Is a RET Aluminium Deal Worth the Trouble?

Monday, October 13th, 2014
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The federal opposition is mulling a deal to save the renewable energy target (RET) by excluding the aluminium industry from its purview.

Labor leader Bill Shorten has indicated that he would consider the idea of treating the aluminium industry as a “special case” for exemption from RET on the grounds of the large numbers of people employed by the sector. Australia’s aluminium sector directly employs roughly 4,500 people, generating around $5 billion in exports per annum.

“We’ve agreed to engage in discussions on the basis that government doesn’t try to wreck the renewable energy target,” said Shorten.

Greens leader Christine Milne has criticised Labor’s decision to consider an exemption for the aluminium sector, calling it a “browning down” of RET at the behest of the unions.

“You exempt the aluminium smelters and they’ll be using more energy from coal-fired generation – that is not a great outcome,” said Milne.

While the deal could boost the fortunes of Australia’s renewable energy sector should it succeed in salvaging RET, the exemption of aluminium production from the target would appear highly questionable given the global industry’s push toward clean, low-cost power, and the recent travails of the domestic industry due to lagging efficiency.

Aluminium smelting is an energy intensive process which consumes copious amounts of electricity. New smelters around the globe are now turning to gas, geothermal, hydro or nuclear power as cleaner, lower-cost sources of energy, while the industry is also shifting production to locations with reduced electricity prices because of limited usage options, such as Canada, Iceland and the Middle East.

In the meantime, Australian smelters have been particularly hard hit by the liberalisation of the Australian energy market and the end of state-subsidised power contracts, which at one time permitted them to enjoy electricity prices between half to two-thirds of those paid by other large-scale industrial consumers.

While in the past, Australian aluminium producers were in the top half or even top quarter globally in terms of cost-effectiveness as a result of subsidised power, local smelters now languish in the bottom 25 per cent for global competitiveness, as evidenced by the closure of two of Australia’s six aluminium smelters since 2012.

Alcoa’s board made the decision to shut the Point Henry Smelter in Geelong in February 2014, with chief executive Klaus Kleinfield stating that “these assets are no longer competitive and are not financially sustainable today or into the future.”

With the exception of the hydro-powered Bell Bay smelter in Tasmania, Australian smelters produce 15 to 20 tonnes of carbon dioxide per tonne of aluminium – two to three times above the global average – because of their dependence upon electricity produced using fossil fuels.

While the goal of making aluminium exempt from RET is to lend succour to the domestic industry and the large number of people it employs, the sector’s future prospects may best be served by a shift towards the clean and renewable sources of energy whose development the policy seeks to foster.

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