EU aluminium groups seek exclusion from carbon border tax
European aluminium producers are calling for exclusion from the first phase of the EU’s carbon border adjustment mechanism, claiming the plan will put the industry at a competitive disadvantage to foreign rivals and do little to tackle climate change.
European Aluminium, which represents smelters and manufacturers, said the tax proposal would harm its members and their customers while accelerating so-called carbon leakage, where companies move their operations outside the EU to avoid tough climate regulation.
“In view of the many open questions and the significant negative impact of the current CBAM approach . . . aluminium should not be included in the pilot phase,” said Gerd Götz, director-general, European Aluminium.
Greek company Mytilineos said the CBAM would encourage Chinese and Russian “resource shuffling” — where producers redirect their low-carbon production to Europe while selling their less environmentally friendly output in the rest of the world. This would do nothing address the dominance of coal-powered production globally, it said.
Brussels is due on Wednesday to announce a series of carbon market reform proposals aimed at reducing net greenhouse gas emissions 55 per cent by 2030 from 1990 levels.
At the centrepiece of the “Fit for 55” package is the CBAM, a tax designed to target imports from countries that have not signed up to climate neutrality by the middle of this century and protect domestic industries not subject to the same strict environmental standards. Brussels expects to raise nearly €10bn a year from the carbon tax on imports.
According to a legal draft seen by the Financial Times, imports of steel, cement, fertilisers and aluminium will all be targeted in a three-year transitional phase starting in 2023.
For these products, the CBAM would replace measures already in place to prevent carbon leakage under the EU’s emissions trading system. These are the free allocation of emissions permits and crucially for the aluminium industry, financial compensation for carbon-related electricity costs.
Aluminium, a lightweight metal used in everything from beer cans to electric vehicles, is often referred to as solid electricity because of the large amounts of power required to transform its key ingredient, alumina, into refined metal.
Consultancy CRC estimates European aluminium smelters are compensated for 75 per cent of their indirect emissions with state aid.
Smelters in Europe and neighbouring countries such as Norway currently incur a carbon cost, which is embedded in their electricity prices. Even producers using hydro and nuclear power pay because of Europe’s marginal pricing system for electricity, which is usually set by coal-fired power stations.
If the current carbon compensation scheme is scrapped, smelters in Europe would be hit with higher costs — the CO2 price in Europe is currently trading at about €50 a tonne — and put them at a competitive disadvantage to rivals in the rest of the world, producers say. On average aluminium produced in Europe emits 6.7 tonnes of CO2 per tonne of metal.
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It would also encourage Chinese and Russian producers to simply redirect their low-carbon production to Europe, avoiding any CBAM levy, while selling their other output in the rest of the world with no impact on their carbon footprint.
Rusal, the biggest aluminium producer outside China, has already announced plans to split its assets in to a low-carbon company aimed at the European market and a new entity focused on the domestic Russian market.
“The intention of reducing emissions is good but the devil is in the details,” said Jean-Marc Germain, chief executive of Constellium, a Paris-based manufacturer of aluminium products. “And there are some very significant details that would lead to material adverse impacts against the sought objective.”
Eivind Kallevik, executive vice-president of Hydro Aluminium Metal at Norsk Hydro, said European producers would be at a disadvantage under the draft proposal.
“We have to remember the industry has shrunk significantly since 2008 due to the finance crisis and adverse market conditions,” he said. “This puts the whole industry at further disadvantage and increased risk of carbon leakage.”