Consumer focus on Scope 3 emissions brings low-carbon opportunities for aluminium producer Hydro, CEO says

A growing focus by consumers on Scope 3 carbon emissions is putting raw materials, such as bauxite and alumina, in the spotlight

This expanding focus is creating opportunities for aluminium producers such as Norsk Hydro to bring additional low-carbon products to the market, the company’s chief executive officer told Fastmarkets in an exclusive interview on April 28.

“For us, what is exciting is that we see now that the green shift is there. Customers are targeting Scope 3 [in order] to reduce their carbon footprint, and that gives us an opportunity to gain a premium for our strive to get the carbon out of our processes,” Hilde Merete Aasheim, Norsk Hydro’s chief executive officer, said.

In recent years, many companies have focused on reducing Scope 1 greenhouse gases, which cover emissions by direct processes, and Scope 2, which include indirect emissions from the generation of purchased energy.

But now the focus is expanding to Scope 3. Scope 3 emissions refer to all other indirect emissions in a company’s value chain, from raw materials to downstream activities, usually emitted by third parties.

The Aluminium Stewardship Initiative (ASI) certification criteria now include some categories of Scope 3 emissions following a consultation, expanding upon its Scope 1 and 2 requirements.

Reducing emissions at Alunorte

“It is really part of our positioning that we bring the carbon down at Alunorte [alumina refinery] to reach the target of being ultra-low or even close to zero [emissions],” Aasheim said.

Hydro recently announced it had entered a bidding agreement with Glencore, who will acquire a 30% stake in the Alunorte alumina refinery, in the northern Brazilian state of Para, while Hydro will remain the largest shareholder with 62% ownership.

The transaction is subject to customary regulatory approvals expected to be concluded in the second half of 2023.

The partnership will allow Hydro and Glencore to continue efforts to reduce carbon emissions at Alunorte through a project that aims to substitute fuel oil with liquefying natural gas and the electrification of the refinery’s coal boilers.

“When we are in the market with our low-carbon brands, then [it is possible to] trace the CO2 from the mine all the way to the finished product. Half relates to alumina and half relates to the electrolysis and the casthouse,” added Aasheim.

Hydro signed a 20-year renewable energy power purchase agreement for Alunorte last year.

“If you look at primary aluminium – if you’re run by a renewable energy smelter, then roughly half of the carbon footprint is from the smelting process and the other half is mainly from the alumina side, so that would mean a significant impact to the carbon footprint of the primary side if you are able to reduce that,” said Halvor Molland, senior vice-president of communication and public affairs at Hydro.

Green alumina is really one of the most important components in order to bring low-carbon aluminium to the partnerships that we have...

“Green alumina is really one of the most important components in order to bring low carbon aluminium to the partnerships that we have,” Aasheim said.

“That is why these partnerships that we have entered recently are really exciting, because we work together with customers in getting toward zero [emissions]. We need to be incentivized to invest in technology roadmaps to make this a profitable business and we have been waiting for this for a while,” Aasheim added.

Other aluminium producers have also taken an interest in low-carbon products. Alcoa launched a low-carbon, smelter-grade alumina brand known as EcoSource in 2020 and is now expanding its offering to non-metallurgical grades, including hydrates and calcined materials.

CBAM and traceability

Traceability of supply chains, including indirect emissions, will become even more relevant as the European Union’s Carbon Border Adjustment Mechanism (CBAM) enters its transitional phase and introduces reporting obligations in the second half of 2023, despite industry associations warning of the potential negative impact of this.

Under CBAM, duties will be applied to imports into the EU of iron, steel and aluminium – along with cement, hydrogen, fertilizers and electricity – based on the direct emissions associated with the production of the material, and also indirect emissions under certain conditions.

CBAM rules will be applied from October 1, 2023, but with a transition period wherein EU authorities will test CBAM without imposing any duties. Full implementation will start in 2026.

“We are in [a] position where we have the whole value chain under one roof. We have the bauxite and alumina, we have the primary, we have renewable energy, and we have extrusions. We can provide that traceability in many ways,” Aasheim said.

Traceability and sustainability of supply chains have become key requirements for European automotive producers amid the ongoing shift to electric vehicles (EVs).

An estimated 20% of the automotive industry’s emissions come from the manufacturing stage, which falls under Scope 3 and includes metal suppliers.

These sustainability requirements from automotive producers continue to be a key driver for greener metal, including low-carbon aluminium and value-added products. Hydro signed a partnership late in 2022 with Mercedes-Benz, and another partnership with Porsche was announced last month.

Hydro noted that demand for low-carbon products was coming from their “most advanced customers,” and cited its commitments with automotive producers Porsche and Mercedes, which were using the “full breadth of Hydro.”

Fastmarkets’ aluminium low-carbon differentials have Scope 1 and 2 emissions restrictions allowing for a maximum of 4 tonnes of CO2 equivalent.

Fastmarkets assessed the aluminium low-carbon differential P1020A, Europe at $10-40 per tonne on May 5, up from $10-30 per tonne on April 6, and up from $0 per tonne when the differential was first launched in March 2021.

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