Alumina Limited

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:

  1. Increased physical events such as more extreme weather events and systemic climactic changes.
  2. Regulatory responses from governments worldwide to control greenhouse gas emissions.
  3. Public perception that aluminium production is too energy intensive in a carbon constrained world.  
  4. Changed financial performance as a result of regulatory pressures, increased energy costs and depressed market prices.  

Climate change risk was identified and assessed through to 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 geases. 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

Risk AreasRisk DescriptionsActions

Physical

We consider the AWAC business to be exposed to physical risks the impact of which is uncertain. AWAC operates facilities in parts of the world that can be subject to weather extremes such as hurricane activity and changing rainfall patterns that could result in water shortage or excessive water. The frequency and /or severity of such activity is unknown however extreme weather conditions do pose a risk to operations. Operating plants and infrastructure could be damaged depending on the severity of weather conditions. AWAC has operating facilities in Texas,an area subject to hurricane activity that could result in damage to the operating plant and infrastructure and potentially impacting on production and revenue. Also, changing weather patterns could potentially result in water scarcity in major production areas such as the south-west region of Western Australia, again with the possibility of impacting production costs.

Incorporating design and construction aspects into new facilities and expansions and upgrades of existing plants to minimize any detrimental effect of changing climate conditions on plant and infrastructure.

Various projects to conserve and use alternative sources of water. 

Regulation

Increasing regulations around climate change and associated GHG emissions from governments worldwide, leading to increased energy costs in particular. Potential inconsistency of regulations, particularly between developed and developing countries In 2013 AWAC's alumina refinery in Spain was included in Phase 3 of the EU Emissions Trading Scheme in 2013.  The former Australian Federal Government legislated to introduce a cap and trade scheme (carbon trading scheme) in 2015.  The current Australian Federal Government introduced their Direct Action Plan legislation consisting of an Emissions Reduction Fund and the Safeguard Mechanism as central to Government’s approach to climate change.   The $2.55 billion fund is supporting Australian businesses, communities and landholders to undertake activities which reduce or avoid greenhouse gas emissions. The fund supports a variety of projects, including improving energy efficiency, capturing methane from landfills and storing carbon in forests and soils.  There is an expectation that AWAC's Australian refineries and smelter may be included in climate measures in the next several years. Energy costs and supply of electricity may be impacted by emerging mandatory renewable energy targets and/or energy taxes in Australia, Brazil, the US and potentially other regions in the world where AWAC has operating facilities. The Australian Federal Government has imposed Renewable Energy Targets (RET) that have the potential to increase cost of production however, in June 2015 the Australian Government passed a regulation that provided a full exemption from RET for aluminium smelters and for alumina refineries.  While this is a present outcome, it has the potential to change with a change of government or could be introduced at other AWAC operations in countries other than Australia.

Alumina Limited and Alcoa brief and advise governments and associated agencies on the impact on AWAC and the aluminium industry overall of new regulations.

 Support position of industry bodies in ensure climate change regulation does preserves the competitiveness of the industry worldwide.

Annual incentive based targets and long term CO2e and energy targets (2020/2030) that include AWAC operating facilities have been set by Alcoa as AWAC's manager/operator.

Perception

Community perception that aluminium production is an energy intensive process with little climate change benefits, negatively affecting consumers demand for the product, depressing alumina and aluminium prices and restricting profitability.

Promoting aluminium as a green metal with strong environmental credibility , including its lightweight and ability to be endlessly recycled

Financial

Increased energy costs caused through carbon reduction schemes could have a detrimental impact on profitability. A drop in demand leading to depressed alumina and aluminium prices restricting profitability. Increasing capital costs due to damage repair costs from weather events and the need to better ‘weatherproof’ new and existing operations.