As the demand for renewable energy sources rises, aluminum emerges as a crucial element in the energy transition process due to its strategic significance in numerous applications such as electric vehicles, power grids, wind turbines, and solar panels. The United States, Canada, and the European Union regard aluminum as a strategically important metal in this context.
In this regard, the French Institute of International Relations addressed the future of aluminum supplies in the coming years in a research paper published in July 2024, titled “The Aluminum Value Chain: A Key Component of Europe’s Strategic Autonomy and Carbon Neutrality.” The importance of this paper lies in the decline of European aluminum production over the past decades, representing a small fraction of global totals. The European market struggles to meet its domestic needs, and the paper discusses the environmental impact of aluminum, outlining the significant greenhouse gas emissions associated with its production stages, from bauxite to primary aluminum.
A Strategic Metal for Europe:
Europe recognized the strategic importance of aluminum in 2018 after the United States suddenly imposed sanctions on Oleg Deripaska, the Russian businessman and owner of the Rusal aluminum refining company in Ireland, which was the main supplier of alumina for aluminum plants across Europe. This decision halted aluminum supplies in Europe and caused a sharp increase in the prices of both aluminum and alumina.
The second alarm for Europe came after the coup in Guinea—a country rich in bauxite—in 2021, which affected bauxite production and led to rising aluminum prices. This highlighted the strategic importance of this commodity, which is utilized in defense, aviation, construction, and digital industries, as well as in the energy transition. Aluminum is essential in electric vehicles, power grids, wind turbines, and solar panels. The United States, Canada, and the European Union have included aluminum in their lists of critical minerals.
The research paper notes that aluminum does not naturally occur as a metal in the earth; rather, it is produced through the exploitation and processing of bauxite ore, according to the process developed by German chemist Karl Joseph Bayer, known as the Bayer process. Initially, bauxite is converted into alumina (Al2O3), which contains aluminum and oxygen atoms. Subsequently, an electrolytic process is used to remove oxygen from alumina, separating the two chemical elements and ultimately collecting primary aluminum.
Europe still produces aluminum; however, its industry has seen a significant decline over the past decades due to high energy costs and recent crises. Although European production remains limited compared to the rest of the world, these industrial activities are a major source of greenhouse gas emissions (GHGs) within the EU, negatively impacting Europe’s competitive capabilities.
Amid global competition and increasing demand for aluminum supplies—stemming from the energy transition and the need to reduce emissions—Europe’s aluminum industry faces tough conditions. Nevertheless, this industry is vital for Europe’s energy transition, with aluminum primarily used in the transportation sector, accounting for about 40%, along with other applications such as construction (24%), packaging (19%), engineering (11%), and consumer goods (6%). Demand in all these sectors is expected to rise as the need for aluminum grows in the coming years. The paper stated that the European aluminum industry faces a significant challenge in regaining its competitiveness and resilience while reducing carbon emissions simultaneously.
Global Production Map:
Australia, Guinea, China, and Brazil are among the leading bauxite producers globally, while alumina and primary aluminum production is heavily concentrated in China, which accounts for about 60% of each. Australia and Brazil are major competitors in alumina, while India and Russia compete in primary aluminum production, but at significantly lower production rates than China. European producers constitute a small fraction of the global supply, with Norway and Iceland among the top 15 producers of primary aluminum, ranking eighth and thirteenth, respectively, in 2022, yet they account for only 2% and 1% of global production.
Primary aluminum production in Europe has been on the decline since 2005, with overall production remaining stable in most EU countries though declines were noted in Germany and Spain. In 2022, production declined almost across all EU countries due to the energy crisis. It is noteworthy that aluminum production in Norway and Iceland has generally increased since 2000, albeit intermittently.
According to the paper, there are about 30 sites for alumina or primary aluminum production in Europe, primarily located in Norway, Germany, and Iceland. However, a significant portion has recently had to halt or drastically reduce production. European producers need to obtain reasonable electricity prices to ensure the sustainability of their supplies, especially as recent energy crises have caused substantial issues, leading some to rely on government support to avoid similar situations in the future.
Energy Transition Through Aluminum:
In recent years, the importance of aluminum in modern economies has grown, especially due to its vital role in the energy transition. Aluminum is considered a key component in renewable energy sources, such as wind and photovoltaic solar energy. It is widely used in electricity grids due to its excellent conductivity, making it superior to copper in this field. Additionally, the lightweight nature of aluminum is a primary factor in its replacement of steel in the automotive industry over the decades, as lighter vehicles consume less fuel, thereby reducing final costs.
The paper confirms that the expected growth in demand poses a significant challenge for the aluminum industries in Europe, as they must reduce their carbon footprint contributing to global warming while increasing their production. However, electricity production in European countries is relatively carbon-free, especially in Norway, Iceland, and France. This allows aluminum industries to reduce carbon dioxide emissions significantly compared to other parts of the world.
In this context, the various processes used to convert bauxite into primary aluminum contribute to large quantities of greenhouse gas emissions. In Europe, the global average for producing one ton of primary aluminum is 16.1 tons of carbon dioxide, while China produces about 20 tons without facing the same production costs found in Europe. Therefore, the outcomes of emission reduction efforts through the use of electricity in European aluminum industries remain limited in global impact.
The paper highlighted that many industries could improve energy efficiency to reduce their carbon footprint associated with aluminum, as its emissions are linked not only to energy consumption but also to the electrolytic process of alumina, which uses carbon-made electrodes. Regarding efforts aimed at achieving carbon neutrality and improving energy efficiency, the paper indicated the EU’s intention to develop a model for Power Purchase Agreements (PPAs), which are long-term contracts usually made between renewable energy suppliers and industrial consumers, including an agreed tariff for up to 15 years or more. However, these agreements face several challenges, including obtaining permits, grid congestion, lack of flexibility, and costs associated with aligning fluctuating renewable energy supplies with actual energy consumption.
Since 2019, China has imposed restrictions on its imports of copper and aluminum scrap, rejecting low-quality scrap due to the difficulties in recycling it. In contrast, China continues to accept high-quality scrap for recycling at low prices. Consequently, its waste is redirected to other Asian countries like India, South Korea, Malaysia, and Thailand. Therefore, if Europe aims to utilize recycling effectively to mitigate its carbon footprint, it must reduce these exports and shift them toward producing secondary aluminum.
Nonetheless, the paper returned to the issue of the anticipated increase in aluminum demand in the coming years, which may make recycling less ideal. It noted that Europe will need larger amounts of aluminum compared to its current usage, prompting a search for new supply sources, whether through local production or imports. The current EU initiatives to develop longer-lasting products, especially in the electric vehicle sector, may lead to aluminum scrap generation occurring less frequently in the future.
Carbon Border Adjustment:
To ensure fair competition between European market players and foreign imports, the EU has developed a carbon border adjustment mechanism and has begun implementing it. Initially, several products will be included in this mechanism, such as cement, electricity, fertilizers, steel, hydrogen, and aluminum. The aim of this mechanism is to ensure a level playing field and promote decarbonization efforts in countries outside the EU, where imported products listed under the carbon border adjustment mechanism will be subjected to equivalent carbon pricing just like European products, in accordance with the EU emissions trading system. Taxes will be imposed on imported products based on their carbon footprint.
The research paper indicated significant concerns among the aluminum industries regarding this mechanism, as the carbon border adjustment list in Annex 1 includes raw materials such as untreated aluminum and a limited number of products manufactured from primary aluminum like wires, tubes, pipes, and bars. On the other hand, the list does not target many other aluminum manufactured goods, such as knives, chairs, ladders, or car doors. This means that a European company manufacturing a car door from Chinese aluminum would be taxed under the carbon border adjustment list upon importing the aluminum, while the Chinese manufacturer exporting the same door to Europe would not face the same tax; this might prompt factories to manufacture limited or semi-limited goods outside the EU, thus disadvantaging European aluminum products.
Some are concerned that the EU might fail to produce enough primary aluminum currently, thus it is compelled to import large amounts of this material each year. Manufacturers are also wary of the anticipated significant rise in the cost of raw materials they use due to the comprehensive supply agreements, fearing that potential new supplies from Europe won’t be available quickly enough to substitute the imports, which would impact market competitiveness.
According to the paper, restoring primary aluminum production robustly in Europe requires investment and financial support. This support could depend on an “industrial plan” designed by the EU to be included in the upcoming European Commission agenda, involving the European Investment Bank. Member states could also play a role in this process by establishing mechanisms to ensure financial support for such projects in the future.
The paper mentioned another potential form of international cooperation in low-carbon steel and aluminum is the GASSA agreement, a potential agreement between the United States and the EU, with negotiations having begun on October 31, 2021. The two sides had agreed then to eliminate tariffs on steel and aluminum products. These tariffs had been imposed on the EU industry by the United States in 2018 during Donald Trump’s presidency, leading the EU to implement retaliatory measures.
However, negotiations on the GASSA agreement are currently stalled amid fears that this collaboration could fail if Trump returns to the White House; it is likely that cooperation with the EU would not occur, although a second Trump presidency would probably align with the goal of combating excess capacities, especially Chinese ones. Furthermore, he might seek to protect the U.S. industry from international competition while disregarding the objective of reducing the carbon footprint of steel and aluminum.
In conclusion, according to the research paper, the EU must confront the challenges of developing a decarbonized aluminum industry and the necessity of further supporting decarbonization technologies alongside expanding its solid waste management program to include a broader range of processed products and enhancing the EU’s climate diplomacy abroad.
Source: Thibault Michel, “The Aluminum Value Chain: A Key Component of Europe’s Strategic Autonomy and Carbon Neutrality,” Ifri Papers, Ifri, July 2024.
