Thursday, October 30, 2008

Emission cuts to squeeze smelters

Adam Morton 
The Age, October 31, 2008

Aluminium smelting in Australia will be among the big losers as the world moves to cut greenhouse emissions, with its output projected to be halved by mid-century.

Under Professor Ross Garnaut's recommendation that Australia accept a deal to cut emissions by 10% by 2020 and 80% by 2050, aluminium production would plummet by 35% in the first decade of emissions trading and continue to decline.

Treasury modelling released yesterday found tackling climate change would have little impact on the economy, but that the impact would differ markedly across sectors.

Forestry would grow expediently, boosting business by at least 166% under a global deal as investors planted trees to soak up greenhouse gas and earn tradeable carbon permits.

Under a deal in which Australia cuts emissions by 25%, revenue from forestry would increase by an extraordinary 875%.

But the electricity-intensive aluminium industry, which includes Alcoa's Victorian smelters at Portland and Point Henry, would gradually shut down and shift to countries where energy generation is cleaner and cheaper.

Even under a trajectory that cuts emissions by only 5% below 2000 levels by 2020, aluminium would lose nearly half its business by 2050.

"Australia's share of global trade increases for coal, and is broadly maintained for iron and steel. Australia's share of global trade falls for aluminium, given its relatively higher emission intensity of production," the Treasury report says.

It says the aluminium sector would benefit most from the Government's plan to help the most intensive emitters adjust by giving them 90% of carbon permits for free. But its output goes into free fall assuming a global deal is reached and the shielding is lifted. The related alumina sector would also be heavily affected, losing at least about 15% of output.

Coal-fired electricity generation would be cut by more than half as Australia shifted to cleaner energy forms, while coal mining would lose a quarter of its business by mid-century as demand fell in a lower-carbon world.

Across the country, the trade forecast remains steady under emissions trading, reflecting the strength of the domestic economy.

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