National Carbon Trading Market and Aluminum

China will launch its national carbon trading market in July.

Carbon trading is a market mechanism used to reduce global carbon dioxide emissions. How to allocate the quota will directly affect the enterprise’s own operating costs and the enthusiasm of participating in the carbon market.

The basic principle of carbon trading is that polluters can purchase the emission reduction quotas from those whose factories perform under the national break point. Carbon dioxide (CO2) is the largest of the 6 greenhouse gases that have to be cut, so the deal is calculated at tons of CO2 emitted per ton of production, so it is commonly known as carbon trading. Its trading market is called the Carbon Market.

According to the plan, the national carbon market will cover petrochemical, chemical, building materials, steel, nonferrous metals, paper, power, civil aviation and other 8 categories and 32 sub industries.

National carbon market electricity, cement and electrolytic aluminum industry quota allocation scheme announced recently in Sichuan carbon quota allocation trial training.

Electrolytic aluminum industry quota = aluminum liquid production x emission reference value, of which the reference value of discharge is 9.1132 tCO2/ton of aluminum liquid.

When the carbon emissions from electrolytic aluminum are calculated, the power consumption does not use the average emission factor of the regional power grid, and uses the unified national grid emission factor: 0.6858tCO2/MWh. Quota allocation in 2015 production as the benchmark, the initial allocation of 50% of the quota. When the actual quota is calculated, the actual output will be refunded.

We will lead you to find out how much production cost aluminum smelter will pay influenced by this new carbon trade scheme:

1 ton of aluminum consumes around 400kg-450Kg carbon anode.

1 ton of aluminum liquid will consume around 13,000KWH electricity.

(Thermal power consumption is differentiated based on different power generators).

Average 1 ton of standard coal can generate around 3000KWH electricity.

1 ton of aluminum production will consume at around 4.33 tons of coal.

Thermal power plants with one ton of coal generating an average of 2.62 tons of carbon dioxide by industrial boilers.

We can found out that 1 ton of aluminum liquid will produce 11.3446 tons of carbon dioxide.

The extra carbon dioxide is 11.3446-9.1132=2.2314 tons.

It costs around RMB20-30/ton for the carbon trade in the Carbon Market. If we use average cost with RMB25/ton to do the calculation, it costs RMB56/ton for aluminum smelters to pay the extra carbon emission to produce one ton of aluminum liquid. To produce 1 million tons of aluminum liquid, the aluminum production cost will increase around 55.8 million yuan. China will produce about 34 or 35 million tons of aluminum this year.

We can see this carbon emission policy will increase costs for the aluminum smelters.

For the smelters who have good emission credit, they could sell their credit to those who exceed the pollution limits. For those smelters who do not have good air pollution control equipment, they have to pay more to meet the government standard. Overall, it will increase the production cost for the aluminum smelter.

Picture reference: https://www.bbrtv.com/2015/0928/226198.html