Making aluminum uses 10% of Australia’s electricity. Will tax incentives help smelters go green?

Aluminum is an exceptionally helpful steel. Light-weight, proof against rust and in a position to be changed into alloys with different metals. Small marvel it is the second-most used steel on this planet after iron and demand is about to soar.

However aluminum comes at a value—vitality. The 4 aluminum smelters in Australia consume 10% of the nation’s electrical energy and produce shut to five% of total emissions. Smelting is so vitality intensive that in lots of international locations, it has pushed the development of latest fossil gasoline energy vegetation. That is why it is nicknamed “congealed electricity.”

This week, the federal authorities proposed a new policy geared toward making aluminum smelting inexperienced.

Underneath the scheme—because of run between 2028 and 2036aluminum producers would obtain a specific amount of funding for each ton of aluminum produced utilizing renewable vitality. If smelters pursue this incentive, we are able to count on to see extra funding flowing to renewables to satisfy demand.

However will this scheme work? Our research reveals Australia may reduce aluminum emissions 98% by 2050, from mining all the way in which to smelting—if renewable vitality expands to help it, in addition to home consumption.

Why concentrate on aluminum?

By 2050, international demand for aluminum is projected to rise by 50%due largely to demand from electrical autos manufacturing, clear vitality gear and development.

Australia is certainly one of few international locations with an end-to-end aluminum trade, working from mining bauxite ore, refining it into alumina and smelting it to supply aluminum. We produce round 1.6 million tons annually and export almost all of it. Our exports account for 10% of the world’s whole.

Whereas emissions are produced at each step, this week’s announcement is aimed on the single largest emissions-producing course of: smelting.

In 2020 Australia’s smelters produced about 4.6% of the nation’s emissions—22.8 million tons of carbon dioxide equal.

The nation’s 4 smelters are in Tomago in New South Wales, Boyne in Queensland, Portland in Victoria and Bell Bay in Tasmania. The trade is essential to native economies and employs roughly 14,000 employees.

How exhausting is it to go inexperienced?

At current, the electrical energy to smelt aluminum comes largely from burning coal.

Switching does not require main adjustments in industrial processes—solely that there is sufficient renewable energy to satisfy demand.

Technical limitations at present services and restricted financial incentives to replace them imply Australia’s smelters cannot simply ramp up or down. Electrical energy demand is sort of fixed.

Renewables comparable to photo voltaic and wind can do the job as soon as “firmed,” which means the facility is saved to be accessible as wanted. Smelters may additionally use know-how to be extra versatile with the timing of vitality consumption.

To their credit score, some aluminum firms are already working to chop emissions. In 2024, Rio Tinto announced a deal to energy its Gladstone aluminum operations with renewables.

The actual problem is making certain sufficient renewable energy within the grid for smelters to faucet into, alongside new photo voltaic and wind to affect houses and companies.

Globally, greater than a 3rd (34%) of the whole electrical energy used to make aluminum now comes from zero-emissions sources—virtually totally from hydroelectric vegetation. Hydropower is properly suited to powering smelters as a result of it permits for steady and low cost electrical energy as soon as constructed. Tasmania’s Bell Bay smelter is powered by hydroelectricity, as an illustration.

Increasing aluminum manufacturing by hydropower is proscribed, nonetheless, because of a scarcity of appropriate websites of the correct scale and placement.

Do we want a coverage to make inexperienced aluminum a actuality?

Aluminum manufacturing in Asia is steadily rising, powered by fossil gasoline vegetation. Vietnam is investing A$11.7 billion in boosting output, as an illustration.

Australian aluminum smelters threat being outcompeted. The trade’s finest likelihood is to satisfy the rising demand for inexperienced merchandise. However to do that affordably, the smelters require dependable, near-zero emissions electrical energy provide at low value.

Power infrastructure have to be deliberate at ample pace and scale to each obtain Australia’s export ambitions and meet rising home demand.

To do that, as our research showsAustralia must double the capability of renewable tasks at present in progress.

Over the previous decade, Australia’s electrical energy costs have elevated considerably, significantly because of rising fuel costs.

In response, governments have moved to defend aluminum smelters from value rises. In 2021, the earlier authorities introduced a A$150 million subsidy for Victoria’s Portland smelter. Against this, this new federal authorities incentive is geared toward lowering emissions and accelerating the vitality transition.

Over time, smelter operators might even see alternative in altering after they use probably the most electrical energy, to absorb low cost photo voltaic through the day and cut back throughout night peaks. This may be good for smelters and would cut back electricity costs for all customers.

Authorities and trade must work collectively

Solar, wind, bauxite and water resources imply Australia has pure benefits in inexperienced aluminum. But it surely’s not a given.

If accomplished properly, tax credit or subsidies can kick-start a marketplace for inexperienced merchandise and provides firms the understanding to make the leap. As soon as working, the federal government can then take away the incentives.

As we deal with tougher sectors comparable to chemical manufacturing, mineral refining, steelmaking and mining, we’ll want but extra firmed renewables. Shifting alumina refineries to wash vitality will take yet more power.

Inexperienced aluminum provides an opportunity to slash Australia’s emissions whereas capitalizing on rising demand for low-carbon merchandise.

Whereas these authorities incentives will begin the method, it’ll take regular work from trade and authorities to make it a actuality. Coordinated, strategic motion will probably be essential to future-proof our industrial heartlands.

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