Rusal recently confirmed that is earning a small premium for its low-carbon primary aluminium. Other aluminium producers have made similar statements about their low carbon products. So will the differential extend to other types of ‘green’ aluminium including recycled and responsibly sourced material? In this article I summarise the drivers for green aluminium, to provide an answer to the question.
The carbon footprint of products made from primary aluminium is dominated by the energy consumed in the smelting process. Renewable energy, as used by Rusal and others, produces aluminium with a carbon intensity that is a factor of five lower than when the power source is coal. So measures to cut carbon emissions such as the EU Emissions trading Scheme and the proposed carbon border tax on imports will impact aluminium smelted in parts of the world where coal is the dominant energy source. The carbon border adjustment mechanism (CBAM), as it is formally known, will penalise producers seeking to export their high carbon footprint products to Europe from countries where there is no financial penalty for emitting CO2.
But there are also reputational drivers for companies to reduce the carbon footprint of their products. Consumers, particularly younger ones, are looking for products with low environmental impacts. Eventually the carbon footprint of a product will be printed on the packaging. It may be via a QR code or a ‘traffic light’ system or even an actual value, similar to the way the calorie content of food is shown on the label. This type of labelling is already being piloted. It is easiest for integrated companies and those with short supply chains who can keep the low carbon aluminium separated from other conventional aluminium.
The landscape for responsible sourcing is also undergoing change, which is likely to impact metals generally. In Europe there are new laws, called vigilance or supply chain due diligence laws that will increase demand for responsibly produced commodities. They place a responsibility on large companies to take steps to minimise the risk that their supply chain harms the environment or impacts adversely on human rights. Also, environmental protection is being drawn into trade negotiations. This year saw the first trade agreement to give relief from tariffs to sustainably certified palm oil. Although the focus is currently on the risk of deforestation caused by agricultural products, it’s likely that once the general concept is established, it will be extended to other commodities.
The best way of sourcing responsibly is for companies to purchase products with certification to a sustainability scheme and achieve recognition for their own operations. Although it is possible to audit suppliers, this won’t be feasible for long supply chains. ASI (Aluminium Stewardship Initiative) is the scheme for the whole of the aluminium supply chain, but there is also a standard for responsible mining, which can cover some of the impacts. And using recycled content also reduces the risks of environmental impacts.
So there are demand drivers for all of low carbon, recycled and responsibly produced aluminium and that they are here to stay, at least in certain parts of the world. But, although low carbon metal is achieving a small premium, there is as yet no evidence that this is the case for responsibly produced aluminium.
To understand why, it is worth looking at what has happened to other commodities. Those with a particularly high environmental or human rights risk have achieved a premium with a sustainability certification. So there are premiums for sustainable palm oil, timber, paper and cobalt. However, the size of the premium depends on the sustainable commodity being kept separate from its conventional counterpart. This is known as ‘segregation’. As discussed above, this is only achievable for highly integrated companies and those with short supply chains.
This preference for the segregation of responsibly produced commodities is disadvantageous for sustainability schemes, such as ASI, that are regionally dispersed. Until certified companies dominate the market, ASI certified aluminium and its products are likely to be mixed with conventional material during processing. Segregation could be achieved sooner if large companies set up sites dedicated to processing only responsibly sourced materials.
So, an answer to the question posed above is that the premium associated with ‘green’ aluminium will most easily be sustained where either low carbon (which includes recycled) or responsibly produced aluminium is segregated from conventional aluminium through most of the supply chain. It will also be restricted at first to those sectors impacted by consumer opinion and regulation.
The most important outcome however, as we strive for an economy which is both low carbon and non-exploitative is that take up of all types of low carbon and sustainable aluminium increases until it becomes the norm. Then, of course there will be no premium because most aluminium, if not all, will be ‘green’.
Published: 29 June 21
