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Europe’s aluminium makers prepare for EU ETS phase III

03 May 2012 18:10:34 | edcm

Europe's largest aluminium producer, Hydro, has entered the market for EU carbon allowances (EUAs) but will only start trading in earnest after phase III of the emissions trading system (ETS) begins next year.

From 2013, CO2 emissions from the aluminium sector will be included in the ETS, with aluminium companies receiving free allowances on a sliding scale in line with their energy efficiency. Only the most efficient installations in Europe will receive 100% allowances free.

Norway-based Hydro, which operates smelters in Germany and Slovakia, has yet to decide whether to employ a carbon trader in-house or trade via a third party.

Another major aluminium company in Europe, Alcoa, is already active in the carbon market because it operates some facilities covered by the EU ETS, a spokesman for the company said.

Alcoa plans to manage its carbon position in-house, the spokesman said.

At this stage, Hydro is more worried about the indirect costs of the ETS through higher energy prices, as electricity is the "key input factor" in the manufacture of aluminium, a spokesman said.

In general, Hydro operates on the basis of long-term contracts with energy suppliers. But at its factory in Neuss, the biggest primary aluminium facility in Germany, it has a short-term, market-based contract, which has expired, leaving it vulnerable to higher energy prices.

Aluminium companies hope to receive compensation from member states to cover these indirect costs to keep manufacturing competitive and avoid "carbon leakage".

Unlike steel and cement manufacturers, non-ferrous metal companies will enter phase III without an allowance surplus, a spokesman for lobby group Eurometaux said.

"Even a low carbon price will have a high impact on cost, even a €1.00 [per tonne] carbon price, because they're paying for direct emissions and for indirect," said Robert Jeekel, climate change director of Eurometaux.

The competition division of the European Commission has recently proposed rules on the level of compensation EU member states could offer their industry, capping this at 85% of the indirect cost of emissions.

Both Hydro and Alcoa say they have taken as many steps as possible to improve the efficiency of their plants to minimise their exposure to the carbon market in phase III.

Neither company would be drawn on how short they will be of allowances. Details of these and other companies free allocations for phase III have are yet to be made available because the EU is waiting until all countries have submitted their plans or "national implementation measures" (NIMs) before publishing the details, and Germany, Europe's largest emitter, will only submit its NIMs plan late this year. VF

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