Moscow, 14 February 2017
RUSAL’s Submission to the High-Level Commission on Carbon Prices
UC RUSAL is a leading global aluminium producer in an industry where CO2 emissions are of great importance. Aluminium production is a very energy intensive process requiring a large amount of electricity for smelting.
RUSAL is a leading global aluminium producer and a member of CPLC. Both locally and on an international level, RUSAL has been an active proponent of the initiative to establish a price on global carbon based on fair common rules.
Bearing in mind the complexity of the international climate negotiation process, we propose that the High-Level Commission on Carbon Prices consider a sectoral approach as a starting point for a global universal carbon price.
A sectoral approach is one that involves any form of mitigation commitment, for example, pricing systems and standards, by a particular economic sector between multiple jurisdictions. Sectoral approaches can generate a number of potential benefits including increased participation, alleviation of competitiveness concerns and greater targeting of key areas.
Energy intensive industries could be indicative corridors of carbon prices which can be used to guide the design of carbon pricing instruments and other climate policies, regulations, and measures to incentivize bold climate action and stimulate learning and innovation. They can also help to deliver on the ambitions of the Paris Agreement and support the achievement of the Sustainable Development Goals.
From the perspective of competitiveness, highly concentrated and homogenous energy-intensive sectors such as aluminium would appear to be a good candidate.
Please find attached some thoughts which we believe are relevant to the High-Level Commission’s Report.
Adviser to RUSAL CEO
Sectoral Approach in carbon pricing for Aluminium Industry
· New aluminum production creates around 1% of global annual GHG emissions. Mining, refining, smelting and casting primary aluminum releases about 0.4 billion tons (Gt) of carbon dioxide equivalent (CO2e) emissions per year. Approximately 80% of worldwide GHG emissions in the aluminium industry occur during the energy-intensive smelting process. Primary aluminium production results in associated direct greenhouse gas emissions from the combustion of fossil fuels in the alumina calcination process, as well as indirect emissions from production of electricity used in the electrolysis process. The largest source of GHG emissions is electricity generation: smelters consume around 4% of global electricity output.
· The aluminium sector has already undertaken voluntary climate initiatives to reduce GHG emissions under the auspices of the International Aluminium Institute (IAI) – a sectoral international organization of 26 companies from different regions, representing aluminium production. The IAI co-ordinates, monitors and promotes voluntary performance standards (including PFC reduction and energy efficiency targets).
· The Aluminium Stewardship Initiative (ASI) is a global, multi-stakeholder, non-profit, standard setting and certification organisation. Its formation is a result of producers, users and stakeholders in the aluminium value chain coming together with the aim of maximising the contribution of aluminium to a sustainable society. The ASI Performance Standard also includes two smelter-specific criteria:
o Smelters starting production after 2020 must achieve a level of direct and indirect (Scope 1 and 2) GHG emissions below 8 tonnes CO2-eq per metric tonne of aluminium produced.
o Existing aluminium smelters that were in production before 2020 must achieve the 8 tonnes CO2-eq per metric tonne level by 2030.
The ASI’s Performance Standard requirements thus represent a shift towards a lower emissions profile for the sector in the long-term. Furthermore, the ASI’s Certification programme can help to create market drivers for change.
· Consumers are demanding environmental responsible products. Carbon pricing should stimulate a worldwide application for low carbon sectoral standards building upon these voluntary initiatives.
· Purchasing and producing renewable energy as well as investing in low carbon technologies, working to improve energy efficiency, and offering new products and services aimed at reducing emissions are all meaningful strategies for the aluminum industry to undertake. Revenues from carbon pricing should underpin this process.
· Whereas historical producers have grounded their production in hydropower energy sources, “new comers” from the Gulf States, India and China who are now the world’s leading producers, have effectively opted for fossil fuels (natural gas and coal) to power their smelters. Today’s geography of aluminium smelters is partly based on access to cheap electricity, reflecting a decision which was taken when the cost of was not a concern.
· The UN climate change negotiations with its substantial international buy-in whilst being propelled by a palpable sense of urgency, offers both public and private actors the chance to make real changes in energy consumption. The UNFCCC could also make major industries far more environmentally friendly and sustainable through incentives such as phasing out fossil fuels, cutting emissions and promoting various standards. The Paris Agreement does not constitute a global rule book on emission reduction and the key regulation will continue to be determined on a country-by-country and sector-by-sector basis. If the measures and standards aren’t stringent or binding enough, whatever progress is made on UNFCCC will be undone by developing countries that are heavily reliant on oil or coal.
· Carbon pricing could also help to address the very sensitive issue of carbon leakage. Today a company that faces high costs relating to meeting a CO2 target could either face increased competition from companies without such a constraint, or decide to relocate part or all of its CO2-intensive processes to jurisdictions where climate policy is less stringent. Sectoral cooperation and universal carbon pricing ensures that industry competitors all undertake comparable mitigation efforts and are on a same level playing field. An international emission tax could be imposed directly on energy intensive sectors.
· Taxes, unlike an emission-trading scheme, do not require a new institutional infrastructure to keep track of ownership of emissions allowances. This consideration may be especially important in developing countries. Regarding the choice between taxes and tradable permits, longstanding economic theory suggests that in the presence of uncertainty about the marginal cost of emission reduction, for a stock pollutant like CO2, a carbon tax is more economically efficient than a tradable permit system.
· A tax can be used in conjunction with other policy instruments while a cap-and-trade system either renders the other policies environmentally irrelevant or is itself rendered environmentally irrelevant by them. This is a major concern when decision making takes place at several levels.
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2. Mitigating Emissions from Aluminum. Columbia University, 2011. http://www.thegncs.org/
3. IAI, http://www.world-aluminium.org
5. Sectoral approaches to greenhouse gas mitigation. Exploring Issues for Heavy Industry, IEA, 2007
6. Industry Sectoral Approaches and Climate Action: From Global to local level in a post-2012 climate framework. UNEP, 2009 http://www.unep.org/pdf/industrial_sectoral.pdf
8. IPCC Fifth Assessment Report. Climate Change 2014: Mitigation of Climate Change, Chapter 15 “National and Sub-national Policies and Institutions”. http://www.ipcc.ch/pdf/assessment-report/ar5/wg3/ipcc_wg3_ar5_chapter15.pdf
9. State and Trend of Carbon Pricing. World Bank Group, 2016
Industry Sectoral Approaches and Climate Action: From Global to local level in a post-2012 climate framework. UNEP, 2009