The European Emission Tradingand the Aluminium sector

Alessandro Profili

IEA Workshop Paris, September 2005

2

Aluminium and ETS

•Is the European ETS achieving its goals ??

•Is it impacting sectors not included in the Directive ??

•What is the best way of including other sectors ??

3

Aluminium Offers…

Innovative products

Innovative processes

While contributing to a sustainable progress !

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How aluminium is madeFirst Bauxite extraction (Guinea Boké)

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Mining and reforestation

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How aluminium is made

4 kg

2 kg

1 kg

Bauxite

Alumina

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How aluminium is madeSecond, Alumina production (San Ciprián)

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How aluminium is made

4 kgBauxite

2 kg 1 kg

mud waterAlumina

1 kg

Aluminium1 kg

CO2

1 kg

9

How aluminium is madeThird, Aluminium smelting (Porto Vesme)

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How aluminium is made

• Electrolytical process, Hall Hérault (early ‘900):

Anodes

CathodeBath

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Cathode Block

Alumina Hopper

Molten Aluminium

Feeder

Gases

Fluoride Hopper

Anode

Electrolyte

Alumina Production1.0 - 1.5 t of CO2eq

Anode Carbon2.7 - 3.1 t of CO2eq

Electricity Production0 - 20.8 t of CO2eq

PFC Generation0.3 - 10.8 t of CO2eq

Fabrication

0.6 - 1.3 t of CO2eqTotal 4.3 - 37.5 t of CO2eq

GHG Emission Sources

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Aluminium and ETS

•As all non-ferrous metals, Alu currently not included in European ETS, but affected by indirect cost

•Can be considered a good “leading indicator”

•Aluminium smelting is the most electricity intensive industrial process; 15 kW/hrs needed per kilo of aluminium; 5 kW/hrs for zinc

•Electricity represents up to 40% of production costs•Global commodity submitted to strong competitive

pressure – no passing on of costs

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32

34

36

38

40

42

44

46

oct/04

nov/04

déc/04

janv/05

févr/05

mars/05

avr/05

mai/05

juin/05

juil/05

6

10

14

18

22

26

30

Price Power Baseload Supply (in €/MWh)

CO2 certificate price (in €/t)

CO2 certificate trade increases power price, despite free of charge allocation

Source: EEX / VIK

14Very Strong Correlation - 95%

Regression analysis between EEX Cal 2006 and ETS

y = 0,5686x + 29,297R2 = 0,9466

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34

36

38

40

42

44

46

6 11 16 21 26EUR/t

EUR

/MW

h

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The Aluminium Industry has identified 3 main paths to reduce its Climate Change Impact

1. Reducing emissions per ton of primary metal produced through:

a) investment in modern technology;

b) attention to good operating practices.

2. Maximising the potential for aluminium recycling.

3. Encouraging applications of aluminium in transport which

reduce weight and GHG emissions from transport, a sector

responsible for a third of GHG emissions globally.

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1) Significant Reduction of Electricity Consumption for Smelters

Reduced electricity consumption at the electrolysis stage

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2) Aluminium Recycling

100%

5%

0%

20%

40%

60%

80%

100%

New Aluminum Recycled Aluminum

Recycling only needs 5% of the energy

Recycling emits 95 % less greenhouse gases

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World aluminium usage and recycling 1950-2002

05

10152025303540

1950 1960 1970 1980 1990 2000 2002

Mill

ion

tonn

es

Primary Production Used Scrap Recovery Total Usage

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Global Aluminium Supply Mix

05

1015202530354045

1960 1980 2000 2020

RecycledMetal %

% Old & New Scrap to Total Metal Consumed

Modeling indicates that the industry’s average metal supply from old & new scrap:

• has increased from 17% in 1960 to over 33% today;

• is predicted to increase to 39% by 2020.

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Global Product Inventory by Market

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

1980 1985 1990 1995 2000 2005 2010 2015 2020

000

Met

ric T

ons

Other (ex destructive Uses)Consumer DurablesElectrical - OtherElectrical - CableMachinery & EquipmentPackaging - Other (Foil)Packaging - CansTrans - OtherTrans - AerospaceTrans - Auto & Lt TruckBldg & Const

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3 – Aluminium in Transport

22A380 – New Solutions for a Super-sized Aircraft

New alloys and solutions for very large parts

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Europe’s New Generation of Mass Transport

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Moving towards the all-alu car

The Audi A8 Spaceframe

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Innovative breakthrough to support dieselization

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Light Weighting for Performance and Energy Saving

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Aluminium Light-weighting: Impact on CO2 Emissions

1 Tonneof Aluminum

20 Tonnesof C02

Emissions

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23 21 52 17 25 29 17 66 790

10

20

30

40

50

60

70

80

Car(gasoline)

Car (diesel) City bus Longdistance bus

Average lighttruck

Averagelight-duty

vehicle

Articulatedtruck

Light dutydelivery truck

Urban lightduty vehicle

Ton CO2 Saved Per

Ton Weight Reduction Study 2003 "Energy savings by light-weighting"

Additional vehicles 2004

Life-time CO2 Savings for Road Vehicles

Light duty commercial delivery vehicles show highest relative savings

Confirmed Today’s“20 to 1” Message

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Total CO2 Savings Potential by Transport Market

0

20

40

60

80

100

120

PassengerCars

Light-dutyvehicles

Mediumtrucks

Heavy trucks Buses Short-distance

passengertrains

Long-distance

passengertrains

Long-distance

freight trains

Aircraft InternalNavigation

InternationalMarine

Bunkers

Global – Million Metric tons of CO2

Nor

thA

mer

ica

Euro

pePa

cific

OEC

D

non-OECD

Rail vehicles

Road vehicles

Ships

Air

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In summary

Despite emission reductions, total emissions would still increase due to growth in production

GHG Emissions

402

355

327

258

200

250

300

350

400

450

1990 2000 2010 2020

Millions of tons of CO2

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Aluminum Production Movement to “Today’s Best Practice”

Millions of tonnesof CO2

327 337 333345 339

200

250

300

350

400

450

2000 2005 2010 2015 2020

GHG EmissionsBest Scenario

Full Industry Adoption of “Today’s Best Practice” Could Stabilize Growth of Global Production GHG Emissions

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Millions of tons

of CO2-e

Potential Emissions Savings From Transport Growing Faster

than Al Production Emissions

Potential Magnitude of Transport Savings

202

242

290

345

411

200

250

300

350

400

450

2000 2005 2010 2015 2020

GHG EmissionsTransport Savings

Potential for Al Industry to be “Climate Neutral” By 2020

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Best Practice and Transport Savings

Millions of tons

of CO2-e

202

242

290

345

411

327 337 333345 339

200

250

300

350

400

450

2000 2005 2010 2015 2020

GHG EmissionsTransport SavingsBest Practice

Potential for Al Industry to be “Climate Neutral” By 2015 by accelerating movement toward today’s best practice

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The STORY!

The Aluminium Industry may be able to demonstrate, on the basis of GHGs, that the

net impact on society of the use of aluminum as a material is a positive contribution to the

challenge of Global Climate Change.

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The Aluminium Industry and the European ETS

1. Climate Change can only be resolved globally:

a) Not by delocalising industry away from Europe;

b) Global sector approach.

2. Maximising the recovery for aluminium recycling.

3. Encouraging the use of aluminium in transport, a sector

responsible for a third of GHG emissions globally.

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The Aluminium Industry and the European ETS revision

1. Solve the non-functioning of the Electricity market

2. Before adding new sectors:

a) must evaluate cost of abatement;

b) Must evaluate capability to pass along costs.

3. Include all gases.

4. Eliminate distortions and harmonise definitions.