Competitiveness of Global Aluminum Supply Chains Under Carbon Pricing Scenarios for Solar PV

Aluminum is a critical component of many low-carbon technologies needed for the energy transition, such as batteries, carbon storage for low-carbon hydrogen, or wind turbines. As technology now stands, there is—and will be—no solar power without aluminum, which accounts for over 85 percent of solar photovoltaic (PV) technologies.  

The aluminum industry has a competitiveness and high carbon problem

While the aluminum industry counts many producers, production capacity has plummeted in many countries in the last decade because of low global prices and intense competition. At the same time, high capital, energy, and input costs have limited the development of new aluminum production.

Aluminum production also has a large carbon emissions footprint, emitting bout 1.1 billion tons of CO2 annually. The World Bank estimates that under the International Energy Agency's 2-degree scenario, total emissions from aluminum for solar PV could be as much as 840 MtCO2e—more than Germany's total emissions in 2019.

Key findings

A new report  by the World Bank’s  Climate-Smart Mining (CSM), Competitiveness of Global Aluminum Supply Chains Under Carbon Pricing Scenarios for Solar PV, examines aluminum competitiveness in the context of potential carbon prices.

A key takeaway is that decarbonization across the aluminum supply chain is essential to retaining competitiveness and diversifying supply. Decarbonizing the entire aluminum value chain—beyond electricity used to produce the metal—is critical to reducing emissions to the largest extent possible and ensuring that producers, including in low- and middle-income countries, can compete in an increasingly carbon-constrained world.

Several options exist to promote decarbonization across the aluminum value chain, including using more renewable-generated electricity to power smelters and/or carbon-free anodes. However, more investment and research and development are needed, especially in non-electricity-related technology, to decarbonize the entire aluminum value chain and, in the process, ensure producers remain competitive.

Another option is recycling. Aluminum is one of the most recycled elements, with the potential for near-infinite recyclability. Between 42 and 70 percent of aluminum is recycled at the end of its life, with rates as high as 90 percent in some countries. Using recycled aluminum reduces the material’s carbon footprint by up to 20 times. Yet the recycled content of new aluminum products has been estimated at only 34 to 36 percent. Finding ways to increase the supply of recycled aluminum by increasing scrap collection and encouraging circularity is essential to decarbonizing the aluminum sector and providing competitive, low-emissions material for the energy transition.

While carbon pricing can play an important role in decarbonizing the aluminum sector, a balance must be struck to ensure sufficient capacity to meet the demand driven by the energy transition. When carbon prices are applied, opportunities for new and existing aluminum smelters are limited. This means that production will be restricted to existing producing countries such as China and India or that the price of aluminum will have to rise above historical levels, resulting in higher production costs of low-carbon technologies.

Governments and the private sector need to be proactive and collaborate to ensure aluminum can be supplied at a competitive price and with the lowest possible climate, environmental and social footprint, thus, enabling the deployment of the technologies needed for the energy transition.