FT Rethink
The growing need for green aluminium
With around 1% of greenhouse gas emissions coming from aluminium production, we must cultivate a healthier relationship with this most useful of metals.
Light and durable: aluminium is a wonder material that has revolutionised industries from construction and transportation to packaging and cooking utensils. But aluminium’s most attractive feature may be its impressive recyclability — around 75% of all the aluminium ever produced is still in use today. This is a record unmatched by most materials, and a key reason why the material is likely to play an important role within the transition to a more circular economy.
The transition cannot come too soon. Currently, we extract over 97 gigatonnes of resources every year1, including 325 million metric tons of bauxite2. At present rates, we will extract more than the weight of Mount Everest in resources every year by 20403, most of which will end up as waste. The resources we extract are incorporated into an overall stock of goods that grows by 25 billion tonnes — the weight of 93,000 Empire State Buildings — every year, many of which spend a large proportion of their life cycles sitting idle. For instance, cars, which are largely made from aluminium, sit unused on average 92% of the time4.
As our demand for resources grows, so too is aluminium demand is expected to grow, by 50% by 2050. Smarter forms of consumption, such as through the sharing economy, may mitigate some of our appetite for raw materials, but in the case of aluminium, its high recyclability means that transition to a more sustainable economy may specifically boost demand for the metal to replace other, more damaging and less recyclable alternatives.
Yet aluminium has one significant drawback: producing it is incredibly energy-intensive. First, bauxite — the sedimentary rock that is the world’s primary source of aluminium — must be refined to produce alumina (aluminium oxide). Then the alumina must be smelted to create aluminium metal, a particularly power-hungry process that is also a direct emitter of greenhouse gases. As a result, aluminium production consumes around 5% of all electricity produced in the U.S.5 and generates roughly 1% of all greenhouse gas emissions worldwide6.
Fortunately it is possible to produce low-carbon aluminium. For example, Rusal produces 90% of its aluminium using hydroelectric power, while Norsk Hydro produces two-thirds of its aluminium using renewables. But for many companies, one of the primary considerations for deciding where to locate their smelters is not the green credentials of candidate countries’ electricity, but its price. As a result, China produces over 60% of the world’s aluminium, mostly from coal power. And while one tonne of aluminium produced in Europe creates around five tonnes of CO2 emissions, that number rises to 15 tonnes in China.
But there are signs of change. The London Metal Exchange, the world’s main trading centre for industrial metals, plans to launch a platform for low-carbon aluminium designed to encourage more sustainable production, but the Exchange has yet to agree on the details, and the proposed solution isn’t perfect. Many argue that, in focusing on carbon emissions from smelting — the disclosure of which is entirely voluntary — the platform risks overlooking emissions from other parts of the complex aluminium supply chain, such as the mining of bauxite. Meanwhile, producers that already make low-carbon aluminium and have existing sales contracts in place might be averse to having the market set prices for them.
The need to move toward a more sustainable aluminium industry is part of a broader requirement to reform our wasteful, inefficient economy that puts biodiversity and the wider environment at risk. At Lombard Odier, we believe that what is needed is a transition to a Circular, Lean, Inclusive and Clean (CLIC™) economy that maximizes the economic life of raw materials, rethinking our use of these materials and promoting re-use, re-manufacture and re-cycling. Given its unique properties and recyclability, aluminium will likely play a significant role in this transition. Fortunately, the moves by the London Metal Exchange and key players in the industry are signs of a move in the right direction.
1 LOIM estimates and projections based on Global Resources Outlook 2019, Circularity Gap Report 2019, European Commission
2 British Geological Survey (2020) World Mineral Production: 2014 - 2018. Available here.
3 LOIM estimates and projections based on Global Resources Outlook 2019, Circularity Gap Report 2019, European Commission
4 LOIM estimates using LOIM analysis; EllenMacArthur foundation (2015, 2017), ZeroHedge (2017), Government Technology (2015); Bank of America
5 Emsley, J. (2011) Nature’s Building Blocks: Everything you need to know about the elements, Oxford, Oxford University Press
6 Carbon Trust (2011) International Carbon Flows - Aluminium. Available here.
Important information
This document is issued by Bank Lombard Odier & Co Ltd or an entity of the Group (hereinafter “Lombard Odier”). It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a document. This document was not prepared by the Financial Research Department of Lombard Odier.
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