Aluminium should be at the forefront of carbon disclosure

The push for low carbon aluminium to be traded as a separate category on the London Metals Exchange, took a new turn recently as two producers came out in opposition to the idea. This is of wider relevance, as aluminium is at the vanguard of the fight to bring the environmental impact of all products into the open.  Such disclosure enables consumers to express a preference via their purchasing decisions and helps investors to put their money into projects that are aligned with climate change commitments.

Ostensibly the LME argument centres on the mechanics of the carbon emissions calculation and where to put the line separating low carbon aluminium from the rest.  Or it might be a smokescreen for those who don’t want there to be a focus on the climate impact of individual commodities. The production of conventional primary aluminium has a high climate impact. The aluminium industry contributes significantly to the world’s GHG emissions. Using renewable energy to smelt primary aluminium rather than electricity made from coal reduces its impact by over 70%. Substituting recycled aluminium reduces that impact still further.

Aside from voluntary initiatives like that of the LME, the authorities are realising that further regulation is needed to bring about change. The European Union has decided that they need to act if their net zero target is to be achieved. A carbon border adjustment mechanism is one development under investigation, which would tax high carbon aluminium products and other imports as they are placed on the European market. This would counteract ‘carbon leakage’ where the manufacture of energy intensive products is offshored to countries where there are no penalties for carbon emissions. There are also developments targeting environmental, social and governance disclosure for companies. Countries are regulating in ways that will encourage companies to act in an environmentally responsible manner. France has had a ‘duty of vigilance’ law since 2017, which obliges large companies to establish mechanisms to prevent human rights and environmental impacts throughout their chain of production. The UK is drafting a law to prevent the import of commodities associated with deforestation, another cause of climate change.

The irony for aluminium product manufacturers is, that if produced sustainably, the metal has the qualities needed for a low carbon and circular economy. With its lightweight, durability and recyclability, aluminium has great potential in the transport, building and consumer goods sectors.  To reduce aluminium’s wider impacts, some producers are working together to introduce sustainability principles throughout the sector via the Aluminium Stewardship Initiative (ASI). This, together with increased recycling and recognition for low carbon aluminium will provide a boost for aluminium’s uptake in the future.

The UK will host the next UN Climate Change Conference of the Parties (COP26) in 2021. Lets hope that by then, the London Metal Exchange, which can trace its origins in the UK back to 1571, will have moved with the times by acknowledging the importance of low carbon aluminium. 

Published: 16 November 20

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