With Green Aluminum Flowing, Manufacturers Struggle To Make Product ESG Top Priority

With manufacturers slowly moving to use low carbon aluminum in their products, the reasons holding back adoption of the green metal are quickly fading.

"EN+ and other aluminum producers accelerated the development of low carbon aluminum shortly after the Paris Climate Agreement," said Gregory Barker, executive chairman of EN+/RUSAL, the Russian aluminum producer. "With the green aluminum supply now flowing, aluminum buyers can fast track the world to a functioning green economy."

Knowing The Environmental Cost

Emissions fell by 17% in April at the height of the pandemic lockdowns reported in a May study in the Natural Climate Change journal. The decrease gives hard proof that that going green can occur quickly when you eliminate sources of carbon emissions.

While aluminum is one of the preferred metals used in electric cars, planes, electronics, construction, and beverage cans, it produces one of the larger carbon footprints. According to the Columbia Climate Center, smelting primary - newly mined - aluminum eats up 4% of the world's electricity while spitting out 1% of the world's CO2 greenhouse gases annually. More than 50% of that electricity comes from coal or oil-fired power plants located in China.

On average, producers emit 12 or more tons of CO2 per ton of primary aluminum. The newer green alternative emits less than 4 tons of CO2 per ton, according to the Aluminum Stewardship Initiative (ASI) consultancy.

"Low carbon aluminum emits three times less CO2 into the environment than primary aluminum made from coal-fired electricity. The big impact on reducing greenhouse gases occurs when manufacturers adopt the widespread use of low carbon aluminum," says Barker.

Building Green Incentives And Transparency

Building a green economy requires a mix of economic policies, carbon tax credits, free-market access to buyers and sellers, dependable carbon labeling, consistent supply from producers, and market adoption by aluminum dependent manufacturers.

When the European Commission unveiled the Green New Deal for Europe in December 2019, they announced 50 economic policies and carbon tax incentives to make Europe the first carbon-free continent by 2050. According to Barker, Europe has the framework for what a green economy looks like, and the early indicators are promising.

In June 2020, the London Metal Exchange - LME - announced their intent to launch a spot trading platform for low carbon aluminum allowing buyers to procure the new metal. The London Metal Exchange signed a memorandum of understanding with the Aluminum Stewardship Initiative - ASI - to underpin collaboration on responsible aluminum value chains.

"Over the next five to ten years, consumers will say they want low carbon aluminum in their cars and beverage cans," said Matt Chamberlain, CEO of the LME. "The LME will be the marketplace for buyers and sellers of low carbon aluminum, delivering pricing transparency, integration with low carbon certification, and verifying chain of custody."

Chamberlain added that the standards for labeling low carbon aluminum at the smelter level are sound. However, the bigger picture taking into account principles like measuring carbon levels from mining and transportation of the raw material to the smelter, guaranteeing the rights of indigenous people, country of origin carbon credits, business ethics, and human rights have some way to go.

"EN+/Rusal already obtained certifications from ASI for three production sites, and we are working to certify all of our production plants," said Barker. "We like that ASI certifies for low carbon, but also they certify our company across 11 important areas that people should care about."

Chamberlain added that LME sets the specification for the metal in terms of grade and purity, while the producers label their aluminum with its carbon content. He noted, “We see the voluntary adoption of low carbon labeling by EN+, Rio Tinto, and Alcoa already taking place.”

"Most people do not know that the LME has over 500 approved warehouses in the US, Europe and Asia where metals sold on our exchange can physically change hands from the seller to the buyer. The copper today is certainly a higher quality than the copper sold through our exchange over 100 years ago. It is not surprising to see the rise of low carbon aluminum as a new asset class," said Chamberlain.

Demand Slow, But Plentiful and Rising

According to Acuity Knowledge Partners, six companies produce eight varieties of low carbon aluminum today, including Alcoa's Ecolum in Canada, CBA's P1020A in Brazil, Century Aluminum's Natur-AI in the US, Norsk Hydro's REDUXA and CIRCAL 75R in Norway, EN+/RUSAL's ALLOW in Russia, and Rio Tinto's RENEWAL in Australia as well as Elysis in Canada.

Using clean hydroelectric power versus coal or oil-fired electric power, EN+/RUSAL, Norsk Hydro, CBA, and Rio Tinto produce less than 4 tons of CO2 per ton of aluminum.

Leading the innovative front, Alcoa, Apple, and Rio Tinto have a joint venture in Canada called ELYSIS with a proprietary smelting process emitting less than 2.5 tons of CO2. The joint venture expects to start licensing this technology globally by 2024.

Barker confirmed that EN+/RUSAL sold over 1 million tons of ALLOW low carbon aluminum since 2017. To date, Norsk Hyrdo produced around 10,000 tons of their CIRCAL 75 and REDUXA and expects to produce 65,000 tons by 2021.

On July 21, Mexican producer Cuprum - one of North America's five largest aluminum extruders - announced their low carbon plans with EN+ setting the stage for manufacturers having a plentiful supply of low carbon aluminum in Mexico and North America.

Higher Cost Now, But Too Early To Know

The cost per ton of low carbon aluminum is not openly available with sales today limited to private transactions. As of July 21, the spot cash price for high carbon primary aluminum was $1,646 per ton on the LME.

Acuity Knowledge Partners reported that the ELYSIS joint venture would reduce production costs by 15% over primary aluminum today. In their annual report, Norsk Hydro said that making low carbon aluminum is 20% higher today than for primary aluminum. Norsk’s CIRCLE-branded low carbon aluminum used in construction is a modest 2-3% higher.

"We aren't pushing for a price differentiation on low carbon aluminum," said Barker. "Once we establish the low carbon asset class, then demand from consumers will determine long term prices."

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.

Apple Sets The ESG Benchmark For Companies

Apple set the benchmark for an effective ESG (environmental, social, and governance) program that other companies may soon follow. In their ELYSIS joint venture partnership with Alcoa and Rio Tinto, Apple plans to use low carbon aluminum in their phones and computers. The company disclosed that aluminum represents 24% of their manufacturing carbon footprint. Apple will literally take a bite out of the apple by their use of low carbon aluminum to reduce their emissions.

According to the G&A Institute, in 2019, 90% of the S&P500 or 450 companies reported their ESS programs' performance. Companies on the index like Boeing Aircraft, Coca Cola, General Motors, and soon-to-be Tesla continue to use the dirtier primary or recycled aluminum in their products — despite their commitment to sustainability.

China’s Impact Yet To Be Seen

With China producing 52% of the world's aluminum and over 30% of the world's manufacturing, companies dependent on China to make their products will not be accelerating the adoption of low carbon aluminum into their product supply chains anytime soon.

Barker added, "I am hopeful that China will evolve to low carbon aluminum sooner than later. With so much manufacturing of the world’s products, they can make a big contribution to reducing the destruction caused by greenhouse gases to our planet."