Climate change impacts
Alumina Limited recognises that climate change presents potential risks to the sustainability of both our business and the AWAC joint venture through:
- Increased physical events such as more extreme weather events and systemic climactic changes.
- Regulatory responses from governments worldwide to control greenhouse gas emissions.
- Public perception that aluminium production is too energy intensive in a carbon constrained world.
- Changed financial performance as a result of regulatory pressures, increased energy costs and depressed market prices.
Climate change risk was identified and assessed through Alumina Limited’s Risk Management Framework, which assesses risk levels and identifies strategies to minimise impact and maximise opportunity. Through our role on AWAC’s Strategic Council and other relevant boards, we support Alcoa in managing such risks.
While we recognise our role in reducing GHG emissions through the AWAC joint venture and our own operations, we believe climate change is an issue requiring international attention, involving governments, businesses and communities in finding workable solutions.
Energy, specifically electricity, is a significant input in a number of AWAC's operations, making AWAC an emitter of greenhouse gases. The introduction of regulatory change by governments in response to greenhouse gas emissions may represent an increased cost to AWAC and may affect Alumina Limited's profitability. As yet the full impact of climate change on AWAC and consequently on Alumina Limited is difficult to quantify, especially as details of regulatory mechanisms to control GHG emissions are still evolving. The table below provides a summary of potential impacts to AWAC at this point in time.
On the upside, AWAC’s end product – aluminium - offers a climate change solution through numerous lightweight applications of the metal that substantially reduce fuel consumption and emissions. It can also be endlessly recycled, using only five per cent of the energy required to make the original metal.
Climate Change Impact
Alcoa uses financial modelling to quantitatively assess the economic impact of enacted and proposed cap & trade and other climate/energy measures.
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Increased frequency and severity of extreme weather conditions in the seven countries where AWAC operates, poses risks to personnel, business continuity, production and facilities.
The potential physical impacts of climate change on AWAC operations are highly unclear and will vary depending on the geographic location and related circumstances. Comprehensive analysis of climate risk and changing weather patterns assisted in how these potential impacts may adversely affect the cost, production, and financial performance of our operations over the next several decades. Climate factors are likely to have an impact on AWAC’s global mining operations, access to freshwater, supply chain efficiencies, and the transportation of raw materials. Climactic changes leading to changes in rainfall and sea levels
Water is an important raw material. The process to refine of bauxite at AWAC's refineries is very dependent on access and availability of water. Also, AWAC's smelter requires water in the ingot-casting process. At AWAC's Western Australian refineries which can be considered a water stressed region, sources of secondary water have been identified that can be used in processing and still meet product quality requirements. In the longer term sea level changes may also impact access to ports, significant for the daily functioning of AWAC’s worldwide business.
In 2014, Alcoa conducted a comprehensive analysis of climate risk and changing weather patterns to determine how they may adversely impact the cost, production and performance of operations over the next several decades. To minimise the potential impact of changing climate conditions, they have included additional considerations into the design criteria for new facilities and expansions/upgrades of existing operations.
Various projects to conserve and use alternative sources of water.
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AWAC incurred modest costs (<US$10,000) associated with purchasing required permit allowances for Scope 1 emissions for its alumina refinery in Europe under Phase 3 of the EU Emissions Trading Scheme. Also developments in Australia are being scrutinised to understand if and how AWAC’s smelter and alumina refineries will be included in climate measures in Australia in the next several years.
To reduce the financial risk of cap & trade schemes, Alcoa has adopted aggressive annual, incentive based targets and long term CO2e & energy targets (2020/2030) for all its operating facilities. Reducing AWAC’s facilities footprints toward benchmark levels reduces its potential need to purchase GHG allowances. The impact of these targets and the divestiture of high GHG intensity facilities reduced AWAC’s absolute emissions by 1.7 million tons in 2016, approximately a 15% reduction from 2015.
Alcoa continued to fund the research & development of more efficient aluminium smelting processes in 2016 in an effort to fundamentally reduce CO2e emissions in the production of primary aluminium. In addition to reducing emissions and R&D, Alcoa was engaged as pertinent with its trade associations in lobbying for rational cap & trade and energy regulations in the US, EU and Australia in 2016.