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1、PAGE 1Aluminum Decarbonization at a Cost That Makes SenseAluminum decarbonization at a cost that makes senseTo reach an emissions pathway consistent with 1.5C of global warming,the aluminum industry needs to reinvent itself and its production processes.Sponsored byAnalytical support from McKinsey&Co
2、mpanyPAGE 2Aluminum Decarbonization at a Cost That Makes SenseAcknowledgementsThis report was produced by the Mission Possible Partnership.McKinsey&Company provided fact-based analysis for the report.This work is independent,reflects the views of the authors,and has not been influenced by any busine
3、ss,government,or other institution.McKinsey&Company does not provide investment or policy advice.Alasdair Graham is the head of industry decarbonization for the Energy Transitions Commission in London,where Marten Ford is sector lead for aluminum and Jason Martins is a senior analyst.The authors wis
4、h to thank McKinsey for providing analytical support,including Pedro Assuno,Patricia Bingoto,Maimouna Diakhaby,Jeffrey Lorch,Kayla Olson,Reinaldo Penso,Matthias Strtz,and Alex Ulanov.All analysis developed in 2022.User can edit inputs to reflect current market conditions.PAGE 3Aluminum Decarbonizati
5、on at a Cost That Makes SensePREPARED BYMission Possible Partnership(MPP)Led by the ETC,RMI,the We Mean Business Coalition,and the World Economic Forum,the Mission Possible Partnership(MPP)is an alliance of climate leaders focused on supercharging the decarbonization of seven global industries repre
6、senting 30 percent of emissions:aluminum,aviation,cement and concrete,chemicals,shipping,steel,and trucking.Without immediate action,these sectors alone are projected to exceed the worlds remaining 1.5C carbon budget by 2030 in a business-as-usual scenario.MPP brings together the worlds most influen
7、tial leaders across finance,policy,industry,and business.MPP is focused on activating the entire ecosystem of stakeholders across the entire value chain required to move global industries to net-zero emissions.Learn more at .Energy Transitions Commission(ETC)ETC is a global coalition of leaders from
8、 across the energy landscape committed to achieving net-zero emissions by middle of the century,in line with the Paris climate objective of limiting global warming to well below 2C and ideally to 1.5C.Our commissioners come from a range of organizationsenergy producers,energy-intensive industries,te
9、chnology providers,finance players,and environmental nongovernmental organizationsthat operate across developed and developing countries and play different roles in the energy transition.This diversity of viewpoints informs our work:our analyses are developed with a systems perspective through exten
10、sive exchanges with experts and practitioners.Learn more at energy-transitions.org.PAGE 4Aluminum Decarbonization at a Cost That Makes SenseCONTENTS1.Introduction.52.Levers to accelerate decarbonization.72.1 Investment risks .82.1.1 Financial levers.102.1.2 Policy levers.112.1.3 Demand levers .122.2
11、 Combining levers:Five scenarios.122.2.1 Scenario 1:Retrofit of smelter in captive plant in the Middle East.132.2.2 Scenario 2:Retrofit inert anode on smelter in Europe.142.2.3 Scenario 3:Retrofit inert anode on smelter in China.162.2.4 Scenario 4:Retrofit refinery in Oceania with MVR .182.2.5 Scena
12、rio 5.Retrofit South America refinery with electric boiler for digestion steam and H2-fired calciner.193.Roles for stakeholders .203.1 End users.203.2 Governments .213.3 Financial institutions.21Appendix.22PAGE 5Aluminum Decarbonization at a Cost That Makes SensePART 1IntroductionInfinitely recyclab
13、le,immensely strong,lightweight,and malleable:aluminum is the metal that makes modern economies tick.With uses ranging from beverage cans to cars,airplanes,and solar panels,it is also extremely versatile.There is only one real problem:while the metal itself is sustainable,its production usually is n
14、ot.In fact,the aluminum industry accounts for about 2 percent of global greenhouse-gas(GHG)emissions.Mostly due to its high energy use,the aluminum industry emits around 1.1 billion metric tons(t)of GHGs a year.1 The aluminum industry as outlined in Mission Possible Pathways(MPP)Sector Transition st
15、rategy and the International Aluminium Institutes(IAI)1.5 work together can deliver a 1.5 pathwayaligned net-zero sector.One of the core challenges to achieving this,however,is that transforming the aluminum sector to a low-carbon sector will require upgrading refining and smelting assets and making
16、 significant investments in low-carbon power.PAGE 6Aluminum Decarbonization at a Cost That Makes SenseThe investment case for decarbonizing each individual refinery or smelter will be determined by local circumstances,and local power availability and local policy arrangements will be critical.This r
17、eport and open-sourced investment model outlines the levers that could close the finance gap.Users can generate their own investment case using the underlying analysis from MPPs Sector Transition strategy with analytical support from McKinseys Sustainability and Basic Materials Practices to understa
18、nd what additional levers from financers,customers,and policy makers may be essential for each investment case.How stakeholders can help One of the challenges to aluminum decarbonization is that best currently available fossil-fuel-based technologies have a net present value greater than green alter
19、natives.Overcoming these economic obstacles and risks will require collaborative action among stakeholders.Banks,investors,policy makers,and end customers will each have an important role to play.The finance sector.Decarbonization wont be cheap.Cumulative investment of approximately$1 trillion acros
20、s the primary production value chain will be needed to deliver a net-zero sector or a 1.5 pathway.The majority of this investment will be needed in power supply and smelters.2 Aluminum producers will need to retire fossil-fuel-based production and make new investments in low-carbon alternatives,even
21、 though these are likely to have a lower return on capital and contain some technology and implementation risks.Financial institutions have the capability to mitigate some of these risks and shift cash flows toward green investments.Given the generally high levels of debt in the aluminum industry,im
22、proved interest rates for low-carbon investments and new products such as green loans or bonds used exclusively for climate-friendly projects could be key enablers.Additionally,banks could incorporate climate considerations into their lending decisions,such as those developed by the Center for Clima
23、te-Aligned Finance(CAF).Financial partnerships designed to support sustainable investment already exist,such as the Net-Zero Banking Alliance(NZBA),which brings together banks which represent 40 percent of global banking assets.Governments and policy makers.Governments play a critical role in alumin
24、um decarbonization not only because the government is a relevant end customer of particular aluminum products but also because aluminum is a strategic metal for the energy transition,raising governments as strategic investors in aluminum production and aluminum decarbonization.Governments have sever
25、al tools to provide incentives for aluminum decarbonization.Government grants to aluminum producers can help offset some of the costs of green investment,while carbon contracts for difference(CCfDs)bring the operational costs of decarbonized operations in line with those of fossil-fuel-based technol
26、ogy.However,our analysis shows that the greatest impact to the economics of decarbonization could come from carbon pricing,whether through trading schemes or carbon taxes.This could spur investment in green aluminum and enable the economics of the industrys net-zero transition.Customers.Aluminum use
27、rs will likely have an important role to play in creating demand and helping shift the industry toward decarbonization.This could including paying what we estimate to be a 5 to 10 percent premium for green aluminum or by making firm advance commitments to purchase it.Such offtake agreements could be
28、 negotiated before a factory is constructed or begins operations,or before major retrofits are undertaken,significantly cutting investment risk.For manufacturers that have set decarbonization goals for their sourcing and supply chains,such premiums may be worth paying.Apple,for instance,has announce
29、d that its new iPhone SE will use zero-carbon aluminum produced from hydropower in Quebec.3Rising demand for low-carbon products is pushing the aluminum industry away from the carbon-intensive processes that have dominated production for the past 135 years.At the same time,the dynamics of a warming
30、planet are evidence that change needs to happen as fast as possible.To make the green transition a reality,players throughout the aluminum value chain need to seize the moment,work together to support a purposeful transition,and recreate the industry for the demands of the coming decades.PAGE 7Alumi
31、num Decarbonization at a Cost That Makes SensePART IILevers to accelerate decarbonizationThe intensity of GHG emissions associated with alumina refining and aluminum smelting leaves the industry with little choice but to seek out the most efficient way to decarbonize.However,while players across the
32、 value chain have been taking steps to align with a 1.5 pathway,more planning and investment are required to significantly reduce emissions associated with aluminum production.To explore the potential for change,Mission Possible Partnerships Aluminium for Climate team,with analytical support from Mc
33、Kinseys Basic Materials Insights and Sustainability Practices,has developed an open-access,open-source investment model for alumina and aluminum plant archetypes.The user-friendly model creates a twin lens on costs and decarbonization options for Scopes 1,2,and 3 emissions.The model is structured to
34、 allow alumina refineries,aluminum producers,OEMs,upstream players,finance players,policy makers,and end-industry users to input their assumptions about decarbonizing alumina refineries and aluminum smelting,and to compare investment scenarios PAGE 8Aluminum Decarbonization at a Cost That Makes Sens
35、ewith best available technologies(BAT).Users can select a series of inputs for investment scenarios and run multiple levers to reduce the net-present-value(NPV)gap versus ongoing or BAT operations.The model aims to provide the latest thinking related to the key technologies and processes,evaluate th
36、e different options,and inspire decision makers on the options and prerequisites of deploying these technologies in the real world.2.1 Investment risks The significant investment required to decarbonize the aluminum industry could expose companies and stakeholders to a range of risks.These include m
37、arket risks,specifically threats to market capitalizations,as well as credit and liquidity risks.There could also be risks associated with executing decarbonization projects and the impacts of policy and regulation(see sidebar“Potential risks associated with aluminum decarbonization”).The industry w
38、ill need to manage all of these risks to successfully accelerate the decarbonization agenda.A basic element of risk mitigation strategies will be dedicated to long-term planning,based on an understanding of all available and economically reasonable decarbonization pathways.In addition,there are vari
39、ous financial,policy,and demand levers that may create a more favorable environment for investment(see sidebar“Finance and policy levers to likely derisk investments”).Potential risks associated with aluminum decarbonizationMarket riskAn aluminum producers shareholder value deteriorates due to a dec
40、arbonization investment that carries a lower return on capital compared with business-as-usual investments.Credit riskAn aluminum producer contracts significant debt to undergo decarbonization investments with high uncertainty on future cash flows and potential for credit downgrading.Liquidity riskA
41、n aluminum producer has a perceived or actual inability to meet its liabilities due to a cash flow drain from investments in decarbonization efforts,threatening its financial position or even existence.Technical and execution riskAn aluminum producer invests in a technology or project design that is
42、 unproven or that lacks internal tools,systems,processes,and people to successfully develop it,turning investment into stranded asset.Political and regulatory riskTrade barriers recently installed in the European Union,such as the carbon border adjustment mechanism,have dramatically changed the pros
43、pects of high-CO2e investment exports.“The significant investment required to decarbonize the aluminum industry could expose companies and stakeholders to a range of risks.These include market risks as well as credit and liquidity risks.”PAGE 9Aluminum Decarbonization at a Cost That Makes SenseFinan
44、ce and policy levers to likely derisk investmentsThe decarbonization of the aluminum value chain needs to be a concerted effort between financial institutions,political institutions,producers,buyers,intermediaries and equipment providers.To successfully meet a 1.5C scenario,a set of levers could hel
45、p to stimulate investment in ultra-low-carbon aluminum production.Finance levers Financial institutions will likely be part of the decarbonization of the aluminum value chain to reduce their financed emissions and at the same time mitigate climate risk by decreasing interest rates,increasing loan du
46、ration,or increasing loan to value of loans for players decarbonization efforts through issuing:green loans green bonds transition bonds sustainability-linked loans or bonds1 Policy levers Setting up carbon prices or taxes.These can take multiple forms,such as locally regulated taxes,exchange-traded
47、 emissions systems like those currently installed in several parts of the world,and fees on imports,such as the cross-border adjustment mechanism that will be implemented in the European Union.Offering government grants.For example,a CA$1.8 billion grant(US$1.4 billion)from the Canadian government i
48、s making possible an ArcelorMittal investment in the steel industry to convert a blast furnace to an electric-arc furnace,resulting in a CO2e emissions reduction of three million metric tons(or 60 percent emissions reduction).The Canadian government has also provided some support to Alcoa and Rio Ti
49、nto for development of the ELYSIS technology.Developing carbon contracts for difference(CCfD).For example,Germany is currently considering providing 43 billion funding for CCfD for use in heavy industry(for example,steel,cement,and chemicals).This will be a ten-year agreement resulting in an offset
50、in CO2e emissions of 20 million metric tons per year.A similar CCfD scheme has been implemented in the United Kingdom to accelerate the renewable-energy transition and has already supported 16 GW of low-carbon electricity.Demand levers Reaching offtake agreements.Offtake agreements often help secure
51、 funds for decarbonization,reducing the investment risk.Buyers and sellers can reach an agreement to purchase a defined quantity of low-carbon-footprint product at a predefined price or at the cost of the production price.Accepting green premiums.Due to a lack of balance between supply and demand fo
52、r low-carbon footprint products,a time-bound green premium can emerge,allowing for supply-side flexibility and coverage of the decarbonization cost.1 See,for example,“Hydro Alunorte signs USD 200 million sustainability-linked loan to finance fuel switch project,”Hydro,April 1,2022.PAGE 10Aluminum De
53、carbonization at a Cost That Makes SenseAll of the leverson the financial,policy,and demand sideare routes to mitigating and reducing the risks associated with investment.Ideally,they would be combined in various ways so that they are mutually reinforcing.A hybrid approach is likely to be optimal,be
54、cause no single intervention will be sufficient to unlock sectorwide investment.Here we consider each category of lever in detail and outline steps that leading players are already taking.2.1.1 Financial leversA significant element of the industrys transition will be a committed program of investmen
55、t.This reflects the wider reality that the net-zero transition will demand average annual spending of$9.2 trillion across industries by 2050.Decarbonization of the aluminum industry will require investment in the industrys operations as well as in the power and recycling sectors.In parallel,investme
56、nt in fossil-fuel-based production will need to decline rapidly.To facilitate this process,the finance sector will need to play a critical role,supported by three key levers:improvement in terms for low-carbon investments,through interest rates,debt tenure,or other conditions bringing new finance pr
57、oducts to market and tailoring finance to the particular combination of risks inherent in low-carbon products aligning the climate objectives of finance providers and alumina and aluminum producers through principles of credit provision associated with pathways to 1.5C Finance providers can also mak
58、e strategic contributions,leveraging investment expertise across the value chain to take a holistic approach to system change.They can apply lessons learned in other sectors and identify how different projects can be effectively integrated.Improved terms.The terms for investment in low-carbon alumin
59、um will be shaped by the mix of investment risks.As capital providers better understand decarbonization levers and project risk profiles,and as offtake commitments are made,more capital is likely to flow to green and brown-to-green investments.Capital providers that proactively work to make a produc
60、t relevant to a low-emission future will lower their transition risk relative to their peers.A range of financial instruments.Low-carbon aluminum projects present a different mix of risks than traditional aluminum projects,so tools that have been specifically designed for the green-finance market ar
61、e likely to be most useful:Green loans are any type of loan instrument exclusively applied to finance or refinance new or existing eligible green projects,in whole or in part.Green bonds are bonds whose raised funds are applied exclusively to projects and activities that promote climate or other env
62、ironmental sustainability purposes.According to the Climate Bonds Initiative,nearly$2 trillion in green bonds have been issued since market inception in 2007.4 Transition bonds are bonds whose funds are applied exclusively to new and existing projects that support corporate climate strategies.Sustai
63、nability-linked loans and bonds embed“sustain-ability performance targets”and trigger a reduction in the cost of debt if certain KPIs are achieved.Unlike green or sustainable bonds,funds raised with this instrument are not tagged to a specific use but are for general cor-porate purposes.The Loan Syn
64、dications&Trading Association(LSTA)has defined parameters associated with sustainability-linked lending to support sustainable economic activity.5 Its framework consists of five components:selection of KPIs to assess sustainability and core business strategy;calibration of sustainability performance
65、 targets(SPTs),representing an improvement over industry standard operations;loan characteristics,dependent on the borrower meeting SPTs and KPIs;reporting at least annually to allow monitoring of performance of SPTs and KPIs;and verification of performance against SPTs and KPIs,at least annually.A
66、limited number of institutions have explored sustainability-linked lending,but this tool can also support decarbonization.“Low-carbon aluminum projects present a different mix of risks than traditional aluminum projects,so tools that have been specifically designed for the green-finance market are l
67、ikely to be most useful.”PAGE 11Aluminum Decarbonization at a Cost That Makes SenseAligning climate objectives of finance providers and alumina and aluminum producers.Lending practices will likely evolve to meet the investment demands of the 1.5C goal.This will mean boosting investment in low-carbon
68、 aluminum but also reducing investment in high-carbon projects.This kind of approach is encapsulated in the Poseidon Principles,a global framework for responsible ship finance that integrates climate considerations in lending decisions.6 In aluminum,the Center for Climate-Aligned Finance(CAF)is work
69、ing with three banking leads,leading aluminum producers,and partner organizations focused on sustainable finance to ensure that the objectives of firms in the aluminum sector and their financial partners are aligned and actionable.7Bringing the community together.To meet net-zero targets,financial i
70、nstitutions need to work together to provide capital to both greenfield and retrofit projects.These kinds of partnerships are already developing.For example,the Net-Zero Banking Alliance,which brings together banks that are committed to aligning their lending and investments with net-zero emissions
71、by 2050,currently represents 40 percent of global banking assets.The Glasgow Financial Alliance for Net Zero(GFANZ)has more than 450 members,representing$130 trillion of assets.GFANZ members will use science-based guidelines to reach net-zero emissions across all emissions scopes by 2050,as well as
72、2030 interim targets.GFANZ members report on their progress annually,including disclosures in line with the guidelines drafted by the Task Force for Climate-related Financial Disclosures(TCFD).2.1.2 Policy leversGovernments have a key role to play in facilitating investment in decarbonization soluti
73、ons as well as in promoting innovation.Mechanisms such as carbon pricing(through trading schemes or carbon taxes)show that policy can have a significant impact on corporate behaviors,while trade-based initiatives such as the European Unions Carbon Border Adjustment Mechanism use import duties to enc
74、ourage both domestic and overseas producers to switch to cleaner technologies.Policy instruments such as carbon contracts for difference can create stable access to competitively priced clean electricity.Government grants could offset some of the cost of investment.In the steel industry,CA$1.8 billi
75、on(US$1.3 billion)8 in federal and provincial grants and loans enabled ArcelorMittal to convert a blast furnace to an electric arc furnace.9 The conversion will lead to three million metric tons(or 60 percent)of emissions reduction.10 The Canadian government has also provided support to Alcoa and Ri
76、o Tinto for research and developmentfor example,in relation to ELYSIS inert-anode technology,which promises to eliminate all direct GHGs from the traditional smelting process.11 In Australia,Alcoa received support to test electric calcination,withAU$8.6 million(US$6.4 million)from the Australian Ren
77、ewable Energy Agency(ARENA)and AU$1.7 million(US$1.3 million)from Western Australias Clean Energy Future Fund(CEFF).12Carbon contracts for difference(CCfDs)are a policy lever to help bring the operational costs of decarbonized operations in line with those of conventional technology(Exhibit 1).CCfDs
78、 typically offset the difference between the market price for emissions allowances(carbon price)and the cost of operating decarbonized technology.A price is selected for the decarbonized technology to level operational costs with those of conventional technology.When the operational costs exceed thi
79、s level,the state pays the difference.Conversely,if the operational cost is lower than the agreed cost,the decarbonized facility pays the difference.While no entity in the aluminum industry has yet used CCfDs,Germany is considering providing 43 billion to support their application in heavy industry.
80、The vision is a ten-year agreement that will result in an offset of 20 million metric tons of CO2e emissions per year.13 A similar scheme has been implemented in the United Kingdom,supporting 16 GW of low-carbon electricity(enough to power 15 million homes).142.1.3 Demand leversEnd users can play a
81、role in supporting green investments by paying more or making firm commitments to purchase.In the former case,private-or public-sector buyers can pay a green premium when carbon emissions are below a certain threshold,such as less than 0.1 tCO2e/t of alumina or below 4.0 tCO2e/t of aluminum.Accordin
82、g to Fastmarkets,a cross-commodity price reporting agency,green premiums have reached about 1 percent of the London Metal Exchange(LME)price,but they could climb to 5 to 10 percent.15“One of the challenges to decarbonization is that the current best available technology often has an NPV that is grea
83、ter than the green-investment scenario.”PAGE 12Aluminum Decarbonization at a Cost That Makes SenseOfftake agreements are arrangements between buyers and sellers to purchase a quantity of product at a defined price.They may be negotiated before a factory is constructed or begins operating,as well as
84、for major retrofits,significantly cutting investment risk.Many companies are working hard to decarbonize their aluminum supply chains.Apple,for example,is targeting net-zero climate impact across all business functions by 203016 and has announced that its new iPhone SE will use net-zero aluminum pro
85、duced by ELYSIS.17 2.2 Combining levers:Five scenariosOne of the challenges to decarbonization is that the current best available technology often has an NPV that is greater than that of the green-investment scenario.Moreover,no single lever will be sufficient to support aluminum industry decarboniz
86、ation on its own.The most likely scenario is that companies will adopt a mix of levers that facilitate either green investment or demand-side drivers.By combining levers,stakeholders can close the NPV gap for low-carbon investments(achieving a green premium)and secure cash flows.In general,finance w
87、ill play a relatively minor role in bridging the NPV gap,particularly in cases with less capital expenditure,but it will play a more significant role where capital investment is more dominantfor example,in inert-anode retrofits.18To model some likely combinations of levers and technology,this paper
88、presents five scenarios that would either create a green premium or support demand.19 These combinations of levers are illustrative;the user can explore the benefits of these scenarios through the supporting tool.“Inert-anode technology can have similar electricity intensity as the Hall-Hroult proce
89、ss or as much as 20 percent higher,so smelters that rely on green electricity are suitable to retrofit with inert-anode technology.”EXHIBIT 1A variable premium in the carbon contracts for difference model is the difference between the reference price and strike price.Source:Low carbon hydrogen busin
90、ess model:Consultation on a business model for low carbon hydrogen,Section 4.1,UK Department for Business,Energy&Industrial Strategy,2021.The variable premium is the$/MWh of hydrogen subsidized above the market value of low-carbon hydrogen by the UK governmentVariable premiumTimeReference priceIt is
91、 the difference between the strike priceand the reference priceStrike priceStrike price$/MWhPotential payment from producerRevenue from variable premiumRevenue from marketThe price that producers need to cover the plant building and operation costs,plus some equity return Reference priceThe price th
92、at end users can afford and are willing to pay(ie,a proxy for the market price)PAGE 13Aluminum Decarbonization at a Cost That Makes Sense2.2.1 Scenario 1:Retrofit of smelter in captive plant in the Middle EastSmelting operations in the Middle East have seven million metric tons of aluminum capacity,
93、while electricity is mostly derived from natural-gas combined-cycle(NGCC)plants.NGCC is an advanced technology that improves the efficiency of natural gas.The scenario considers retrofitting the smelter and natural-gas facility with CCS.Best available technology:existing smelter with captive gas Gre
94、en investment:retrofit CCS on smelter and NG power plantRetrofitting a smelter in the Middle East with CCS would produce a negative NPV of about$3.3 billion(Exhibit 2).Setting up a carbon price for both smelter and electricity generation(about$60 per tCO2e as a starting price)and a CCfD for ten year
95、s(worth$150 million a year)could improve the investment NPV to offset the increasing operating costs of CCS.Since green-investment operating expenditure is higher than BAT,finance levers would have a smaller impact than demand and policy levers,which would attenuate the increased operating expenditu
96、re from CCS.In this specific illustrative combination of levers,the finance levers make a relatively small contribution to reducing the NPV difference.This is for two reasons.First,significant CCS capital expenditures are required to retrofit the smelter and the natural-gas power plant.Second,there
97、are increased operating expenditures for running the CCS plants,as compared with ongoing operations,where a reduction of interest rate and increase of loan duration are not enough to bridge the NPV difference.EXHIBIT 2Policy levers could improve the investment case for retrofitting a smelter in a ca
98、ptive power plant in the Middle East.Note:Assuming green premium on aluminum will last 30 years;assuming carbon price applicable for 30 years and growing 0.5%per year;assuming carbon contracts for difference(CCfD)will last 10 years.1 Carbon contracts for difference.2 Percentage point.3 London Metal
99、Exchange.Source:McKinsey analysisNet present value(NPV),based on 2022,$millionsImpactNPV of green investment vs base caseInterest rate decrease by 1 p.p.2(from 5.1%to 4.1%)Debt tenure increase by 5 years(from 20 to 25)Green premium of$100 per ton aluminum(5%of LME3)for 30 yearsCarbon price of$60 per
100、 ton CO2 emitted for smelter for 30 yearsCarbon price of$60 per ton CO2emitted in captive electricity emissions for 30 years$100 million grantRemainder of delta NPV covered by CCfD,1$150 million annually for 10 yearsNPV differenceInterest rateDebt tenureGreen premiumCO2 price smelterCO2 priceelectri
101、cityGrantCCfD13,3183773441,65483765960%0%11%10%50%3%25%PAGE 14Aluminum Decarbonization at a Cost That Makes Sense2.2.2 Scenario 2:Retrofit inert anode on smelter in Europe Europes customers are likely the most advanced globally in pursuing decarbonization targets,which is encouraging smelters to fur
102、ther decarbonize.20 Best available technology:existing smelter with captive hydro Green investment:retrofit inert anode Inert-anode technology can have similar electricity intensity as the Hall-Hroult process or as much as 20 percent higher,so smelters that rely on green electricity are suitable to
103、retrofit with inert-anode technology.Because there is uncertainty around the exact electricity intensity of this solution,we have expanded the analysis to two scenarios:a 15 percent increase over the current average(16 MWh/t of aluminum),and with equivalent consumption to current Hall-Hroult(13.8 MW
104、h/t of aluminum).Retrofitting a smelter in Europe with inert anodes would have a negative NPV of about$1.2 billion when assuming electricity intensity of 16 MWh/t of aluminum(Exhibit 3).Under the second scenario(Hall Hroultequivalent consumption),a combination of lower electricity intensity,a green
105、premium,and the carbon price would be sufficient to make investment in inert-anode technology NPV neutral(Exhibit 4).EXHIBIT 3Green premiums and CO2 prices may be required for inert-anode retrofit to have equal net present value in the European Union.Note:Assuming electricity intensity of 16 MWh/t o
106、f aluminum.1 Carbon contracts for difference.2 Percentage point.Source:Mission Possible PartnershipNet present value(NPV),based on 2022,$millionsImpactNPV of green investment vs base caseInterest rate decrease by 1 p.p.2(from 3%to 2%)Debt tenure increase by 5 years(from 20 to 25)Green premium of$100
107、/t aluminumCarbon price of$60 per ton CO2 emitted for smelter process emissions only$100 million grantRemainder of delta NPV covered by CCfD,1$15 million annually for 10 yearsNPV differenceInterest rateDebt tenureGreen premiumCO2 price GrantCCfD11,2767726%6%31%43%8%7%PAGE 15Aluminum Decar
108、bonization at a Cost That Makes SenseEXHIBIT 4Green premiums and CO2 prices may likely be required for inert-anode(with electricity intensity of 13.8 MWh/t)retrofit investment to have equal net present value in the European Union.Note:Assuming electricity intensity of 13.8 MWh/t of aluminum.1 Carbon
109、 contracts for difference.2 Percentage point.Source:Mission Possible PartnershipNet present value(NPV),based on 2022,$millionsImpactNPV of green investment vs base caseInterest rate decrease by 1 p.p.2(from 3%to 2%)Debt tenure increase by 5 years(from 20 to 25)Green premium of$100/t aluminumCarbon p
110、rice of$43 per ton CO2 emitted for smelter process emissions onlyN/AN/ANPV differenceInterest rateDebt tenureGreen premiumCO2 price Grant00CCfD7728%8%43%42%0%0%PAGE 16Aluminum Decarbonization at a Cost That Makes SenseEXHIBIT 5Policy levers such as CO2 pricing are needed to enable investm
111、ents in inert anodes(electricity intensity of 16 Mwh/t)in China.Note:Assuming electricity intensity of 16 MWh/t of aluminum;assuming green premium on aluminum to last 30 years;assuming carbon price applicable for 30 years and growing 0.5%per year;assuming carbon contracts for difference to last 10 y
112、ears.1 Carbon contracts for difference.2 Percentage point.Source:Mission Possible PartnershipNet present value(NPV),based on 2022,$millionsImpactNPV of green investment vs base caseInterest rate decrease by 1 p.p.2(from 5.1%to 4.1%)Debt tenure increase by 5 years(from 20 to 25)Green premium of$100 p
113、er ton Al(5%of LME)for 30 yearsCarbon price of$60 per ton CO2 emitted for smelter for 30 yearsCarbon price of$7 per ton CO2 emitted captive electricity emissions for 30 yearsN/AN/ANPV differenceInterest rateDebt tenureGreen premiumCO2 price smelterCO2 priceelectricityGrantsCCfD11,23515%4%
114、3%27%60%0%0%002.2.3 Scenario 3:Retrofit inert anode on smelter in China China has the largest aluminum smelting capacity and one of the largest aluminum CO2e footprints,and it is deploying the most solar,off-shore wind,and nuclear energy capacity.21 Our analysis thus focuses on inert anodes powered
115、by a green grid.Given the uncertainty around the electricity intensity of inert-anode technology,we use two scenarios.Best available technology:existing smelter with captive coal Green investment:retrofit inert anode plus gridRetrofitting a smelter in China with inert-anode technology and connecting
116、 it to the grid would have a negative NPV of$1.2 billion when assuming inert-anode electricity intensity of 16 MWh/t of aluminum(Exhibit 5).If similar intensity to Hall-Hroult is assumed,the negative NPV would be about$400 million(Exhibit 6).Since the base case is a coal-fired smelter,policy levers
117、applied to electricity generation could have a significant impact.PAGE 17Aluminum Decarbonization at a Cost That Makes SenseEXHIBIT 6Policy levers such as CO2 pricing are needed to enable investments in inert anodes(electricity intensity of 13.8 MWh/t)in China.Note:Assuming electricity intensity of
118、13.8 MWh/t of aluminum;assuming green premium on aluminum will last 30 years;assuming carbon price applicable for 30 years and growing 0.5%per year;assuming carbon contracts for difference will last 10 years.1 Carbon contracts for difference.2 Percentage point.3 London Metal Exchange.Source:Mission
119、Possible PartnershipNet present value(NPV),based on 2022,$millionsImpactNPV of green investment vs base caseInterest rate decrease by 1 p.p.2(from 5.1%to 4.1%)Debt tenure increase by 5 years(from 20 to 25)Green premium of$100 per ton Al(5%of LME3)for 30 yearsCarbon price of$21 per ton CO2 emitted fo
120、r smelter for 30 yearsCarbon price of$60 per ton CO2 emitted captive electricity emissions for 30 yearsN/AN/ANPV differenceInterest rateDebt tenureGreen premiumCO2 price smelterCO2 priceelectricityGrantsCCfD5116%13%25%46%0%0%0%000PAGE 18Aluminum Decarbonization at a Cost That Makes SenseE
121、XHIBIT 7Policy levers such as CO2 pricing are needed to enable investment in mechanical vapor recompression and H2 calciner in Oceania.Note:Assuming electricity intensity of 12 gigajoules/t;assuming green premium on aluminum will last 30 years;assuming carbon price applicable for 30 years and growin
122、g 0.5%per year.1 Carbon contracts for difference.2 Percentage point.Source:Mission Possible PartnershipNet present value(NPV),based on 2022,$millionsImpactNPV of green investment vs base caseInterest rate decrease by 1 p.p.2(from 5%to 4%)Debt tenure increase by 5 years(from 20 to 25)Green premium of
123、$30 per ton of alumina(9%premium)for 30 yearsCarbon price of$60 per ton CO2 emitted for 30 yearsN/AN/ANPV differenceInterest rateDebt tenureGreen premiumCO2 price Grants00CCfD11, 0.5%0.5%34%64%0%0%2.2.4 Scenario 4:Retrofit refinery in Oceania with MVROceania is the second-largest producer
124、 of alumina,and the Australian Renewable Energy Agency(ARENA)has deployed a number of projects focused on decarbonizing alumina refineries.This has supported the development of MVR retrofit in digestion and hydrogen-calciner development.The scenario envisages retrofitting an Oceania refinery with MV
125、R for digestion steam and hydrogen-fired calciner.Best available technology:existing refinery utilizing gas Green investment:retrofit MVR and hydrogen(H2)calcinationRetrofitting a refinery in Oceania with MVR and green-hydrogen calciner would have a negative NPV of$1 billion(Exhibit 7).Since the bas
126、e case is an NG-based calciner,policy levers applied to heavy emitters could have a significant impact.Oceania is the second-largest producer of alumina,and the Australian Renewable Energy Agency(ARENA)has deployed a number of projects focused on decarbonizing alumina refineries.PAGE 19Aluminum Deca
127、rbonization at a Cost That Makes SenseEXHIBIT 8Policy levers such as carbon contracts for difference may likely be required for green refinery investment to be economical.Note:Assuming green premium on alumina will last 5 years;assuming carbon price applicable for 30 years and growing 0.5%per year;a
128、ssuming CCfD will last 10 years.1 Carbon contracts for difference.2 Percentage point.3 Alumina.Source:Mission Possible PartnershipNet present value(NPV),based on 2022,$millionsImpactNPV of green investment vs base caseInterest rate decrease by 1 p.p.2(from 15%to 14%)Green premium of$34 per ton Aa3(1
129、0%of Aa)Carbon price of$60 per ton CO2 emitted for refinery process emissions$100 million grantRemainder of NPV difference covered by CCfD,1$330 million annually for 10 yearsNPV differenceInterest rateGreen premiumCO2 price Grant1,827CCfD12,7626069672260%6%22%3%66%2.2.5 Scenario 5.Retrofit South Ame
130、rica refinery with electric boiler for digestion steam and H2-fired calcinerSouth America is an important alumina producer with a relatively decarbonized grid.It would be feasible to retrofit refineries with electric boilers supplied with low-carbon electricity and green-hydrogen calciners.Best avai
131、lable technology:existing refinery using gas Green investment:retrofit with electric boilers and H2 calcinationRetrofitting a refinery in South America with electric boilers and H2 calciner,replacing current natural-gas-based technologies,would have a negative NPV of about$2.8 billion.Setting up a c
132、arbon price(approximately$60 per tCO2e)and a CCfD for ten years(worth$330 million per year)could improve the investment NPV and offset prices for green hydrogen and green electricity(Exhibit 8).The electric boiler carries a larger negative NPV than MVR,which is more efficient from a thermal-energy p
133、erspective.PAGE 20Aluminum Decarbonization at a Cost That Makes SensePART IIIroles for stakeholdersWhichever route is taken to decarbonization,it will require an effort from all players in the aluminum value chain.That said,individual approaches will varybusinesses will adopt decarbonization technol
134、ogies that reflect local conditions,policy measures,and financial arrangements.For smelters relying on carbon-intensive electricity sources,for example,a carbon-pricing scheme that includes power emissions would better enable green investment.Where the operating expenditure gap to BAT is more releva
135、nt than the capital expenditure gap,demand and policy levers would play a more important role.3.1 End usersThe analysis shows that end users would need to pay a green premium to offset a negative NPV in all five scenarios.It assumes a 5 percent premium on the LME commodity price($100/t aluminum)in s
136、melter cases and a 10 percent premium($34/t)on alumina for the refinery cases.These would both improve the NPV of the green-investment option.Many aluminum consumers have decarbonization goals for their supply chains,so paying a premium could still be attractive.PAGE 21Aluminum Decarbonization at a
137、Cost That Makes SenseIndeed,increased demand for green products would help shift the aluminum industry further toward decarbonization.Still,some end users are unlikely to see a substantial increase in final product prices after incorporating green-aluminum premiums into production costs.For example,
138、at a green premium of$100/t aluminum,the final cost of a new car would increase by just 0.01 percent.22 Even if the green premium covered the total additional cost of fully decarbonized aluminum production(estimated to be about$400/t in 203523)and the aluminum in cars rose to 200 kilograms(kg)as pro
139、jected,the final cost would increase by just 0.2 percent.Furthermore,many aluminum consumers have decarbonization goals for their sourcing and supply chains,so purchasing a green aluminum product with a premium could likely be acceptable to consumers.In short,rising end user demand for green product
140、s will help shift the aluminum industry toward decarbonization.3.2 Governments The analysis shows that the greatest NPV impact comes from from carbon-pricing measures.This could shift the NPV balance in favor of decarbonized investment because emissions are covered by a carbon price.On that basis,th
141、e traditional smelter is substantially more expensive.In all scenarios,the analysis considers the impact of a starting carbon price of$60/tCO2e,growing 0.5 percent per year.There is,however,an additional gap that needs to be covered.Grants and CCfDs could offset the capital and operating costs assoc
142、iated with decarbonized investment,even though the impact would be relatively low compared with that of carbon price mechanisms.3.3 Financial institutionsFinancial institutions also have the capability to shift cash flows and allocate significant funds to green investments.Due to generally high leve
143、ls of debt as a share of total capital for investments in the aluminum industry(typically 50 to 75 percent),the bond and loan markets would be key enablers.Financial institutions could use green loans,green bonds,transition bonds,and sustainability-linked loans and bonds to meet their decarbonizatio
144、n targets.If these instruments offered players a lower interest rate or a longer tenure compared with financial products directed at carbon-intensive activities,they would further support decarbonization.Rising demand for low-carbon products is pushing the aluminium industry away from the carbon-emi
145、tting processes that have dominated production for the past 136 years.These positive steps are predicated on a more significant role for frontier technologies that could reduce or completely abate the GHG emissions in refineries and smelters.However,the analysis in this paper shows that financial in
146、sti-tutions,end users,and government will need to work together to turn frontier technologies into net-positive projects that players can scale.No player in the value chain can decarbonize the sector alone.Indeed,end users could pay a green premium to cover the decarbonization cost,likely including
147、a higher premium to encourage the large-scale investment required to reach committed emission targets.In addition,governments and financial institutions will play a key role covering the remaining decarbonization cost and accelerating investment decisions to quickly deploy frontier technologies.PAGE
148、 22Aluminum Decarbonization at a Cost That Makes SenseAppendixAluminum smelting direct-process and raw-material emissionsThe average global direct emissions from aluminum smelting,including carbon anode manufacturing,is 2.5 tCO2e per metric ton of aluminum.24 The majority of emissions1.5 tCO2e/t of
149、aluminum25are process CO2 emissions generated during carbon anode production.This is part of electrolytic reduction where aluminum is deposited in liquid form on the cathode and oxygen is deposited on the anode.Oxygen reacts with the anode to form CO2 gas while the aluminum is tapped in batches from
150、 the cell.26In addition to CO2 emissions,the electrolysis process generates perfluorocarbon compounds(PFCs)in what is known as the anode effect.The anode effect occurs when the alumina dissolved in the cryolite melt falls to a concentration level too low to support the current flow at the nominal vo
151、ltage for aluminum production.During these periods,which typically occur during 0.030.50 percent of the total electrolysis time,the voltage rises to a level where reactions are initiated that produce the PFCs.27 The average global emissions of PFCs are 0.5 tCO2e/t of aluminum and can be reduced to 0
152、.02 tCO2e/t of aluminum by implementing best practices.28The remaining 0.5 tCO2e/t of aluminum are associated with carbon anode manufacturing(Exhibit 9).This process requires the use of two main raw materials:calcined petroleum coke(CPC)and coal tar pitch(CTP).In the process,leftovers from dismantle
153、d anodes,called anode butts,are also recycled to reduce the use of raw material.CPC is produced by processing raw“green”petroleum cokea by-product of petroleum refininginto rotary kilns,where it is heated to temperatures between 1,200C and 1,350C.These high temperatures remove excess moisture,extrac
154、t all remaining volatile hydrocarbons,and modify the crystalline structure of the coke,resulting in a denser,more electrically conductive product.CPC can be generated on-site or sourced from third-party companies.This process typically generates 0.3 tCO2e/t of aluminum emissions.EXHIBIT 9Carbon capt
155、ure and storage is applicable in different steps of the aluminum value chain.1 Carbon capture and storage.Source:Fives Group;Mission Possible Partnership;McKinsey analysisSimplified smelter value chainCCS1Petcoke calcinationAnode baking Green petroleum cokeRotary kilnRotary coolerCalciner gas treatm
156、entCokePitch fume treatment centerFume treatment centerAnode baking furnaceGreen anode plantPrebake anodeRodding shopSmelterPyro scrubberSettling chamberBoilerPitchPAGE 23Aluminum Decarbonization at a Cost That Makes SenseThe CPC is then processed to achieve a specific particle size distribution usi
157、ng a crushing and grinding circuit with particle classifiers.Once the required particle size distribution is reached,the processed petroleum coke is combined with CTP,a thick dark liquid,which is a distilled by-product of the production of coke and coal gas from coke ovens.This mixture is molded to
158、the required anode shape(denominated green anode)and then is thermally treated using an anode baking furnace.In this furnace,the green anodes are stacked between refractory walls separated by a flue channel in which hot gases flow.The overall baking cycle could last 10 to 14 days.For each metric ton
159、 of aluminum,about 0.4 t of anode is expected to be consumed.Because of the presence of volatile hydrocarbons,this process generates 0.1 t of CO2e/t of aluminum from anode baking furnace direct thermal energy and 0.1 t of CO2e/t aluminum from volatile-matter combustion.The largest technical challeng
160、e to improving the energy efficiency of electrolysis is the development of a non-consumable inert anode.Aluminum smelting direct-emission decarbonization leversMost of the technical challenges associated with direct smelting emissions relate to CO2 generation due to anode fabrication and anode consu
161、mption in the electrolysis process.For decades,the aluminum industry has been investigating the implementation of a non-consumable anode that could potentially abate most of the CO2 generation during electrolysis and generate oxygen instead(inert anode).Carbon capture and storage(CCS)is also being e
162、xplored as a way to retrofit existing operating smelters facilities.There are only three alternatives for aluminum smelters to decarbonize their direct smelting emissions,none of which is proven today(Exhibit 10):inert anode CCS carbochlorination with CO2 regenerationInert anode:The potential alumin
163、um game changerInert-anode technology has been seen as the main alternative to carbon anodes in the Hall-Hroult process.This technology requires use of an alternative,non-consumable material such as metal(for example,iron-nickel base alloy)or ceramic(including cermet)to replace the carbon anodes.Imp
164、lementing this technology could increase the life span of the anodes by two to three years and generate oxygen as a by-product.Wetted cathode is an alternative solution to improve system efficiency.This technology uses titanium diboride(TiB2)to wet the cathode surface.By creating a cathode surface t
165、hat is inert and wettable on the molten aluminum pad,the anode-cathode distance can be reduced by 50 percent or more,reducing the voltage drop and leading to substantial energy savings.Inert-anode technology,coupled with wetted cathodes,offers the greatest opportunity to reduce GHG emissions with hi
166、gh efficiency.It eliminates the CO2 and PFCs(particularly carbon tetrafluoride)associated with the consumption of the carbon anodes,as well as the need to manufacture a carbon anode in the first place.29 However,direct-process and raw-material emissions from inert anodes could be 0.25 t of CO2/t of
167、aluminum,mostly linked to the production of ceramic-base inert anodes.30 The electricity intensity of inert anodes is still uncertain,but could be as much as 20 percent more than in the Hall-Hroult process.31There is currently no industrial-scale inert anodebased technology for aluminum smelting,tho
168、ugh multiple companies are exploring the idea,and a commercial-scale plant is expected to be developed by 2030.ELYSIS(a joint venture among Alcoa,Apple,Rio Tinto,and the Canadian government)is running industrial trials at the Alma smelter in Canada.Apart from these two examples,there is very little
169、public information on inert-anode operational performance,and estimates on when this will be adopted on an industrial scale vary vastly.Retrofit Hall-Hroult and raw-material process with CCSDeployment of CCS in the industry and transformation sector(cement,chemicals,fuel,and steel)shows promise for
170、this approach to CO2 abatement.These sectors accounted for 30 commercial CCS facilities in operation in 2021,with many more planned,including in the steel industry.32Implementation in the aluminum industry is possible but presents challenges relating to low CO2 concentration in the off-gas stream(Ex
171、hibit 11).This low concentration,specifically on the smelter process,is associated with the entrainment of fresh air required to manage the process heat balance.As a consequence,overall CO2 concentration is reduced to about 1 volume percent.One alternative is to redesign the PAGE 24Aluminum Decarbon
172、ization at a Cost That Makes SenseEXHIBIT 10Several smelter technologies have the potential for a low-CO2 footprint.Note:Figures may not sum,because of rounding;excluding transport and raw material input;assuming perfluorocarbon control with best available technology(BAT).1 Metric tons of carbon dio
173、xide per metric ton of aluminum across Scopes 1 and 2,including process CO2 emissions,process non-CO2 emissions,and anode fabrication emissions including raw materials(0.5).2 Perfluorocarbon.Assuming BAT marginal emissions of 0.02 t of CO2e/t of aluminum.Source:“Modular primary aluminium plant based
174、 on beck cells with multiple vertical inert anodes and wettable inert cathodes,”Arctus Metals,April 5,2017;Asbjrn Solheim,“Inert anodesthe blind alley to environmental friendliness?,”Light Metals,2018;Bjarte ye,“Carbochlorination routes in production of Al,”HighEFF,2018;Efthymios Balomenos et al.,“C
175、arbothermic reduction of alumina:A review of developed processes and novel concepts,”Proceedings of the European Metallurgical Conference,2011;International Aluminium Institute;Mazin Obaidat et al.,“Energy and exergy analyses of different aluminum reduction technologies,”Sustainability,2018,Volume 1
176、0,Number 4;Alcoa;EGA;Hydro;Rio TintoProcess CO2Anode productionLowHighHall-Hroult(HH)HH+carbon capture and storage(CCS)HH with CCS and electric anode baking with CCSApproachEmerging example Aluminum smelter emissions,tCO2 per t aluminum1 Logic or limitationMaturityInert anodeGlobal average smelter u
177、sing 100%green electricityMultiple players including Chalco,Emirates Global Aluminium(EGA),and Hongqiao are exploring renewable-energy sources to fossil-fuel generation sources En+Group,Hydro,Rio Tinto Typical smelter using 100%green electricity with CCSAlvance,Hydro,Rio TintoTechnology is still in
178、its infancyAssuming 70%CCS efficiency,no PFC2 capture and no reduction in carbon anode production emissionsN/ATechnology is still in its infancyAssuming 70%CCS efficiency,no PFC capture and green electricity for electric anodeAlcoa and Rio Tinto(ELYSIS),En+GroupTypical smelter using 100%green electr
179、icity with CCS,electric anode baking with CCS,and petcoke calcination with CCSRetrofit current HH,reusing potrooms holes,though cell needs to be redesignedTechnology developments in the past 10 yearsELYSIS commercial demonstration by 20262.01.50.51.00.50.50.70.50.20.3aluminum-smelter pots to avoid a
180、ir leakage and increase the CO2 concentration by 410 volume percent so the CCS process becomes economically viable.33 The anode production value chain could also benefit from implementing CCS.Although this portion of the value chain still has low CO2 concentration(less than 10 volume percent),evolut
181、ion in CCS technology applied to the cement industry could likely be retrofitted to the petcoke calcination process(similar usage of rotary kiln).The process of CO2 concentration could also be boosted by oxyfuel firing and retrofitting existing operations with heat recovery units(such as boilers).Th
182、is would avoid the use of bleed air to reduce gas temperature.34The last portion of the anode value chain that could benefit from CCS implementation is the anode baking furnace.This technology could reduce CO2 emissions from both direct energy input and volatile-matter combustion.Alternatively,consi
183、dering that about 50 percent of energy for anode baking is related to direct energy input(mostly from natural gas or oil firing),the process could be reengineered to implement electric heating(with access to renewable energy)and to combine direct or air capture to reduce the remaining 0.1 t of CO2e/
184、t aluminum.Among all CCS use cases,aluminum smelting,petcoke calcination,and anode baking furnace have a relatively low CO2 concentration compared with natural-gas processing,PAGE 25Aluminum Decarbonization at a Cost That Makes SenseEXHIBIT 11Integrated aluminum CO2 point sources and concentrationIn
185、dustrial plant CO2 concentration,%Typical aluminum value chain CO2 concentrations are low compared with other industries.1 Including CO2 and perfluorocarbons and assuming 1.5 t CO2/t aluminum(Al)and 0.05 t CO2/t Al,respectively.2 Based on natural-gas firing.3 Coal to liquid.4 Gas to liquid.Source:“C
186、ost of capturing CO2 from industrial sources,”US Department of Energy and NETL,January 10,2014;Anna Carpenter,“CO2 abatement in the iron and steel industry,”IEA Clean Coal Center,January 2012;Henk Kortes and Ton van Dril,“Decarbonisation options for the Dutch aluminium industry,”IPCC;NRCAN;PBL Nethe
187、rlands Environmental Assessment Agency,June 4,2019Integrated-route CO2 point sourcesCO2e emissions across value chain,t CO2e/t aluminumTypical CO2 concentration,%Refinery(digestion)Ethanol;ammonia;natural-gas(NG)processing;ethylene oxide;CTL3;GTL4 Oxyfuel power generationRefinery hydrogenCementCoal
188、power plantNG combined cycleRefinery(calcination)Petcoke calcinationAnode bakingSmelter0.990+804522140.40.30.150.11.6135%46%2 48%35%1%cement rotary kilns,or coal-fired power plants.However,CCS is likely to be viable on smaller emissions sources only if sites can combine carbon capture on-site with s
189、melter process CCS.Since many smelters do not have on-site anode production,this is a key barrier.Therefore,for first-of-a-kind projects,the CO2e avoided capture rate would likely be below 90 percent.Assuming a 70 percent efficiency factor,the implementation of CCS in the smelter and raw-material pr
190、ocess could reduce the CO2e emissions from 2.0 t of CO2e/t aluminum to 0.7 t of CO2e/t aluminum(Exhibit 12).Carbochlorination with CO2 regenerationCarbochlorination with CO2 regeneration is an alternative to the current aluminum smelting process.35 Alcoa developed this process as a proposed alternat
191、ive to the Hall-Hroult process.One of the initial benefits was a significant reduction in specific energy consumption(about eight MWh/t of Al),and the electrolysis could be carried out in a lower electrolyte temperature(about 720C).As proposed by Alcoa,the process includes the chlorination of alumin
192、um oxide(alumina)obtained in the Bayer process,using CO as a reducing agent and chlorine gas(Cl2)as a chlorination agent.The resulting aluminum chloride(AlCl3)is then electrolyzed using a bipolar cell.The advantage of this process over the conventional Hall-Hroult process is that the aluminum chlori
193、de electrolysis produces a pure stream of Cl2 that can be recycled back into the chlorination process,while the chlorination process produces a pure stream of CO2 that could potentially be combined with CCS.The industry is also exploring the alternative of CO regeneration,which could reduce the use
194、of CO(mostly generated by conventional sub-stoichiometry combustion).This would be through a closed-loop circuit that would electrolyze the generated CO2 and PAGE 26Aluminum Decarbonization at a Cost That Makes SenseEXHIBIT 12CO2e reduction in aluminum(Al)smelters with CCS,metric ton CO2e per ton Al
195、 Levelized cost,$per metric ton AlImplementation of carbon capture and storage technology could reduce smelter CO2 emissions by more than 60 percent.Note:Carbon capture and storage(CCS)efficiency considered at 70%;anode baking electrification CO2 reduction based on fuel energy savings and utilizatio
196、n of green energy.1 Perfluorocarbon.2 Best available technology.3 Calcined petroleum coke.4 Data not available;technology is still in the conceptual phase and being formulated for this application(technology readiness level TRL=2).Source:“Electrification in primary aluminum,”Kanthal,October 27,2020;
197、Felix Keller et al.,“Specific energy consumption in anode baking furnaces,”Light Metals,2010;Olivier Lassagne et al.,“Techno-economic study of CO2 capture for aluminum primary production for different electrolytic cell ventilation rates,”Chemical Engineering Journal,2013,Volume 230$120300$1530$510 N
198、/A4$140340 Hall-Hroult(HH)HH with CCSCPC3 with CCSAnode baking with CCSAnode baking electrificationTotal67%2.051.000.210.211.000.500.670.070.050.100.100.100.050.030.091.500.30CO2Anode process CO2PFC1 and BAT2 Anode thermal energyPetcoke calcinationconvert it back into CO.The process could add extra
199、energy consumption of five MWh/t Al.Although this process has been studied for a long time,project development is stalled because of difficulties associated with production and handling of pure aluminum trichloride.Aluminum players are still considering the benefits,with potential deployment of pilo
200、t operations by 2030 and an industrial-scale plant in the midterm.Decarbonization capital expendituresCapital expenditures for the Hall-Hroult process range from$2,100/t Al capacity(mostly in China)to$6,000/t Al capacity(mostly in Canada and Norway).36 Approximately 50 percent of this cost is associ
201、ated with the area where the pots are installed,pot technology,and the anode production facility(Exhibit 13).Retrofitting existing Hall-Hroult smelters with CCS technology,taking into account a CO2 concentration of 1 volume percent,could potentially add about 5 percent of the initial capital cost of
202、 the project.The implementation of inert-anode technology could come at a similar capital cost to conventional smelter technology.Compared with Hall-Hroult technology,inert-anode projects have higher potroom costs,mostly associated with technology differences.Inert anodes would be produced in a cent
203、ralized facility owned by the technology provider.Therefore,facilities will not require on-site anode production,and smelters will need to purchase the inert anodes to replace anodes that are near the end of life(two to three years).Given that the technology provider will own the technology and the
204、intellectual property,capital expenditures will not vary significantly across regions.Decarbonization operating expendituresIn 2021,the average operating cost of aluminum smelters worldwide was calculated to be between$1,654 and$1,750 per metric ton of aluminum,37 with more than 88 percent of the co
205、st PAGE 27Aluminum Decarbonization at a Cost That Makes Senseassociated with raw materials(44 percent),electricity38(30 percent),and anode production and consumption(14 percent)(Exhibit 14).The implementation of CCS in existing smelter facilities could potentially lift overall operating costs by 6 p
206、ercent,with most of the share(about 5.6 percent)associated with CCS operating costs and the balance with CCS energy consumption over Hall-Hroult cost.Inert-anode technology,on the other hand,shows an operating cost reduction of 310 percent.Although energy consumption could be 20 percent higher than
207、with Hall-Hroult,the longer life of the anode or cathode has a cost benefit.This wide range is associated with the implementation of the technology and the respective technology learning curve,with the first years of operation having the lowest cost benefit compared with existing smelting technology
208、.This would rapidly increase during the first years of operation while the industry implements commercial improvements and best practices.This learning curve is expected to be rapid(one to two years)because of extensive pilot testing in the past decade.In order to be cheaper than existing Hall-Hroul
209、t technology,inert anodes will likely need to have a life span or two years or more,and cathodes will likely need to work for four years or more.Refining:The Bayer processThe Bayer process can be separated into two main carbon intensive processes:digestion and calcination.Digestion operating expendi
210、tures and capital expendituresDecarbonization levels in refinery digestion plays an important role but requires extra investment for retrofitting of existing facilities.In this comparison,a natural-gas boiler was utilized as the baseline“best available technology.”The natural-gas boiler assumes over
211、all capital expenditures of$50 per metric ton of alumina(Aa)and operating expenditure cost of$63/t Aa,mostly associated with fuel costs(Exhibit 15).An electric boiler could incur an additional capital-project cost of 10 percent,while operating costs associated with electricity sourcing could rise by
212、 35 percent(assuming an electricity price of$37/MWh).Hydrogen-fired boiler prices could incur a similar capital expenditure as natural-gas boilers,but operating costs would be highly dependent on hydrogen prices and increase fuel cost about 4.3 times over existing natural-gas operations.39 Implement
213、ation of MVR technology shows the most reduction in operating costsapproximately 40 percent.This is mostly associated with heat loss recovery from the process.Despite the reduction in operating costs,the technology incurs higher capital expenditures with an increment of about 50 percent compared wit
214、h natural-gas boilers.Calcination operating expenditure and capital expenditureThe implementation of a green-hydrogen-based calciner could have the best decarbonization potential for calcination under a gas suspension technology baseline,considering that existing installed technologies could be quic
215、kly retrofitted for hydrogen firing.Carbon capture could be an alternative solution when sourcing green hydrogen is difficult(for example,due to a remote location with no access to renewable energy).This technology could require an additional$42/t Aa of capital investment and would increase operatin
216、g expenditures by$50/t Aa(Exhibit 16).PAGE 28Aluminum Decarbonization at a Cost That Makes SenseEXHIBIT 13Inert-anode technology can be retrofitted,but it still demands a significant retrofit cost.1 Path to net zero report 2021,En+Group.2 Starting from AP30 smelter technology.Source:“Modular primary
217、 aluminium plant based on beck cells with multiple vertical inert anodes and wettable inert cathodes,”Arctus Metals,April 5,2017;Asbjrn Solheim,“Carbochlorination routes in production of Al,”HighEFF,February 28,2018;Asbjrn Solheim,“Inert anodesthe blind alley to environmental friendliness?,”Light Me
218、tals,2018;Efthymios Balomenos et al.,“Carbothermic reduction of alumina:A review of developed processes and novel concepts,”Proceedings of the European Metallurgical Conference,2011;International Aluminium Institute;Jeff Keniry,“The economics of inert anodes and wettable cathodes for aluminium reduc
219、tion cells,”Journal of the Minerals,Metals&Materials Society,2001,Volume 53;Mazin Obaidat et al.,“Energy and exergy analyses of different aluminum reduction technologies,”Sustainability,2018,Volume 10,Number 4;Olivier Lassagne et al.,“Techno-economic study of CO2 capture for aluminum primary product
220、ion for different electrolytic cell ventilation rates,”Chemical Engineering Journal,2013,Volume 230;Vetchinkina Tatiana Nikolaevna,Balmaev Boris Grigorievich,and Tuzhilin Aleksey Sergeevich,“Prospects of chlorine method of aluminium production in modern conditions,”KnE Materials Science,2020,Volume
221、6,Number 1Capital expenditure,$/t AlPotrooms2,5003,000Use vertical inert-anode cells configuration500-Anode roddingNo need;inert-anode to be purchased on the market225225CasthouseEqual to HH200213Material handlingEqual to HH700700Utility and SVC systemEqual to HH200200Nonprocess facilitiesEqual to H
222、H450438Site constructionEqual to HH650650Indirect costEqual to HH575575ContingencyEqual to HH277-CCS plantN/A-Chlorination plant withCO2 regeneration electrolysisN/A6,000 6,0001GreenfieldSimilar to HH2773,0002Retrofit cellNew potrooms,only leveraging potholeHall-Hroult(HH)HH with carbon capture and
223、storageInert anodeDelta versus HH explainedPAGE 29Aluminum Decarbonization at a Cost That Makes SenseEXHIBIT 14The operating expenses of smelting technologies depend on electricity prices.1 Considers a range between 12.3 and 16 kWh/kg Al,according to McKinsey database.2 Compared against industry ave
224、rage HH specific energy consumption of 13.8 kWh/kg Al,resulting in an overall operating expense of$1,710/t Al.3 Based on ceramic inert anode and includes cathode price;cost=96 x 3 years x 12 months/240.Source:“Modular primary aluminium plant based on beck cells with multiple vertical inert anodes an
225、d wettable inert cathodes,”Arctus Metals,April 5,2017;Asbjrn Solheim,“Carbochlorination routes in production of Al,”HighEFF,February 28,2018;Asbjrn Solheim,“Inert anodesthe blind alley to environmental friendliness?,”Light Metals,2018;Efthymios Balomenos et al.,“Carbothermic reduction of alumina:A r
226、eview of developed processes and novel concepts,”Proceedings of the European Metallurgical Conference,2011;International Aluminium Institute;Jeff Keniry,“The economics of inert anodes and wettable cathodes for aluminium reduction cells,”Journal of the Minerals,Metals&Materials Society,2001,Volume 53
227、;Mazin Obaidat et al.,“Energy and exergy analyses of different aluminum reduction technologies,”Sustainability,2018,Volume 10,Number 4;Olivier Lassagne et al.,“Techno-economic study of CO2 capture for aluminum primary production for different electrolytic cell ventilation rates,”Chemical Engineering
228、 Journal,2013,Volume 230;Vetchinkina Tatiana Nikolaevna,Balmaev Boris Grigorievich,and Tuzhilin Aleksey Sergeevich,“Prospects of chlorine method of aluminium production in modern conditions,”KnE Materials Science,2020,Volume 6,Number 1UnitOperating expensesRaw material$/t Al756756Equal to HH$/t Al45
229、65941519615Electricity($37/MWh)Up to 20%increase2$/t Al-Carbochlorination$/t Al24096AnodeLonger duration(3648 months versus 1 month),14x cost3$/t Al2323Aluminum fluorideEqual to HH$/t Al7866Labor15%savings due to longer life of anodes(2 years vs 1 month)$/t Al2828Cell rebuildEqual to HH$/t Al3535Mai
230、ntenanceEqual to HH$/t Al38756453838OtherEqual to HH$/t Al-CO2-handling operating expenditures$/t Al-CO2-handling electricity$/t Al 1,6541,792 1,5621,657Total operating expenses%2833%968 1,815+6%of HH229%3337%Electricity operating expenses share3%to 10%of HH2Hall-Hroult(HH)HH with c
231、arbon capture and storageInert anodeDelta inert anode vs HHPAGE 30Aluminum Decarbonization at a Cost That Makes SenseElectric or hydrogen-fired boilers may eliminate CO2e emissions associated with digestion.1 Coefficient of performance(COP)=heat provided;work required.2 Based on thermal input requir
232、ed for low-temperature digestion.3 Based on assumption of COP 3 and CO2 emissions reduction of 95 percent.4 Based on hydrogen heat content of 141.7 megajoules/kg.5 There may be additional capital expenditures for hydrogen transportation as new piping is required.6 Based on 2020 natural-gas price of$
233、6.68/GJ.7 Based on US 2020 electricity price of$37/MWh,and assuming 3.6 GJ/MWh.8 Based on 2022 green-hydrogen price of$4.93/kg.Source:FLSmidth;Metso Outotec;James H.Williams et al.,“Carbon-neutral pathways for the United States,”AGU Advances,2021,Volume 2,Number 1UnitsNatural-gas(NG)boilerElectric b
234、oilerType of fuelBoiler efficiencyThermal input required-Natural-gas requirementH2-fired boilerNG boiler with mechanical vaporrecompressionNatural gas%Green electricityGreen hydrogenNatural gas and green electricity859894COP1 3Gigajoules(GJ)/t alumina(Aa)8.028.028.028.02Cubic meters/t Aa
235、0885722-Electricity requirementGJ/t Aa-8.2-2.53-Hydrogen requirementkg/t Aa-604-CO2 producedt CO2/t aluminum0.945055-0.05(95%reduction)TRL9655Capital expenditureOperational expenses$/t Aa$/t Aa50575200Fuel costsElectricity costsEXHIBIT 15PAGE 31Aluminum Decarbonization at a Cost That Makes SenseEXHI
236、BIT 16Decarbonization of calcination technologies may be achieved through a hydrogen-based calciner.1 Based on combustion of hydrogen with pure oxygen produced from electrolysis,assuming coastal region and availability of green electricity.2 Based on typical circulating-fluidized-bed(CFB)performance
237、.3 Based on 100%thermal efficiency.4 Based on electrolysis power requirement of 50 kWh/kg H2.5 Based on$650/kW electrolyzer capital expenditure cost.6 Assuming$125/t of CO2 of capture capital expenditure and$125/t of CO2 of storage and transport translating into$75/t Aa.7 Based on procured hydrogen
238、price of$4.93/kg delivered.8 Based on US 2020 electricity price of$37/MWh,and assuming 3.6 GJ/MWh.9 Technology readiness level.Source:“Combustion of fuels-carbon dioxide emission,”Engineering Toolbox,accessed February 2022;“Green hydrogen cost reduction,”IRENA,2020.UnitsNatural gasH2-based calciner+
239、electrolysis1Thermal input required2Natural gas+carbon capture and storage2.8Gigajoules(GJ)/t Alumina(Aa)2.82.8Natural gas requirement643Cubic meters/t Aa-643Electricity requirement-GJ/t Aa3.64-Hydrogen requirement-kg/t Aa203-CO2 produced0.26t CO2/t aluminum-0.078Capital expenditure33$/t AaElectroly
240、sis H2 975H2-based calciner 3775(assuming transport and storage)6TRL958Operating expenditure:fuel costs717$/t AaProcured H2 91817+50(CCS)Operating expenditure:electricity costs7-$/t AaProduced H2 489-PAGE 32Aluminum Decarbonization at a Cost That Makes SenseModel key inputs.There are three main type
241、s of inputs that inform the model:refinery,smelter,and financial.Main inputsRefinery overall inputs Nominal refinery capacity Refinery utilization rate Investment scenario plant type(greenfield or brownfield)Construction duration(in months)Digestion-specific inputs Digestion type(low temperature,hig
242、h temperature,and ultrahigh temperature)Steam generation type(natural-gas boiler,electric boiler,hydrogen boiler,natural-gas boiler with mechanical vapor recompression)Amount of steam generatedCalcination-specific inputs Investment scenario(greenfield vs brownfield)Calcination firing fuel(natural ga
243、s,natural gas retrofitted with carbon capture and storage CCS,or hydrogen)Type of calciner(circulating-fluid bed,flash calciner,fluid flash,rotary kilns)Calcination thermal energy inputSmelter overall inputsSmelter-specific inputs Type of smelter(Hall-Hroult,Hall-Hroult with CCS on smelter,Hall-Hrou
244、lt with CCS on anode baking furnace,Hall-Hroult with CCS on petcoke calcination,inert anode,and carbochlorination with CO2 regeneration)Nominal smelter capacity Smelter utilization rate Investment scenario smelter type(greenfield or brownfield)Construction duration(in months)Smelter energy intensity
245、Power-specific inputs Captive,noncaptive electricity source(virtual power purchasing agreement VPPA)Heat loss management installation allowing for energy cost savings Type of electricity source(coal,natural gas,coal+CCS,natural gas+CCS,hydropower,small modular nuclear reactor,100 percent renewables+
246、long-duration energy storage LDES)Electricity priceFinancial inputs Discount factor Debt as share of total capital Debt or loan tenure Interest ratePAGE 33Aluminum Decarbonization at a Cost That Makes SenseENDNOTES1 Making net-zero aluminum possible:An industry-backed 1.5C-aligned transition strateg
247、y,Mission Possible Partnership,September 2022.2 Ibid.3 “Apples$4.7B in Green Bonds support innovative green technology,”Apple,March 24,2022.4 Climate Bonds Initiative home page,accessed October 7,2022.5“Sustainability-linked loan principles(SLLP),”Loan Syndications&Trading Association,March 31,2022.
248、6 The Poseidon Principles were created in 2019 by 11 leading banks.7“Societe Generale,founding member of the working group aiming at tackling aluminum decarbonization,”Societe Generale,June 21,2022.8“Currency converter,”Exchange-Rates.org,accessed October 7,2022.9 Brian Taylor,“ArcelorMittal gets go
249、vernment backing for Canadian EAF switch,”Recycling Today,February 16,2022.10 Ibid.11“Carbon free aluminium smelting a step closer:ELYSIS advances commercial demonstration and operates at industrial scale,”Rio Tinto,November 4,2021.12“Alcoa receives funding to pilot carbon-reduction technology for a
250、lumina refining,supporting Refinery of the Future initiative,”Alcoa,May 3,2022.13 Benjamin Wehrmann,“Carbon Contracts for Difference could kickstart German industry decarbonisation think tank,”Clean Energy Wire,February 7,2022.14“Government hits accelerator on low-cost renewable power,”GOV.UK,Februa
251、ry 9,2022.15 Carrie Bone,Imogen Dudman,and Alice Mason,“Key talking points ahead of Fastmarkets International Aluminium Conference,”Fastmarkets,August 30,2022;expert interviews.16“Apple announces the new iPhone SE:a powerful smartphone in an iconic design,”Apple,March 8,2022.17“Apple to use ELYSIS z
252、ero-carbon aluminum for the latest iPhone SE,”Alcoa,March 24,2022.18 In most scenarios,the analysis considers the impact of a starting carbon price of$60/t CO2e,growing 0.5 percent per year.19 These are illustrative and will change significantly for different investment options and site-specific uti
253、lity prices.However,across all investment options,green premiums and carbon prices typically have the greatest impact.20 CDP Worldwide.21 Making net-zero aluminum possible,September 2022.22 Assuming average car cost of$40,000 using 150 kg of aluminum today(“Automotive and transport,”European Alumini
254、um,accessed September 29,2022)and 35 percent flat-rolled and extrusion products where green premium would apply(“Aluminum continues unprecedented growth in automotive applications,”DuckerFrontier,October 20,2020).23 Making net-zero aluminium possible,September 2022.24“Greenhouse gas emissions,”Inter
255、national Aluminum Institute,October 4,2021.25 Ibid.26 Mohammed Al Qassemi and Khalil Khaji,“The role of anode manufacturing processes in net carbon consumption,”Metals,May 2016,Volume 6,Number 6.27 Vikram Bakshi et al.,“Perfluorocarbon(PFC)generation during primary aluminium production,”Light Metals
256、,2000.28“Greenhouse gas emissions,”October 4,2021.29 Inert anode roadmap,Aluminum Association,February 1998.30 Halvor Kvande,“How to minimize the carbon footprint from aluminium smelters,”7th International Conference on Electrodes for Primary Aluminium Smelters,Reykjavik,Iceland,April 2527,2017.31#S
257、INTEFblog,“Is aluminium electrolysis using inert anodes a blind alley?,”blog entry by Asbjrn Solheim,April 24,2019.PAGE 34Aluminum Decarbonization at a Cost That Makes Sense32“Carbon capture,utilisation and storage,”IEA,accessed October 7,2022.33 Anette Mathisen et al.,“Cost optimized CO2 capture fr
258、om aluminium production,”Energy Procedia,2014,Volume 51.34 A portion of the industry uses heat recovery units,but not all kilns have this feature.35“Capital Markets Day 2021,”Hydro,accessed October 7,2022.36 MineSpans by McKinsey.37 Ibid.38 Considers an electricity price average of$37/MWh.39 Using a 2022 green-hydrogen price of$4.93/kg.The Mission Possible Partnership is an alliance of climate leaders focused on supercharging efforts to decarbonize some of the worlds highest-emitting industries in the next ten years.COPYRIGHT 2023 MISSION POSSIBLE PARTNERSHIP