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European Aluminium opposes CBAM, rejects inclusion in pilot phase

Highlights

European producers fear value chain disruption

EU imports 50% of ingot requirement

London — European aluminum producers oppose use of a Carbon Border Adjustment Mechanism in the European Union and don't wish to be involved in any pilot scheme for its introduction, industry group European Aluminium said this week.

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Representing more than 80% of producers across 30 European nations, with some 600 plants, the group said it is united in fearing a CBAM may be difficult to calculate, disrupt value chains and encourage carbon leakage by driving downstream producers out of the EU, providing no incentive to their decarbonization. Crucially, Europe is a net importer of aluminum.

Trade legislation, indirect cost compensation schemes and free allowances under Phase Four of the EU's Emissions Trading Scheme are more effective ways to protect the European value chain against carbon leakage, group executives said.

"The existing carbon leakage and trade defence measures protect us better and must be complemented with new tools to ensure decarbonisation investments by 2030 and beyond," Gerd Götz, European Aluminium's director general said in a tweet.

"We really cannot see how a CBAM can protect against carbon leakage" in the complex integrated value chain, ranging from bauxite mining outside Europe, alumina refining, a growing production of primary aluminum, diverse product manufacture and recycling, said Emanuele Manigrassi, climate specialist at the industry group.

Disincentive to recycling

Policymakers need to address electricity costs in Europe, considered high partly due to the EU ETS, which undermine the sector's global competitiveness, Manigrassi, together with the association's communication manager Kelly Roegies, said in a presentation to S&P Global Platts.

"Despite a growing global demand for our metal, Europe has lost more than 30% of its primary production capacity since 2008, due to the indirect costs related to the ETS," Manigrassi said, noting this is being replaced by imports from other regions.

Aluminum major Alcoa has sold off capacity in Sardinia, Italy, and idled or curtailed capacity in Spain in recent years, the latest being the San Ciprian smelter in Spain on high electricity prices.

A CBAM tax on imported semi-finished or end-products could increase costs across the value chain and disincentive aluminum recycling in Europe which is crucial to a circular economy, they said.

CBAM proposal June

This month the European Parliament approved introduction of an EU CBAM, by which the European Commission aims to incentivize industrial decarbonization globally. The Commission will make a CBAM proposal in June, with a view to introducing the border tax system in 2023. Aluminum, along with steel, cement and fertilizers, have been identified as key sectors for its implementation because of their risk of carbon leakage.

European Aluminium on March 22 applauded the EC's intention to impose provisional antidumping duties on imports into the EU of flat rolled aluminum products originating in China. China produced 37.3 million mt of primary aluminum last year, around 57% of world output of 65.3 million mt last year, while western Europe produced just 3.3 million mt, or 5%, according to International Aluminium Institute data.

Responding to European Aluminium's stance, the EC said March 24 it is in the process of integrating feedback received following a public consultation on CBAM between July and October 2020. It is assessing the economic, social and environmental impact of various possible designs for the mechanism, a spokeswoman said in a statement.

"As the EU is raising its level of climate ambition, the Carbon Border Adjustment Mechanism will ensure that the price of imports reflects more accurately the level of CO2 emissions embedded in these products for selected sectors," she said.

Aluminum - a case apart

Regional producers claim European aluminum's value chain and carbon footprint are different from those of the other key sectors identified as CBAM candidates, because it is so heavily energy intensive, and because of strong competition with Chinese products.

"Legislation must be consistent with policy objectives of stopping carbon and investment leakage and reflect each industry's unique challenges," said Götz.

"China has chosen aluminium as a strategic material and built up subsidized excess capacity, both for primary and semi-fabricated products, which creates distortions globally. This overcapacity depresses global aluminium prices and threatens the viability of European producers," Manigrassi and Roegies said in the presentation.

The EU imports approximately 50% of its aluminum ingot requirements. Norway and Iceland, part of the European Economic Area, are the largest exporters of primary aluminum to the EU. Other major exporters of primary products to European countries are Russia, the United Arab Emirates and Mozambique, while semi-fabricated and finished products are imported from several countries based on primary metal from China and others with a high CO2 footprint.

China's carbon footprint

The carbon footprint of producing primary aluminum in China is, on average, three times more carbon intensive than producing the same aluminum in Europe, the association said. With a CBAM in place, there is the risk of trade flow deviations rather than decarbonization: for instance the 10% of Chinese aluminum production based on hydropower could be exported to EU, with the remaining 90% based on coal-fired power remaining in Asia, Manigrassi said.

"We need stronger trade defense actions, and improved carbon leakage measures for electro-intensive industries to achieve the transition to a low carbon and circular economy, while addressing distortions in global markets," Manigrassi and Roegies said.

Measures are needed to support the demand of low carbon aluminum production in Europe, as demand grows for aluminum for low-carbon economy applications such as lightweight and electric vehicles, windtowers and solar panels, they said.