In the face of accelerating climate change, the aluminium industry stands at a critical juncture. The metal plays an integral part in the clean energy transition due to its infinite recyclability and role in the manufacturing of electric vehicles.
Yet, the new EU Carbon Border Adjustment Mechanism (CBAM) is emblematic of the growing scrutiny of emissions in the aluminium value chain.
The scrutiny isn’t just on miners and producers whose operations and electricity usage generate the bulk of aluminium carbon footprint, but on the metals traders, banks, and finished goods manufacturers too. These players must now take responsibility for the embedded emissions in the products they choose to buy — and pay for those emissions under CBAM from 2026 (if importing into the EU).
This evolving landscape presents a myriad of challenges. Suppliers are facing growing requests for carbon disclosure, while customers try to influence suppliers to switch to less carbon-intensive processes so they can sell verifiably greener products and report lower carbon footprints.
But there are opportunities for those who are prepared to adapt and innovate.
CBAM’s impact on the aluminium industry
The CBAM regulation requires EU importers to report and (from 2026) financially offset carbon-intensive products imported from outside the EU. This regulation is set to eventually include indirect electricity emissions in its carbon pricing, and places a significant carbon measurement burden on aluminium producers outside the EU in response to customer data requests.
It will also likely drive demand for lower-carbon suppliers as importers try to manage the cost of CBAM certificates.
The regulatory landscape is rapidly evolving, with new rules and standards emerging from entities like the ISSB and the US’s SEC. The recent climate-related disclosure bills in California exemplify this trend, mandating large companies to disclose value chain emissions and climate-related financial risks.
There’s no longer anywhere to hide from the supply chain and Scope 3 pollution.
The business case for lowering emissions with transparency
The push for decarbonisation is not solely regulatory-driven; market forces are also at play. Increasingly, businesses and financiers seek low-carbon products and transparency in supply chain emissions.
To illustrate the demand, companies worth $6.4T in purchasing power requested suppliers to disclose their emissions through CDP in 2022, while Barclays Corporate Banking found that 1 in 5 retailers are dropping suppliers based on carbon performance. Bain recently estimated a $20–$30 bn market for green steel by 2030.
Aluminium companies that move fast to respond to these trends will succeed, not just survive, in the low-carbon future.
The most significant change that can be made is the switching of the source of electricity generation to renewables, because the alumina-to-aluminium smelting process (via electrolysis) can be so energy-intensive. The ability to make this switch depends on the makeup of each country’s electricity supply, but initiatives like RE100 are driving demand-led policy change.
The challenge of access to carbon data
Further downstream, a significant barrier for commodity traders and manufacturers who source aluminium is gathering the data from mine to refinery to smelter and beyond. They need this data to respond to reporting requests and to make carbon-informed procurement decisions. The lack of visibility into the upstream and downstream activities, let alone the emissions of those activities, can further complicate efforts.
Consequently, many companies default to using broad-based averages and assumptions to estimate their greenhouse gas (GHG) inventory. This approach, however, lacks the granularity needed to effectively compare suppliers and assets, leaving significant carbon hotspots hidden. Estimates also won’t be acceptable for CBAM, which, as of July 2024, will require primary emissions data to be used.
The complexity of accurately accounting for supply chain emissions is evidenced by the low supplier response rates, often as little as 15-17%.
However, aluminium companies like Niche Fusina Rolled Products (Fusina) are embracing technology solutions to automatically map and calculate their supplier emissions using CarbonChain’s database of asset-level emissions factors for alumina and aluminium globally. That’s enabled Fusina to introduce a new commitment to sourcing 100% low-carbon primary aluminium, giving its customers confidence that they can rely on Fusina in the net-zero transition.
Big data and AI: The key to decarbonisation
In response to the daunting task of measuring and reducing carbon emissions, technology is a vital enabler. Big data and machine learning are revolutionising the way companies track emissions, filling gaps in supply chain tracing and making an otherwise painfully slow and manual process efficient and easy.
CarbonChain’s software with its verified carbon accounting methodology is a testament to this; it enables aluminium companies and traders like Concord Resources Ltd to obtain precise supply chain and Scope 3 emissions data and reduce their carbon footprint throughout the supply chain.
Embracing the carbon-transparent future
In a rapidly evolving regulatory landscape, aluminium companies face a unique opportunity. Challenges like CBAM are a call to action for the industry to lead in sustainability and innovation. Precisely tracking emissions and committing to renewable electricity can transform compliance into a competitive advantage.
Those proactive in reducing their carbon footprint and ensuring supply chain transparency will not only align with global environmental standards but also position themselves as leaders in a sustainable future. The journey is demanding, but it offers a path to growth and sustainability.
About the author
Adam Hearne, Co-Founder and CEO of CarbonChain
Adam is an expert on the commodity and manufacturing sectors’ transition to a net-zero economy. He is the CEO and co-founder of CarbonChain, providing automated, asset-level carbon accounting for most carbon-intensive supply chains.
Adam’s career spans nearly two decades across supply chain management, extractive commodities, and technology start-ups. He was the senior program manager for 8 countries in Amazon’s European supply chain from 2016 to 2019, and he worked at Rio Tinto for 12 years, increasing productivity of several ore supply chains. Adam holds an MBA from London Business School and an honors degree from Queensland University of Technology in Australia.
At CarbonChain, he helps some of the world’s biggest and most impact-minded commodity companies, traders, manufacturers, financiers and logistics firms accelerate their climate action.