The Chinese Ministry of Ecology and Environment (MEE) has initiated a consultation process for the inclusion of aluminum smelters in its national compliance emission trading scheme (ETS). The move, announced on March 15, marks a significant expansion of China’s ETS, which currently covers only the power generation sector.
China boasts the world’s largest ETS, with approximately 5.1 billion metric tons of CO2 emissions covered annually. However, since its launch on July 16, 2021, the scheme has been limited to the power generation sector. The consultation for the aluminum industry signals the long-awaited expansion of the ETS, paving the way for additional industries to participate.
According to market sources, the inclusion of aluminum smelters in the ETS could lead to increased costs for smelters reliant on thermal power. Conversely, those utilizing renewable energy sources stand to benefit. To mitigate emissions liabilities under the ETS, primary aluminum smelters may be compelled to adopt green technologies and non-fossil fuels.
The policy shift is expected to indirectly benefit the secondary aluminum industry, which relies on recycled aluminum scraps for production.
The guidance provided for aluminum smelters mandates reporting of CO2 emissions from various sources, including fossil fuel combustion, raw material processing, carbonate decomposition, and indirect emissions from electricity and heat consumption. Additionally, smelters are required to report emissions of carbon tetrafluoride (CF4) and carbon hexafluoride (C2F6) resulting from the anode effect, marking the first attempt by China’s ETS to cover greenhouse gases other than CO2.
China’s aluminum industry accounted for around 550 million metric tons of annual CO2 emissions in 2022, comprising 5% of the country’s total CO2 emissions. Under the new legislation, entities with annual emissions exceeding 26,000 metric tons will be covered by the ETS. Approximately 80 aluminum smelters meet this threshold, making them eligible for inclusion.
The transition to targeted subsidies and renewable energy sources is expected to accelerate as a result of the policy change. By 2025, renewable energy is mandated to account for over 25% of the total energy used in primary aluminum production, and over 30% by 2030, in line with China’s climate targets.
The consultation period for the aluminum industry’s inclusion in the ETS is open until March 31. Following this expansion, the ETS is set to encompass additional sectors such as iron and steel, building materials, petrochemicals, refining, chemicals, papermaking, and aviation, collectively responsible for approximately 75% of China’s total CO2 emissions.
