In recent years, there has been a global resurgence in commitments to carbon neutrality, with countries worldwide revising their policies and strategies to attain these objectives. This movement has coincided with a remarkable increase in the adoption of electric vehicles and a substantial rise in investments directed towards renewable energy projects. Many nations are prioritising these investments as part of their efforts to enhance energy independence and sustainability.
As per IAI's analysis, primary aluminium production in Europe amounted to approximately 6.73 million tonnes in 2023. This marked a 3.95 per cent decline from the previous year's production of 6.99 million tonnes, primarily attributed to persistently high energy costs that had adversely impacted the European primary aluminium market for over a year.
On Tuesday, February 6, the European Commission unveiled a comprehensive impact assessment outlining potential pathways to achieve the European Union's ambitious goal of becoming climate-neutral by 2050. Dubbed as 'Securing our future: Europe's 2040 climate target and path to climate neutrality by 2050 building a sustainable, just and prosperous society.' This comprehensive plan outlines the necessary climate and energy policy framework post-2030, aiming for an ambitious greenhouse gas (GHG) emissions reduction target of 90 per cent by 2040, compared to 1990 levels.
About the recommendation
This recommendation will initiate discussions among all stakeholders, with a formal legislative proposal slated to be presented by the subsequent Commission following the European elections. The proposal will undergo scrutiny and approval processes involving the European Parliament and Member States by the EU Climate Law and aligned with the advice from the European Scientific Advisory Board on Climate Change (ESABCC) and the Paris Agreement commitments.
The recent outcomes of COP28 in Dubai underscore the global momentum toward sustainable climate action. As a longstanding leader in international climate initiatives, the EU is urged to maintain its pioneering role, paving the way for European industries to excel in emerging global markets for clean technologies.
Achieving a 90 per cent emissions reduction by 2040 necessitates fulfilling several enabling prerequisites. Central to this endeavour is the thorough implementation of existing legislation to reduce emissions by a minimum of 55 per cent by 2030. The ongoing refinement of the draft National Energy and Climate Plans (NECPs) assumes a pivotal role in tracking progress, with the Commission actively engaging Member States, industry stakeholders, and social partners to facilitate requisite actions.
Conditions to achieve the recommended target
The Green Deal must evolve into an industrial decarbonisation pact, leveraging Europe's existing industrial strengths such as wind power, hydropower, and electrolysers. This evolution entails fostering domestic manufacturing capacities in burgeoning sectors like batteries, electric vehicles, heat pumps, solar PV, CCU/CCS, biogas, bio-methane, and the circular economy. Additionally, the efficacy of emission reduction targets hinges on mechanisms such as carbon pricing and enhanced access to finance for European industry. To this end, the Commission will establish a dedicated task force to formulate a global approach to carbon pricing and markets.
Mobilising an optimal blend of private and public sector investments is imperative to aligning our economy with sustainability imperatives while maintaining competitiveness. In the forthcoming years, a cohesive European approach to finance, forged through close collaboration with Member States, will be indispensable.
"The link between climate, trade and industrial policy must be strengthened and at the forefront of the agenda of the next EU Commission. We are ready to work with the EU Commission and the Member States on bridging solutions to bring down the cost of energy and boost the transformation of our industry while remaining competitive on global markets," said Paul Voss, Director General of European Aluminium.
This ongoing outreach will empower the next Commission to formulate legislative proposals for the post-2030 policy framework, ensuring the attainment of the 2040 target equitably and cost-effectively. The pace of decarbonisation will be contingent upon the availability of carbon-free technologies and the efficient utilisation of resources within a circular economy paradigm.
Achieving the recommended 90 per cent target will demand a multifaceted approach encompassing emissions reductions and carbon removal strategies. This entails the widespread adoption of carbon capture and storage (CCS) technologies alongside the utilisation of captured carbon in industrial processes. The EU's Industrial Carbon Management strategy will play a pivotal role in fostering the development of CO2 supply chains and the requisite infrastructure for CO2 transport.
Primary aluminium production for Europe in 2023 marks Y-o-Y loss of 3.95 per cent
As per IAI's analysis in 2023, primary aluminium production in Europe amounted to approximately 6.73 million tonnes. This marked a 3.95 per cent decline from the previous year's production of 6.99 million tonnes, primarily attributed to persistently high energy costs that had adversely impacted the European primary aluminium market for over a year. The most significant drop in output occurred in February, with production standing at 519,000 tonnes. Although there was a partial recovery in March to 573,000 tonnes, production fluctuated in the following months, remaining within a relatively narrow range.
In Western & Central Europe, primary aluminium production totalled 2.71 million tonnes in 2023, reflecting a decrease of 6.87 per cent compared to the previous year's 2.91 million tonnes. Among all Western European countries, Germany experienced the most significant impact, with production volumes nearly halving. From January to September 2023, Germany's primary aluminium production declined by approximately 40 per cent compared to the same period in the previous year. In March 2023, Speira, Germany's largest aluminium producer, ceased smelting operations at its Rheinwerk plant due to soaring energy prices and market uncertainty. The energy crisis in Western Europe, which began in 2021, intensified following Russia's invasion of Ukraine last year. It prompted other significant players like the Norwegian aluminium giant Hydro to shut down its smelter in Slovakia due to profit pressure from high energy costs.
Sluggish demand for primary aluminium in Europe
The aluminium benchmark price on the London Metal Exchange experienced a downward trajectory throughout 2023, influenced by factors such as the geopolitical crisis, tight monetary conditions in major economies, and sluggish demand for primary aluminium in Europe. Beginning the year at US$2,337.50 per tonne, the LME aluminium benchmark price declined to US$2,096.50 per tonne by the end of June, marking a year-on-year decrease of 12.54 per cent from US$2,397 per tonne.
This downtrend persisted until a recovery towards the end of the year, particularly from December 22 to December 29. Despite this recovery, the price concluded the year at US$2,335.50 per tonne, which was close to its initial value but represented a 1.06 per cent decline compared to the previous year. Additionally, the increasing presence of Russian aluminium in LME-approved warehouses reportedly put pressure on global aluminium supply chains and pricing, with Russian-origin aluminium accounting for 90 per cent of the aluminium stored in LME warehouses by the end of December 2023.
China's aluminium exports to EU plummet by 30 per cent amid Carbon Tariff Impact
On February 5, the China Nonferrous Metals Industry Association disclosed a notable decline in aluminium product exports from China to the European Union (EU), subject to the carbon border tariff, in 2023. According to their report, these exports experienced a significant 30 per cent year-on-year decrease. In 2023, China dispatched 689,000 tonnes of aluminium products falling under the Carbon Border Adjustment Mechanism target to the EU. The EU initially implemented this mechanism in October 2023 to deter the acquisition of environmentally detrimental foreign goods that could impede its transition to a greener economy.
Although EU member states will not levy carbon dioxide emission charges at the border until 2026, importers must declare the greenhouse gas emissions associated with imported products, including aluminium, cement, and steel. The range of aluminium products exported from China to the EU encompassed aluminium structures, plates, sheets, and strips. This volume represented 9 per cent of China's exports of such products, as the China Nonferrous Metals Industry Association outlined.
Carbon Border Adjustment Mechanism (CBAM)
At the forefront of this movement is the implementation of the Carbon Border Adjustment Mechanism (CBAM), introduced by the European Union (EU) as the world's pioneering carbon border tax. Designed to mitigate 'carbon leakage' or the outsourcing of emissions, CBAM targets the phenomenon where companies relocate production to regions with less stringent emission regulations, often resulting in a net increase in emissions. The policy's initial phase, initiated on October 1, 2023, will be gradually phased in over three years, primarily focusing on high-emission sectors such as aluminium, cement, fertilizers, iron and steel, hydrogen, and electricity. Subsequently, CBAM will be progressively expanded to encompass additional sectors, culminating in its full implementation on January 1, 2026, when carbon pricing measures will be enforced.
The aluminium scrap recycling industry is poised for substantial expansion and welcomes newcomers, projecting a robust growth trajectory in the foreseeable future. This expansion is underpinned by its significant contribution to decarbonizing the entire industry value chain, highlighting the increased potential for leveraging recycled aluminium to drive sustainability efforts.
Conslusion
As per AL Circle's recently curated report, "Global Aluminium Industry Outlook 2024," Europe is not anticipated to witness a resurgence in production until 2025. Output reductions, accounting for 2 per cent of the global total, have been implemented in Europe since December 2021. The geopolitical crisis has exacerbated energy costs, particularly affecting producers in energy-intensive sectors like aluminium.
Although power prices have somewhat stabilised, widespread restarts in European production facilities have yet to materialise. Restarting smelters is time-consuming and costly, with some stoppages potentially becoming permanent in 2021. Another significant barrier to smelter restarts is the subdued demand for aluminium. It's unlikely that substantial restarts in Europe will occur before 2025 unless there's an unexpected surge in the regional market.
The forthcoming years are poised to witness a paramount shift towards decarbonizing and fostering sustainable practices within the aluminium production sector. This transition is set to take centre stage, with the global aluminium industry prioritizing attaining net-zero emissions and carbon neutrality, thereby emerging as a pivotal force driving change within the sector.
Europe's aluminium sector is making strides towards adopting renewable energy sources and implementing green manufacturing practices in alignment with the global imperative for carbon neutrality by 2050. This transition has garnered significant international attention, prompting other energy-intensive regions to follow suit in pursuit of a carbon-free future. The industry's future success hinges on its steadfast commitment to sustainable practices, fostering collaborative efforts, and embracing technological innovation.
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