CRU has reviewed and updated the previous analysis on aluminium abatement costs. In this update, we have tightened assumptions and included specific regional views across the decarbonisation scenarios for aluminium smelting. Our findings indicate that driving the aluminium industry to zero emissions requires either full exposure to an average carbon price of $370 /tCO2 or a production cost uplift of ~$2,600 /tAl at 2030 costs.
Our prior analysis indicated that full decarbonisation is technically achievable, but expensive, and the current results show that the required price premium is also heavily dependent on locational factors.
So what has changed and why does it matter?
- Potline technologies: In addition to our prior scenarios, which included a switch to inert anodes (IA) alongside both coal and gas power, we have included an IA scenario with renewable energy power supply at 90% firmness. Critically, IA eliminate PFCs in addition to potline CO2 – where carbon anodes are retained, potline CCS must handle very dilute CO2 streams and still does not capture PFCs, keeping costs high for a partial outcome.
- Renewable power supply: Aluminium smelters require firm power, but the intermittent nature of renewables means firming requires additional expense, as identified in this insight. We now model regional solar:wind mixes sized to provide 90% firmness, with overbuilding and storage optimised to minimise costs. 90% firmness means the smelter needs to be able to flex by up to 10% from design capacity in any given hour.
- Carbon capture and storage (CCS): We assume a productivity loss of 20–30% at the smelter when CCS is retrofitted to a power plant, as the CCS plant consumes a significant amount of energy.
- Alumina electrification: We now model an electric boiler for digestion, plus mechanical vapour recompression (MVR) for steam recovery at the evaporation stage and electric calcination. MVR cuts evaporation energy by ~90% and yields an average power demand of ~2,370 kWh/t alumina. We also now assume 90% firm renewable power.
These changes have lifted our global average abatement cost estimates but make regional drivers and competitive advantages much clearer.
Replacing coal power with renewable power requires lowest carbon price
The chart below from CRU Sustainability and Emissions Service shows the aluminium industry will need an average carbon price of ~$370 /tCO2 globally to encourage full decarbonisation at 2030 costs, with renewable energy for coal power and CCS for alumina at the lower end of the curve, while switching to inert anodes and electrifying alumina refining sit at the high end.
Despite the high cost of firm renewables, we see ‘replacing coal power with renewables’ as requiring only a relatively low carbon price of ~$130 /tCO2, but this is because coal is a heavy emitter, so costs are spread across a significant quantity of emitted CO2. In contrast, natural gas emits much less CO2 and so requires a higher CO2 price, at ~$190 /tCO2.
Having said that, a region such as the Middle East that uses gas-based power but has high quality renewable resources sees lower costs of firm renewables compared to the global average. Thus, its required carbon price to switch from gas-based power is only ~$100 /tCO2, ~47% less than the global average.
Overall, electrifying a gas-based alumina refinery with renewables requires the highest carbon price, at ~$370 /tCO2, as electric boilers, electric calciners and MVR are relatively expensive technologies. This, coupled with the fact that gas is a low emitter compared with coal and is relatively low-cost compared with firm renewables, drives the required incentive higher.
While MVR remains optional for electrifying alumina, adding it cuts energy demand and lowers the required carbon price by ~21%.
The chart below helps to better understand regional drivers of required CO2 price.
Ultimately, regional dispersion is driven by the following:
- Resource quality and firming needs: Regions with higher quality renewable resources, such as the Middle East and Australia, and regions with the lowest upfront renewable costs, such as China and Asia, ultimately require lower incentives.
- Low-cost fossil fuels lift thresholds for renewables: Where coal or gas is inexpensive and renewables are substantially costlier, higher CO2 prices are required to push substitution by renewables, as seen for CIS, Canada and Africa.
- CCS benefits from affordable fossil power and fuel for steam: A partial decarbonisation option is more competitive in regions where power tariffs and/or fossil fuel costs for steam generation, are lower. However, the weighted average cost of capital (WACC) can reduce these benefits where investment risks are high.
Translating carbon price into a cost uplift signals a rocky road ahead for buyers
While the outlook for the required carbon price to incentivise decarbonisation appears relatively modest, translating technology changes into a cost impact shows that, ultimately, buyers will need to pay a high premium. The chart below sets out the global average additional cost impact from switching to each technology.
From the chart above, we can see that while decarbonising coal power requires the lowest carbon price, it incurs the highest cost uplift of ~$1,400–1,800 /tAl depending on whether CCS retrofit or firm renewables are chosen. With CCS, the costs of operation coupled with large productivity losses contribute to raising costs.
Some routes to decarbonisation will have less drastic implications than others
Grouping technology choices into full decarbonisation and partial decarbonisation options allows us to see the total cost uplift associated with various routes, as shown below.
Here, we can see that fully decarbonising coal-based aluminium with renewable energy increases costs by ~$2,600 /tAl. Partial decarbonisation with CCS combined with IA offers the lowest cost option, depending on whether power is gas-based, at ~$1,600 /tAl, or coal-based, at ~$2,300 /tAl. Partial decarbonisation ‘with CCS only’ is slightly more expensive than using CCS combined with IA as the potline off-take gas CO2 concentration is quite low (i.e. ~<1% CO2), driving high capture costs. However, the total cost disadvantage compared to combining CCS with IA is not substantial ~$52–63 /tAl.
Overall, combining CCS applied to power and alumina refining along with IA delivers both better emissions reduction and better cost prospects. While there will only be ~90% capture of power and alumina refining emissions, IA eliminate residual perfluorocarbons (PFC) emissions.
Below, we set out the total cost uplift by region resulting from full decarbonisation to give a clearer view of the drivers.
Overall, full decarbonisation in China and Asia leads to the lowest cost uplift across the regions studied. This is because:
- China and Asia are best-placed from a cost perspective to fully decarbonise the full value chain, with an expected cost uplift of ~$1,600–1,800 /tAl, as they benefit significantly from low upfront solar and wind costs. Asia has higher fossil fuel costs than China, placing it at the most competitive spot.
- Australia and Middle East follow closely as third and fourth best-placed regions to decarbonise fully with an expected cost uplift of ~$2,000 /tAl. Ultimately, the quality of solar resource in the Middle East offsets the cost implication of moving away from inexpensive natural gas-based power.
- In contrast, the CIS region – which has a poor renewable resource and some of the lowest-cost fossil fuels globally – will see the highest cost uplift by far, at ~ $5,600 /tAl, ~115% higher than the global average cost uplift. However, the vast majority of CIS aluminium production is already hydro-based, meaning the switch from fossil-based power to renewable power is not necessary in reality, lowering the cost uplift to just $2,100 /t Al. This leaves Africa at the highest-cost end of the spectrum.
Below, we have also assessed regional cost uplift for the ‘partial decarbonisation’ path.
Under the partial decarbonisation pathway, the cost uplift is much lower and more uniform across regions, potentially making it more achievable. However, partial decarbonisation leaves residual emissions and greater exposure to future climate risks and policy, which could increase long-term economic uncertainty and the likelihood of supply chain disruption.
The full datapack for this analysis, which contains regional abatement curves for the aluminium sector for the years 2024–2050, is available with a subscription to the CRU Sustainability and Emissions Service. If you want to learn more about this service, our work on abatement costs or process emissions, contact us, we’ll be happy to talk.
