Europe’s Carbon Border Adjustment Mechanism to Impact Aluminium Market, Reports Wood Mackenzie

European Union’s implementation of a Carbon Border Adjustment Mechanism (CBAM) will have a negative impact on the primary aluminium market, Wood Mackenzie said

The report, titled ‘CBAM and aluminium: The devil’s in the detail,’ highlights an imminent impact on European producers, leading to increased prices for consumers.

Wood Mackenzie’s Principal Aluminium Analyst, Uday Patel, emphasized that the current form of CBAM solely considers direct emissions from smelters, neglecting the indirect emissions from power generation. Consequently, this places older European smelters at a disadvantage compared to newer facilities elsewhere globally.

“The implementation of CBAM in the EU is poised to elevate aluminium prices for EU consumers,” Patel stated. “However, as it stands, CBAM appears ineffective and unfairly penalizes domestic producers and consumers without fulfilling its primary objective.”
The report underscores the significant role of energy intensity in aluminium production, particularly in assessing emissions generated during electricity generation. While European aluminium primarily relies on hydro-electric power, newer smelters globally employ gas and coal-fired power, creating a disparity in emission levels.

Wood Mackenzie’s analysis of 2023 trade data indicates that low-carbon aluminium imports constituted 49 percent of total EU imports, with Russia being a significant contributor. Meanwhile, imports from the Middle East and India surged to 26 percent, up from 15 percent in 2017. The report suggests that potential sanctions against Russian imports could prompt European buyers to seek alternative sources.

However, if CBAM were revised to include indirect emissions, smelters utilizing coal-fired power would face market exclusion, while those using gas-fired power would experience substantial cost hikes.

“The introduction of an emissions levy in the EU within a global market presents a dilemma,” Patel explained. “It bifurcates the market, compelling aluminium sourced from coal and gas-fired power to seek alternative markets, while low-carbon aluminium would command a premium within the EU.”

Wood Mackenzie’s report concludes that inclusion of indirect emissions in payment calculations from 2026 onwards is imperative to incentivize importing producers to mitigate their emissions. Additionally, the report stresses the necessity for other countries to adopt carbon pricing systems to prevent European aluminium premiums from diverging from global standards.

GreentechLead.com News Desk