Production of aluminium master alloys on a foundry
Clean Energy 101: Why and How to Fund the Decarbonization of Aluminum
Light, strong, and highly recyclable, aluminum is essential to technologies that are driving the energy transition, from electric vehicles to solar panels. So how do we speed up and fund the sector’s decarbonization?
Aluminum is an irreplaceable building block of modern life, essential to everything from air travel to beverage cans. Increasingly, it’s also a critical ingredient in many of the emerging technologies powering the energy transition. Electric vehicles and solar panels, for example, rely on aluminum for key components. So as the demand for these energy transition technologies soars, so too does demand for aluminum.
Yet aluminum production today is also emissions-intensive, accounting for 2 percent of global CO2 emissions annually — around 1.1 billion tons last year. Those outsized emissions come primarily from the huge amounts of electricity necessary to transform alumina into aluminum in the smelting process.
Increasing use of renewable sources of electricity — whether via low-carbon grids or by wiring plants directly to dedicated clean energy projects — can dramatically slash aluminum’s carbon intensity. Switching from coal-based electricity to renewable power, for example, can reduce the emission intensity of primary aluminum production by as much as 60 percent.
And beyond shifting to renewables, there are other pathways to slash aluminum’s carbon intensity — and financing these is critical. In December, RMI debuted the Sustainable Aluminum Finance Framework (the Framework), in collaboration with the industry and global banks, that enables banks to assess and disclose the alignment of their aluminum clients and lending portfolios against a 1.5°C pathway. By facilitating finance into these solutions, the new standard will help speed the deployment of cleaner aluminum production methods. More on this framework below.
Chart: RMI Data: International Aluminum
What technologies can the aluminum sector use to decarbonize?
The key levers to decarbonize the aluminum sector start with electricity decarbonization, but also include maximizing recycling rates, boosting material and resource efficiency, and deploying new technologies for refining and anode production. Indeed, for the industry to meet 2050 decarbonization commitments, these solutions must scale in combination.
Electricity decarbonization is essential for the industry, with efforts focused primarily on transitioning assets fueled today by coal and/or gas. The deployment of low carbon anodes for the smelting process (i.e., carbon capture for existing anodes or inert anodes) and new refining technologies (i.e., energy recovery systems, mechanical vapor recovery systems, hydrogen or electric low carbon boilers and calciners, and concentrated solar thermal) will need to be installed. The supply and use of recycled aluminum must also increase drastically.
What role do financial institutions play in decarbonizing aluminum?
The technical solutions necessary to decarbonize aluminum’s electricity consumption are available. But funding and infrastructure challenges to switch over are significant.
Indeed, switching to near-zero emission technologies to achieve deep emissions reductions requires significant investment. The Mission Possible Partnership estimates that, by 2050, $1 trillion in additional investment will be needed to transition the sector to net-zero. Financial institutions play an important role in identifying opportunities for their clients to decarbonize, both to meet climate goals and to create competitive advantage.
Recognizing the need for financial institutions to contribute to the decarbonization of the aluminum industry, the Sustainable Aluminum Finance Framework is a voluntary reporting framework that allows banks to assess and disclose the alignment of the aluminum companies they lend to and support their decarbonization efforts.
This Framework is a result of a working group of RMI, banks, leading aluminum producers and trade organizations, and key standard setters who came together to create a methodology that will enable transparency in both measuring and reporting progress against climate targets.
What does the Sustainable Aluminum Finance Framework measure?
The Framework is an open-source reporting methodology with the objective of producing a metric for measuring the yearly climate alignment — or alignment score — of a bank’s aluminum lending portfolio and its associated emissions intensity.
To the extent possible, the methodology enables banks to make fair, like-for-like comparisons between clients and, in turn, portfolios, to encourage action across the aluminum value chain on key decarbonization levers.
Banks that adopt the Framework are asked to disclose their sectoral portfolio alignment score and — if desired — their portfolio’s emissions intensity; while client-level data remains confidential.
What is the potential impact of the Sustainable Aluminum Finance Framework?
The Framework accounts for 96.7 percent of the sector’s emissions. It provides lenders with the tools they need to set robust targets for their aluminum lending portfolios and engage meaningfully with their clients.
By equipping banks with a methodology, roadmaps, and solutions to access data, the Framework provides a clear path for financial institutions and their clients to support sustainable practices in aluminum production.
As the Framework is the result of extensive consultations with industry and other critical stakeholders, it also amounts to a call to action: for the industry and its partners to row in the same direction to meet pressing climate goals.
For more on decarbonizing the aluminum sector, see:
- Press release: “At COP28, RMI launches the first finance framework to support the decarbonization of aluminum production,” December 4, 2023.
- Report: Aluminum GHG Emissions Reporting Guidance, December 2023
- Report: Sustainable Aluminum Finance Framework Methodology, November 2023
- Resources: Accounting for Aluminum Emissions at the Product Level