Aluminium industry arcs up at report

THE aluminium industry has rejected claims it should not get compensation worth $10.5 billion under Australia's proposed emissions trading scheme, and that aluminium smelting will prove marginal or unviable in this country.

A landmark report by independent experts at the Grattan Institute last week argued against the issue of $22 billion in free permits to emissions-intensive trade-exposed industries (EITE) - including aluminium production in the first decade of the Carbon Pollution Reduction Scheme.

Aluminium smelters, the highest electricity users in the country, were set to get the most compensation under the CPRS negotiated between the federal government and opposition last year, with free permits worth $8.1 billion to be issued by 2020.

The compensation was intended to prevent the shift of local industry to destinations offshore.

But the Grattan report said Australian smelters emitted more greenhouse gasses than the global average and new offshore capacity was likely to have lower emissions.

Even without a carbon price, the report found, smelters at Bell Bay, Tasmania, and Kurri Kurri in New South Wales would become very-high-cost producers as the legacy of electricity subsidies unwound. And the Point Henry, Victoria, plant would be vulnerable to swings in aluminium prices.

But Miles Prosser, executive director of the Australian Aluminium Council, said it was ludicrous to suggest Australia's aluminium smelters should inevitably shut and the report's analysis was ''self-contradictory''.

Mr Prosser said the Grattan report's analysis showed 71 per cent of the world's new smelting capacity to be added by 2020 would use power from coal- or gas-fired stations.

Australian smelters competed against the Chinese, not European or North American smelters, which may use nuclear power or hydro, and a shift of capacity offshore - ''an appalling outcome for the Australian economy'' - would not necessarily result in lower greenhouse emissions, he said.