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Energy costs, regulations threaten EU aluminium industry

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Under the right conditions, Europe’s aluminium industry can flourish. At present, however, factors such as increasing electricity prices and burdensome regulations threaten EU plants. The European Commission is therefore evaluating how to address these challenges and ensure a brighter future for aluminium production in Europe.

While demand for aluminium has rebounded since the onset of the financial crisis, a handful of factors continue to hamper the industrial competitiveness of Europe’s aluminium industry. Eleven of the EU’s 26 primary aluminium smelters have closed since 2003 – and not a single new one has opened.

As part of its efforts to bolster aluminium production, the European Commission asked the Centre for European Policy Studies (CEPS) to analyse the aluminium industry in Europe – everything from the trajectory of future demand to the impact of EU regulations.

Among the 11 primary aluminium plants surveyed for the CEPS reportpdf Choose translations of the previous link  – which together accounted for 60 % of the EU’s primary aluminium production in 2012 – the cost of electricity was a major concern. This is particularly problematic because up to 40 % of the production costs for aluminium come from electricity prices, which are higher in the EU than in competing regions, particularly in the Middle East and Russia.

This, coupled with the burden and uncertainty of EU and national regulations, has caused a growing share of the EU’s aluminium to be imported, threatening EU businesses that must compete with producers in less climate-friendly countries. Other energy-intensive sectors, including copper and zinc production, are facing similar threats.

The Commission, however, is working to remedy these issues.

‘EU industrial electricity prices are estimated to be twice as high as in the United States and Russia, and 20% higher than in China, worsening the continent's industrial decline,’ European Commission Vice-President Antonio Tajani said. ‘Helping industry to overcome these challenges is part of our industrial renaissance strategy.’

Impact of high energy prices

The CEPS study concludes that 8 % of the total production costs for aluminium were caused by EU legislation, particularly energy policies and the EU’s Emission Trading Scheme (ETS).

The ETS marks a necessary step towards climate protection, but it has nonetheless increased the burden placed on Europe’s aluminium industry. While it was not included in the first phases of ETS (2005-2013), the aluminium sector suffered from its indirect effects, as electricity producers pass on the cost of their emissions to their customers. Starting in 2014, aluminium producers will themselves have to pay for certain emissions, whereas other countries do not have such regulations.

This leaves Europe’s aluminium industry to contend with smaller profit margins in a climate of increased costs. In addition to the direct impacts this has on the EU’s aluminium industry, high energy prices also discourage investment in the sector, thereby making the closure of existing plants more likely.

Keeping the industry strong

In an effort to drive down energy costs, the EU actively encourages recycling through legislation and research programmes. An EC-sponsored study analysing waste, or ‘secondary raw materials’, suggests that using waste in aluminium production could catalyse growth and competitiveness – while also achieving EU environmental goals.

‘Despite the hurdles faced by EU aluminium producers,’ Vice-President Tajani said, ‘the CEPS report shows that it is possible to produce aluminium competitively in Europe. But without forward-thinking EU and national policies to address these issues, more producers are at risk of closing down.’

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