EN+ chairman calls for mandatory carbon disclosure for aluminum producers, low-carbon futures

London — Carbon disclosure – or reporting of carbon emissions produced – needs to be mandatory for the aluminum industry as soon as possible, Gregory Barker, executive chairman of EN+, parent company of Russian aluminum producer Rusal, said this week. To this end a low-carbon aluminum futures contract needs to be introduced, so that aluminum producers and buyers can better manage their price risks, he said.

While aluminum has many low carbon applications, from electric cars to sustainable, recyclable packaging, aluminum production itself still contributes over 2% of the world's total emissions and the aluminum sector "cannot wait," he said in an interview with S&P Global Platts.

"We are very clear. The aluminium industry has to wake up and take climate change seriously. Carbon disclosure needs to be mandatory. The transition to a low carbon economy is not an optional extra. It is an imperative," Barker said.

Barker's comments follow the launch in August by the London Metal Exchange of a discussion paper on sustainability and carbon emissions of the metals traded on the exchange. Central to the debate is whether emissions data should be disclosed on a mandatory or voluntary basis.

According to an LME sustainability document, the exchange already offers transparency around, pricing of, and access to metals that contribute to sustainable production, the circular economy and electric vehicles. "The next step is for us to build on that by increasing transparency – on a voluntary basis – and providing access to a broader range of products and services," the document said.

Subject to market acceptance, the LME is proposing to launch in H1 2021 its LMEpassport – a digital register that records electronic Certificates ofAnalysis ("CoAs") and other value-add information – to include, on a voluntary basis, carbon-related metrics for specific batches of aluminum. Also in H1 2021 it proposes to launch a spot trading platform, providing an online market place which offers access to low carbon aluminum to market users on a voluntary basis.

An aluminum scrap metal contract is also to be introduced by LME, to promote "reliable pricing and trading of scrap metal," the exchange said.

Futures rather than spot trade

Barker based his argument for introduction of a low-carbon aluminum futures contract partly around the fact that the vast majority of trades on the LME – around 98% – are in futures rather than spot trades. The time it will take for the industry to adapt is another important consideration, he said.

"Real change will take time. The full transition to a low carbon economy will take years but the longer we delay the greater the challenge our sector will face from other low carbon materials and with ESG now at the top of the list of so many investors and financiers, moving slowly is just not an option," Barker said.

In response to Barker's comments, the LME said: "We welcome all views in respect of our proposed sustainability strategy and are considering the feedback we've received as part of the discussion paper process." The exchange will publish a feedback analysis between now and the end of the year, it said.

According to Barker, the key challenge now is to create a competitive and substantial market for low-carbon aluminum, with sufficient demand to trigger an expansion in production. It is hard to predict any great impact on prices anytime soon, he added, noting that the EN+Group is "in the process of crystallising a particular low-carbon aluminium premiums upcharge in some of our contracts where our partners are willing to pay for high-quality low-carbon material with a specific origin and features."

Several aluminum sector producers are now making or developing low-carbon products. EN+ group is already seeing strong interest in its ALLOW brand, whose carbon footprint of 2.5t CO2/t Al which is well below the current world average of about 12t CO2/t Al, Barker said.

US aluminum producer Alcoa announced in late September that it is introducing a low-carbon, smelter-grade alumina brand, EcoSource, as part of its efforts to reduce emissions throughout the broader aluminum supply chain and support more sustainable end-products, while Alvance, the aluminum subsidiary of GFG Alliance, is developing low-carbon aluminum products as part of its move to become carbon-neutral at group level by 2030. Rio Tinto is also progressing with low-carbon aluminum production initiatives.

China's pledge

China's recently-announced pledge to achieve carbon-neutrality by 2060 could meanwhile impact the aluminum industry globally, according to Barker, who described this news as "very welcome indeed and extremely significant."

"While the pathway to get China to net zero is still uncertain, this pledge must mean the end of the widespread use of coal for electricity as we know it. That will place a big question mark over many Chinese smelters sooner rather than later but equally, in the long term, there is still huge potential for more hydro electricity in China, if there is the political will to develop it," he said.