to follow. Norsk Hydro produces metal using hydro power and remains one of the few companies willing to disclose details about their low-Carbon material purchases and any premiums paid for competitive reasons.

Polestar announced that it is investing more in green Aluminum, partly because of the administrative costs associated with supplier changes. The exact amount was not specified.

"The cost per reduced kg of CO2 emissions when shifting to green Aluminium is still significantly lower than many other ways of reducing raw material emissions," a company spokesperson.

Norsk Hydro recently struck an agreement with Mercedes-Benz to provide Aluminum that produces up to 3 tonnes of CO2 emissions per tonne of metal or less. This demonstrates the company's commitment to environmental sustainability and reducing their Carbon footprint.

Aluminium companies are increasing their investment in low-Carbon technologies as part of their commitment to sustainability. Norsk Hydro has already spent billions attempting to make Aluminium production more eco-friendly, while Rio Tinto, Alcoa and the Canadian government recently joined together to invest $228 million in the ELYSIS process.

However, with global demand for these products down due to economic recession fears, producers have seen a related dip in prices that they can charge for their green products.

The spot premium for low-Carbon billet, a frequently used component in construction projects, has dropped to zero from a high of $30 per tonne in January. Despite the decline, some producers are still able to sell their low-Carbon output at higher prices due to quarterly and annual contracts.

Demand for wire rod, a key component in power wiring related to the global green energy transition, is at an all-time high and commands premium of up to $45 per tonne. Despite this, the premium accounts for only 2% of the underlying benchmark Aluminium price. Furthermore, regional variations in prices also exist.

The European Union is considering plans that would see a rise in premiums, as tariffs are introduced on imports of high-Carbon goods by 2026. This not only benefits consumers, who have access to a plentiful supply of low-Carbon primary Aluminium and recycled materials, but also helps to reduce energy usage during the production process – with recycled material using around 95% less energy than traditional methods.

The overall trend for green premiums may remain low in the years that follow as output of both continues to rise. However, with limited movements of supplies between regions, there may be potential deficits in areas such as Europe which require higher demand.

A noteworthy exception is "ultra-low" Carbon Aluminium, where premiums are significantly higher compared to others due to its scarcity. This metal is produced with less than 2 tonnes of Carbon emissions per tonne of Aluminium and is thus highly sought after.