by Lombard Odier

A new plan to address the growing appetite for greener aluminium

The London Metal Exchange plans to launch a platform which trades ‘low-carbon’ aluminium mostly produced with renewable energy, marking the first time a metal would have been traded based on its environmental footprint in the exchange’s 143-year history.

The LME wants the spot trading platform to go live this year, connecting buyers and sellers of aluminium that meets certain low-carbon criteria.

The move reflects the growing appetite among companies and investors for disclosure of environmental, social and governance data. It comes after pressure from En+, owner of Russian producer Rusal, for the LME to force suppliers of the lightweight metal to disclose their carbon footprint on the exchange.

Last month En+ Group pledged to reach net zero greenhouse gas emissions by 2050 with a reduction of at least 35 per cent by 2030, the most demanding near-term target yet set by any global aluminium company.

“We have now moved on to the next great emerging challenge of ESG in metals, which is environmental,” said LME chief executive Matt Chamberlain. The new trading platform would help determine if consumers were willing to pay a premium for low-carbon aluminium, Mr Chamberlain added.

The metal is a key input for companies such as tech giant Apple and for electric-car makers. It is also increasingly being used as an alternative to plastics in bottles. But its production requires large amounts of electricity, as well as the mining of bauxite and the refining of alumina.

Producers that use renewable sources of electricity have a much smaller carbon footprint. The production of one tonne of aluminium in Europe, which mostly uses renewable energy, produces about four tonnes of carbon-dioxide equivalent, compared with 15 tonnes in China, according to consultancy CRU. China produces more than 60 per cent of the world’s aluminium, mostly from coal-fired power.

But the LME is facing some pushback against its plans.

Norwegian group Norsk Hydro and India’s Hindalco Industries said they both opposed the LME’s proposals.

Hilde Merete Aasheim, chief executive of Norsk Hydro, told the Financial Times that a separate contract for low-carbon aluminium risked weakening standards and its own efforts to decarbonise the energy-intensive industry.

“We are a little bit afraid you will commoditise a specialised product,” Ms Aasheim said. “There are a number of green products out there — you have to be precise about what is your [carbon] content, it’s not one standard calculation.”

Ms Aasheim said Norsk Hydro worried that the LME’s exchange would “bundle” multiple low-carbon standards together and set a threshold for “green aluminium” that was too low.

Norsk Hydro sells aluminium with a carbon footprint of less than 4 kilogrammes of CO2 per kg of aluminium because of its use of hydropower, compared to an average of 8.6kg CO2 for aluminium consumed in Europe and 20kg in China.

Meanwhile, Satish Pai, managing director of Hindalco Industries, said a potential focus on the energy used to produce aluminium ran the risk of overlooking other issues in the supply chain, such as the mining of bauxite.

“The concept of green aluminium is being hijacked for economic benefits by a few companies,” Mr Pai said. “It’s a concept that needs to be looked at from a holistic environmental and sustainability point of view across the whole value chain.”

“The LME is a place to bring buyers and sellers together [and] they should stick to their mandate,” he added.

The two companies’ positions are at odds with those of En+, the hydropower and metals group formerly controlled by Russian oligarch Oleg Deripaska. Late last year the group said that the LME should go further and require every aluminium producer to disclose its carbon footprint to the exchange.

“We welcome all views in respect of our proposed sustainability strategy and are considering the feedback we’ve received as part of the discussion paper process,” the LME said.

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