Carbon Trade May Hit Australia Aluminum Investment

Australia’s proposed carbon emissions trading scheme could put an end to investment in new aluminum smelting capacity amid fears that higher electricity prices will erode the competitiveness of new projects, Ron Knapp, executive director of Australia’s Aluminium Council has said.

“Smelters are mostly at risk if the design of the trading scheme gets it wrong. And even if it’s right, confidence in investment could take a hit,” Knapp said.

Alumina refining, which is less energyintesive than aluminum smelting, will also be affected although the impact may not be as fatal as in the case of the later.

Australian Prime Minister John Howard announced plans early June to introduce carbon trading by 2010 to encourage emissions reduction covering around 70% of the country’s industries, including the aluminum sector.

The aluminum industry as a high-energy user will be part of the trading scheme with the cost of buying carbon credits acting as an incentive to invest in fuel-efficient technologies and other alternatives.

In addition, given that Australia’s aluminum sector takes around 90% of its electricity needs from coal-fired power stations, also covered by the scheme, the industry is worried utility companies will pass on their carbon costs by hiking electricity prices, hitting big consumers such as smelters a second time.

“The design phase will be crucial. It would also be important to make the additional cost of carbon transparent in the electricity price,” said Knapp, reiterating that certainty over electricity prices was vital for multi-billion-dollar investment decisions on smelters.

Major aluminum and upstream producers in Australia include Alcoa together with its joint venture partner Alumina, Rio Tinto’s wholly-owned subsidiary Comalco and Norway’s Norsk Hydro ASA.

Although it contributes only around 1.5% of total global emissions, Australia tops the U.S. in per capita carbon emission as a result of heavy dependance of coal-generated electricity and the prevalence of resource-based industries focused on exports.