Why a shrinking US aluminum industry is tricky news for clean energy

When U.S. aluminum maker Alcoa signed a $2.2 billion deal to gain more control of its global supply chain last week, analysts described the move as a ​“bet” and a ​“gamble” that demand for the commodity will soar in coming years — driven largely by the clean energy transition.

Yet as Alcoa grows its business abroad with its latest deal, its presence back home is declining. The dynamic is reflective of larger industry trends, and it’s one that experts say is complicating U.S. efforts to curb emissions from aluminum production itself and industrial supply chains more broadly.

Aluminum is a key component of solar panels, wind turbines, electric vehicles, heat pumps and power cables. It’s mind-bogglingly ubiquitous beyond the energy transition, too, found in everything from soda cans, deodorant and smartphones to car doors, bridges and skyscrapers. The lightweight material is the second-most-used metal in the world after steel.

With global aluminum demand set to increase by up to 80 percent by 2050, the producers of the essential clean-energy ingredient are under mounting pressure from policymakers and consumers to clean up operations, which account for 2 percent of global greenhouse gas emissions every year.

Faced with spiking energy costs and increased competition from China, however, Alcoa and other U.S. producers have significantly reduced their domestic aluminum production. In the last 18 months, three of America’s aluminum plants have scaled back. Alcoa closed its Intalco smelter in Ferndale, Washington, while operations were curtailed at Century Aluminum’s plant in Hawesville, Kentucky and, most recently, the Magnitude 7 Metals smelter in Marston, Missouri.

Together, the facilities represented over half of U.S. capacity for producing primary, or nonrecycled, aluminum.

Clean-energy advocates are urging the Biden administration to encourage producers to revitalize their domestic aluminum output in order to supply the growing number of clean-energy manufacturers. Just as crucially, the group is pushing for policies to make it easier and cheaper for aluminum-makers to power their giant smelters with carbon-free electricity.

Electric-car companies, solar-panel producers and other cleantech companies are building new factories across the United States, spurred largely by 2022’s Inflation Reduction Act. In the next few years, if firms can’t find enough aluminum locally, they’ll have to source more of it from other countries, potentially increasing both the costs and greenhouse gas emissions associated with hauling metal by land and sea.

“Aluminum is a critical component of the clean energy future…and we need to secure a domestic supply of it,” said Jen Snook, a deputy director at the Clean Energy Buyers Association, which represents over 400 energy-customer companies. ​“Ideally, that supply would be low-carbon, particularly if it’s being used for low-carbon technologies.”

Canada and its hydro-powered smelters already supply just over half of total U.S. aluminum demand every year. But as that country faces its own future supply crunch, more U.S. imports are likely to come from smelters powered by dirtier, less efficient electrical grids overseas, said Annie Sartor, aluminum campaign director for Industrious Labs, an advocacy organization.

“It makes a lot more sense to clean up the industry domestically, have short supply chains and invest in jobs so that we have the material that we need,” she said.

Low-carbon aluminum needs a low-carbon grid 

On paper, decarbonizing aluminum production seems tantalizingly simple. About 70 percent of the industry’s annual emissions come from generating electricity to run smelters. Power those facilities with renewables — like Iceland does with geothermal energy, or Canada with its hydropower — and the aluminum that results suddenly has a much cleaner footprint.

The smelting process starts by dissolving alumina, which resembles a fine white table salt, in a molten salt bath that’s heated to up to 1,800 degrees Fahrenheit. Large carbon blocks are lowered into the highly corrosive bath. Electrical currents then run through the entire structure, causing aluminum to deposit at the bottom. Oxygen combines with carbon in the blocks, creating CO₂ as a byproduct. The electrochemical process itself is responsible for another one-fifth of the industry’s emissions.

However, for primary aluminum producers, the challenge isn’t just that they need electricity in general. It’s that they specifically need high volumes of power to run at near-constant rates. Alcoa’s now-closed Intalco plant, which could produce 279,000 metric tons a year, required a steady load of 405 megawatts to fully operate. That facility, like most others, sourced its electricity from fossil gas.

Companies also need to buy all that electricity at prices that enable them to compete on the international commodities market. Alcoa, Century Aluminum and Magnitude 7 Metals all cited rising energy costs in their recent decisions to shutter or reduce domestic production.

“That to us is a clarion call,” Joe Quinn said of the recent closures. Quinn is vice president of strategic industrial materials for Safe, which advocates for policies to enhance U.S. energy security. ​“The industry needs available and affordable energy, and it needs to get to clean energy,” he added.

One straightforward way to address aluminum’s energy and emissions problem is to boost recycling rates. Turning old soda cans and scrap metal back into fresh aluminum requires about 95 percent less energy, compared to primary aluminum production. But in order to make recycled, or ​“secondary,” aluminum, producers still need to mix in primary aluminum — between 10 and 40 percent of the batch— to achieve the right amount of strength and durability.

“The secondary aluminum industry is one of the biggest buyers of primary aluminum,” Sartor said. ​“So we can’t just disregard the primary stuff. That has to clean up and decarbonize, too.”

Advocates say they’re working closely with aluminum producers and industry groups to ensure they can tap into federal policies designed to both boost American manufacturing and slash industrial emissions.

A keystone of the Inflation Reduction Act (IRA) is the 45X production tax credit, which is available to producers of critical materials, solar, wind, batteries and other types of ​“advanced manufacturing.” The incentive covers 10 percent of production costs and includes direct cash payments, which would help aluminum makers pay for improving their facilities, Quinn said.

The IRA also sets aside $10 billion for the expanded 48C investment tax credit, an Obama-era program that’s now available to help manufacturers install equipment that reduces emissions by 20 percent. Aluminum smelters could use the tax credit to cover the cost of technology that improves their operating efficiency while also slashing CO₂ pollution.

Finally, the U.S. Department of Energy (DOE) has launched a $6.3 billion program, funded by the IRA and the Bipartisan Infrastructure Law, that’s meant to reduce emissions from heavy industrial sectors, including aluminum, cement, chemical and steel production. Competition for the program’s funds has been fierce; the DOE has received significantly more interest than it can fund. The agency is expected to announce award recipients sometime in April.

But beyond programs that support aluminum directly, Jen Snook said the effort to decarbonize aluminum is closely bound up with efforts to decarbonize electricity in general. In other words, as the grid goes, so do aluminum emissions. That’s why her group wants to see more federal investment and public-private partnerships to increase deployment and drive down the costs of renewable energy itself.

“One of the main issues facing the industry is access to affordable and reliable electricity, which is something clean electricity is better positioned to provide than fossil-fuel-derived electricity,” she said. ​“Because if we can’t figure it out for aluminum, which is already heavily electrified,” she added, ​“we’re kind of in a bad position.”