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Aluminum Industry Hurt by EU Climate Rules, Study Shows

Nov. 7 (Bloomberg) -- European Union regulation, including carbon and renewable-energy policies, reduced the profitability of the bloc’s aluminum smelters, according to a study by the Centre for European Policy Studies.

The expenses associated with meeting European laws accounted for an average of 8 percent of total production costs for the industry over the 2002-2012 period, CEPS said in the analysis, published today in Brussels. The price of power, boosted by costs linked to carbon emissions passed on by utilities, and surcharges to support renewable energy imposed a significant burden on the industry, according to the study.

“The analysis of cost differentials with the least cost producers -- primary aluminum smelters in the Middle East -- shows that EU regulatory costs represented about one-third of this competitive gap in 2012,” according to the study, prepared for the EU as a part of its fitness check on the aluminum industry.

European requirements affected the profitability of the industry not only in time of crisis but also in boom years, according to CEPS. EU aluminum smelters are a part of the bloc’s Emissions Trading System, in which polluters’ discharges are subject to a decreasing cap. The industry gets a bigger share of free carbon permits to meet its quota as a part of protection against relocating production to regions without emission curbs.

Carbon Policies

The assessment highlights the difference between EU-based smelters that are still shielded from the cost of carbon policies thanks to long-term contracts negotiated before the ETS, and those that are fully exposed to the bloc’s electricity market and the carbon cap-and-trade program, according to the European Aluminium Association, or EAA.

“The latter have become the least competitive smelters in the world and face extra costs of up to 228 euros ($308) per ton of aluminum produced, i.e. 11 percent of total production costs, including raw materials,” EAA Director General Gerd Goetz said in a statement today in Brussels.

The EAA called on the European Commission, the EU executive, to ensure competitive energy prices through sound energy, climate and industrial policies. The 28-nation bloc started earlier this year a debate about its 2030 framework for energy and climate and is considering strengthening the ETS after carbon prices fell to a record low of 2.46 euros in April.

The CEPS analysis draws on a sample of 11 primary aluminum plants, representing 60 percent of the total EU primary aluminum production in 2012. As it focuses only on the cost side of EU rules, the benefits of operating in the bloc, including proximity to high-added-value customers, should be borne in mind when analysing it, CEPS said.

To contact the reporter on this story: Ewa Krukowska in Brussels at ekrukowska@bloomberg.net

To contact the editor responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net

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