Methodology for the free allocation of emission allowances in the EU ETS post 2012 Sector report for the aluminium industry November 2009 Ecofys (project leader) Fraunhofer Institute for Systems and Innovation Research Öko-Institut By order of the European Commission Study Contract: 07.0307/2008/515770/ETU/C2 Ecofys project Number: PECSNL082164 i Disclaimer and acknowledgements Disclaimer The views expressed in this study represent only the views of the authors and not those of the European Commission. The focus of this study is on preparing a first blueprint of an allocation methodology for free allocation of emission allowances under the EU Emission Trading Scheme for the period 2013 – 2020 for installations in the aluminium industry. The report should be read in conjunction with the report on the project approach and general issues. This sector report has been written by the Fraunhofer Institute for Systems and Innovation Research. Acknowledgements The authors would like to thank representatives from the aluminium industry for the in-depth discussions on possible benchmarking options for the aluminium industry during the execution of the project. i Table of content 1 Introduction....................................... .............. 1 2 Production process and GHG emissions............... 4 2.1 Description of the production process...................................................................... 5 2.2 Direct emissions and steam use................................................................................ 6 3 Benchmarking methodology ........................... 7 3.1 Background .............................................................................................................. 7 3.2 Final proposal for products to be distinguished ..................................................... 10 4 Benchmark values ................................... .........11 4.1 Background and source of data.............................................................................. 11 4.2 Final proposed benchmark values.......................................................................... 13 5 Additional steps required .......................... ........18 6 Stakeholder comments ............................... .......19 7 References ......................................... .............21 ii 1 Introduction The aluminium industry produces aluminium via two routes. In the primary production process alumina (aluminium oxide) is produced from bauxite and further processed to aluminium via electrolysis. Secondary aluminium is refined or remelted from scrap. Further processing of aluminium includes casting, rolling and extrusion operations. Cogeneration facilities can be found in three out of eight alumina producing installations (of which five are in operation). There are two aluminium plants with own electricity production in the UK. In addition, electricity production may also be outsourced. In order to acquire information and data on the aluminium sector, the Fraunhofer Institute for Systems and Innovations Research (ISI) is in contact with Eurométaux and the European Aluminium Association (EAA). In Annex I to the amended Directive on the EU ETS 1, aluminium production is divided into primary and secondary production. Further processing of aluminium such as alloy production, refining, foundry casting, etc. are considered with a common NACE code together with further processing of other non-ferrous metals. Table 1 gives an overview of the classification of these Annex I activities. Table 1 Division of the aluminium industry according to Annex I to the amended Directive and corresponding activities in NACE Rev. 1.1 classification Annex I category of activities NACE code Description (Rev. 1.1) (NACE Rev. 1.1) Production of primary aluminium 27.42 Aluminium production Production of secondary aluminium where combustion units with a total rated thermal 27.42 Aluminium production input exceeding 20 MW are operated Production and processing of non-ferrous metals, including production of alloys, refining, foundry casting etc., where 27.53 Casting of light metals combustion units with a total rated thermal input (including fuels used as reducing agents) exceeding 20 MW are operated. Information on the number of aluminium production installations included in the ETS has been provided by the European Aluminium Association2. An overview is given in Table 2. From the data given in Table 2 it is obvious that all primary smelters have a cast house attached. 1 Non-ferrous metals were not specified in Annex I to the original Directive. 2 Personal communication, EAA via e-mail, 15 th of May 2009 1 Table 2 Overview of installations included in the EU ETS; including installations in Norway and Iceland (EAA, 2009) Activity Number of ETS Notes installations Bauxite mining 2 Not included in the ETS. Energy consumption is low. Alumina refining 8 6 large and 2 smaller installations 1. Anode production 18 Primary smelting 31 operations Primary aluminium 31 casting Secondary remelting More than 30 installations, out of which 20 above the 20 operations 20MW limit. Secondary refining About 130 installations, out of which 6 above the 35 10 (6) operations MW and 10 above the 20 MW limit 2. Rolling installations included in ETS mainly due to Rolling operations 14 the fact that they have remelting operations on-site 3. About 300 installations that are, according to current Extrusion operations 0 knowledge, all not included in the ETS. 1 The two smaller installations (since last year) and one of the large installations (since February 2009) are currently shut down. It is unclear for the moment whether the two small operations will be opened again. 2 The number of secondary refining installations within the EU ETS is small compared to the overall number of refiners. In terms of production volume (t) the fraction within EU ETS could be 40-50% according to the Organisation of European Aluminium Refiners and Remelters (OEA). 3 Double counting of remelting and rolling installations. Exact emissions data for the years 2005 – 2007 are not available as non-ferrous metals activities were not included in the EU ETS. An approximate estimation has however been provided by the EAA 3. The approximate GHG emissions given in Table 3 are calculated using a weighted average of the range of direct emission factors for the European installations and shall provide a first impression of the GHG emissions for lack of the exact values that may be derived from benchmarking curves. Table 3 Approximate GHG emissions 2007 from aluminium production in the EU27; including emissions from installations not included in the EU ETS; excluding emissions from installations in Norway and Iceland (EEA, 2009) Activity Production vol. Range of direct Approx. GHG EU27 (Mt) emissions emissions (kg CO 2/t product) (Mt CO 2-eq.) Alumina refining 6.8 400 - 830 4.18 Pre-bake anode production 2.3 320 - 575 1 0.84 3 Personal communication – EAA via e-mail, 6 th of July 2009 2 Continuation Table 3 Activity Production vol. Range of direct Approx. GHG EU27 (Mt) emissions emissions (kg CO 2/t product) (Mt CO 2-eq.) Primary smelting 3.054 1500 - 2550 5.6 (Emissions from anodes 2) (4.8) (PFC emissions) (0.8) Primary casting 3.65 70 - 200 0.40 Secondary remelting 4.9 150 - 350 0.88 Secondary refining 3.0 250 - 390 3 0.96 Rolling operations 4.8 20 - 235 0.35 Extrusion operations 3.3 50 - 250 0.30 Total 13.51 4 1 About half of this amount is due to material consumption during prebaking (peat), the other half from fuel combustion for the provision of heat. 2 According to EAA (2008), p. 27 in 2005 there was a net consumption of ca. 428 kg carbon-anodes/paste per t prim. aluminium 3 The data is collected from 9 EU27 refining plants of which some are part of the ETS and some not. 3 A cross-check with the fuel consumption of non-ferrous metals in the EU27 from NEA data (2008) shows that these should emit around 14 Mt CO 2 (excluding PFC Emissions from primary smelting and anode consumption) Since exact data on electricity consumption are also not available, an approximate estimation has been provided by the EAA as well (see footnote 3). The approximate power consumptions given in Table 4 (see next page) are calculated using the weighted average of the range of specific electricity consumption of European installations and shall give an idea of the magnitude of electricity use. It must be underlined that the main focus of this report is on direct emissions from the aluminium chain within the EU ETS. However, as primary aluminium production is one of the large electricity consumers and hence possibly concerned by compensation mechanisms for indirect effects of the ETS via the inclusion of allowance prices into the electricity prices, the relevant data are also collected here to allow for a discussion of electricity benchmarks. 3 Table 4 Approximate electricity consumption 2007 from the aluminium production chain in the EU27, calculated from data on production volume and specific electricity consumption; including activities not included in the EU ETS; excluding installations in Norway and Iceland (EEA, 2009) Activity Production Range of specific Approximate power volume power consumption consumption (Mt) (kWh/t product) (GWh) Alumina refining 6.8 225 - 260 1649 Pre-bake anode production 2.3 120 - 190 357 Primary smelting 3.054 14000 - 16000 1 45352 Primary casting 3.658 50 - 200 685 Secondary remelting 4.9 120 - 340 1127 Secondary refining 2.7 ? ? Rolling operations 4.8 70 - 900 2740 Extrusion operations 3.3 300