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Alcoa and the Complexities of 'Climate Neutral'
Joel Makower, 26 Jun 05

Joel Makower is a widely respected writer and consultant on issues of sustainable business, clean technology and green markets. His essays on environmental business and technology are a regular feature of our Sustainability Sundays. Take it away, Joel:

Randall M. Overbey, president of Alcoa Primary Metals Development, made a startling statement toward the end of a presentation given this past week at The Conference Board's 2005 Business and Sustainability Conference in New York:

We believe that, within the critical transportation sector, the [aluminum] industry can become “climate neutral” by 2020. In such a state, the global warming impacts of aluminum production will be fully offset by the CO2 emissions saved by its use, on a run-rate basis.

Overbey continued:

Aluminum saves fuel and recycles like few other materials do. I am aware of no other metal that can support a vision like this. We believe that it can happen, if we in the industry work together. If the vision is shared by our customers, consumers and communities, we may be able to realize it even sooner.

(The full text and Powerpoint slides of Overbey's presentation are available online.)

What, exactly, does this mean? As the accompanying chart from Overbey's presentation suggests, using more aluminum in place of steel or other metals in vehicles would make them lighter and, therefore, more fuel-efficient -- so much so, he says, that the carbon dioxide emissions reductions (the pink line) would be equal to the emissions created in manufacturing aluminum (the blue line).

And that, he seems to be saying, would render the entire aluminum industry “climate neutral.”

Now, I’ve been a student of "climate neutral" claims for more than a decade, and know just enough about that term to be dangerous. I know, for instance, that counting climate emissions is a tricky and complex business. Among other things, you have to figure out where to draw the boundaries. Example: In determining the carbon footprint for a pair of shoes, should you include the gas that went into the chainsaw that cut down the tree to produce the shoebox? Or is that chainsaw gas someone else’s “problem”?

Entire consulting businesses are built upon such conundrums.

So, Overbey’s statement made me curious: Should Alcoa get credit for all of the carbon reductions resulting from its use in cars to make them lighter, and for the resulting fuel and carbon savings?

For answers, I turned to Sue Hall, founder and executive director of the Climate Neutral Network, which administers the ClimateCool certification label for companies and products that meet its standards. Its standards resulted from a broad stakeholder process that included companies, activist groups, academics, scientists, and others -- a process funded in part by the U.S. Environmental Protection Agency. (Disclosure: I was part of that stakeholder process in the mid 1990s.)

My conversation with Hall illuminated the complexities involved here -- and the challenges companies like Alcoa face in making, and living up to, “climate neutral” claims.

Hall began by explaining that Overbey’s optimism was well-founded, given the potential for supply-chain collaboration to achieve sizeable greenhouse gas reductions:

A lot of companies have been focusing on reducing greenhouse gas emissions in their own operations -- their own direct emissions. But most supply chains have some really colossal greenhouse gas reductions that can be achieved, but only if all of the companies collaborate. And aluminum and autos is one of those supply chains.

The problem, she said, is figuring out how to measure the reductions -- and who gets to claim credit for them. That is, if Ford were to use more aluminum and less steel to make a car, does Alcoa get to claim the emissions reductions, or does Ford? And what about the person who purchases the car -- the one responsible for buying and burning the gasoline? Wouldn’t she get some credit?

The answers to such questions could have significant impacts. In a world in which greenhouse gas emissions reductions are becoming a tradable commodity, ownership of a carbon credit is far more than an intellectual exercise. U.S. greenhouse gas emissions totaled more than 5.8 billion metric tons of CO2 equivalent in 2003, 95% from the burning of fossil fuels, according to U.S. EPA data. With carbon currently trading on the Chicago Climate Exchange for about $1.75 per metric ton, we’re talking about -- well, potentially a helluva lot of money.

So, figuring out who “owns” an emissions reduction is no small matter. Said Hall:

Ownership of carbon doesn’t always neatly fit into one simple box, where one decision gets made and the greenhouse gas reduction occurs inside that box. Those are the simple ones. But many of the really huge greenhouse gas reduction opportunities that we face don’t behave in that convenient, all-in-one-box style. And so, from a carbon perspective, supply chains and products and services very often exhibit a high degree of interdependence.

I asked Hall who should get credit for the carbon reductions in the hypothetical example of Alcoa selling aluminum to Ford? The answer, as I expected, was complex. For starters, it has to do with whether a company is doing something beyond “business as usual” -- a key determinant for whether a greenhouse gas reduction even exists in a voluntary carbon offset market. I suggested that in this case, ownership of the carbon reductions should go to Ford, because making an aluminum car body would be something beyond “business as usual” for Ford. Alcoa would merely be selling more aluminum -- something it does every day.

It’s not that simple, said Hall.

If you look at how aluminum gets spec’ed into automobiles, you’ve got quality issues, tolerance ratings, and other factors. Car companies for decades have been trying to lightweight their cars, and they work extremely closely with the aluminum companies and other suppliers to figure out how to do that. It’s not simply, “I decided to buy apples today rather than pears.” There’s a huge amount of collaboration taking place between the partners at that development stage. From the discussions that we’ve had with some of the leading automobile manufacturers and aluminum producers, the impression I get is that there is a fair amount of interdependence as these kinds of decisions get made.

So, how are we ever going to create a rational economic system with so many open questions? In a voluntary market for carbon, explained Hall, most of these ownership decisions get established through contracts.

"What you're saying," I offered, "is that if Alcoa sells aluminum to Ford, their contract theoretically should proscribe how any carbon reductions be allocated and owned across all three parties -- Alcoa, Ford, and Ford’s customers."

Right. Companies essentially would look to incorporate the question of carbon ownership, if there are credits to be established, into the contracts between them. What complicates matters is that if you’ve got recycled aluminum, then a lot of the carbon reductions predominantly fit towards the aluminum company end, if you substitute recycled aluminum for primary metals.

Ah, more complications. And, it turns out, recycled aluminum isn’t the end of it. For example, there are regulatory issues, like federal fuel economy standards, that raise yet more questions: Should an automaker’s use of aluminum should be considered to be beyond “business as usual” if it is required by law to find ways to improve fuel economy? And all this assumes that there is general agreement on what the carbon footprint of aluminum is in the first place. For example, in making his climate-neutral statement, was Overbey including the energy and emissions related to mining bauxite, the main source of aluminum? We don't really know.

Hall grokked my confusion -- and frustration.

There’s a lot of complexities in there. But that doesn’t mean to say that when industries recognize that there are some really significant drivers they can bring to bear to reduce greenhouse gas emissions, that they should throw their hands up and say, “We can’t go there.” Because the goal is to get the reductions down. And we’ve got to use all the levers big and small, but particularly the big ones, to drive greenhouse gas reductions down as fast as we can. If that means we’ve got ownership questions we need to address, then let’s do that. We have to look at the big, hairy, audacious goals, because we’re not going to get there otherwise.

In the end, it may be the last part of Randall Overbey’s recent statement that is most telling: that climate neutrality is achievable if “we in the industry work together.” As Hall put it:

Driving down these emissions means we’ll have to collaborate up and down the supply chain. And yes, it’s more complicated. It’s about finding interdependencies. It’s not all about stovepipes, where we manage our own greenhouse gas emissions and that’s all we need to look at.

And, with more than a little understatement, she added:

Carbon isn’t nice and neat and well behaved. I wish it was; it would be so much easier.
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Does anyone reading this know the CO2 costs of carbon fiber? This could be lighter and stronger than aluminum, but probably more expensive. Which reminds me, anyone know what happened to RMI's prototype carbon-fiber SUV (being built in the UK, IIRC)?


Posted by: John Norris on 26 Jun 05

You know trading carbon credits is a needlessly complicated program. It would be much simpler to gradually raise the cost (tax) of fossil fuels over a long period of time. Say increase the cost of fossil fuels by 10% per year, every 7 years the cost of fossil fuels doubles. The market place will have the knowledge that certain types of energy are going to constantly increase in cost and there fore people, companies, and communities will be able to plan to reduce their use of fossil fuels. Markets can be very useful tools when given the proper direction. Armed with the knowledge that the real cost of burning fossil fuels is going to increase eight fold over the next twenty years the marketplace will have switched to a more efficient carbon neutral way of providing energy before you are twenty years out.

Posted by: jim moore on 26 Jun 05

Being the average Joe with links to Alcoa itself, I think that Overbey's comments may be quite well researched. Alcoa isn't the run of the mill company, they already have world class environmental studies and programs in place.

That said, if the cost of fossil fuels increases each year then it will become a longer process for Alcoa to claim climate neutrality. The cost involved will be incredible and with a constant increase to fossil fuels they would have to either seek cheaper alternatives, which is one of the points of making fossil fuels more expensive, or pour more money into using those fossil fuels wisely. Either way it would divert a large chunk of funding away from a climate neutral plan.

I'm sure that while the cost of fossil fuels will rise slowly over time, and Alcoa would be planning for this as well as Overbey in his statements, the major oil companies would never agree to the increasing of the cost of their products to the consumers. The companies themselves would not benefit too greatly from the increases in cost because the increases would be applied in a national level (taxes).

Until oil companies invest in alternative power resources and cleaner uses for their fossil fuels then it will take a very rich and powerful company, like Mitsubishi for example, to actually make the change in the world market.

Carbon fibre, while being lighter than aluminium (yes I spell it with an 'i' as most other Australians do), is an expensive product which really cannot be recycled easily. Aluminium is a readily available resource that can be recycled over and over again. The processes used to extract alumina from bauxite and then turn that into aluminium are constantly being redesigned and scrutinised to reduce environmental impact. The dumping of red mud has been replaced with liquor burners to burn off the caustic soda from the waste soils during the refining of the bauxite.

I for one, would be exstatic to be able to drive a hydrogen fuel cell, all aluminium vehicle. The sooner I can play a role in making a climate neutral system the happier I will be. Whatever the cost may be on the short term, the long term benefits would be priceless.

Posted by: Rowan Streeter on 26 Jun 05

I also find the tax solution far more elegant. We can then let the market do its job.

If despite higher costs they find a way to sell more product to customers by collaborating with them to make it more useful, then all the more power to them. If that means that Alcoa dies a slow death, so be it. Either way the whole marketplace will be more efficient.

Posted by: Daniel Haran on 27 Jun 05

I fail to see how Alcoa going down the tubes helps in making the marketplace more effecient. The article discusses how aluminium production would play a large roll in improving the effeciency of fossil fuels. If one of the largest suppliers of aluminium in the world were to go under surely this would have a negative effect rather than a positive. Personally I don't want to be forking out 50% of my fuel prices to my Government through taxes, particularly when large factories and industry make my direct production of carbon look microscopic.

This comes down to ownership, and it could easily be argued that the industries are simply producing carbon as a biproduct of something that I use everyday. Therefore I am partly responsible for that carbon.

While taxing the heck out of fossil fuels will make people seek alternatives, the lack of large companies, such as Alcoa or Caltex etc, would hinder the research and development of the very alternatives that governments are trying to force people into. I know for certain that the Australian government could never afford a program that develops a cheap, cost effective alternative fuel cell vehicle for the general public.

A recent article established that researchers have found that the Earth isn't warming up as it is supposed to due to the increase of greenhouse gasses in the atmosphere. It is thought to be a result that the increased smoke, dirt and pollution has blocked out the heat and sunlight that the greenhouse gasses would amplify.

If we get cleaner in our use of fossil fuels, this protective layer of smoke and dirt will dissipate quicker than the greenhouse gasses, and so instead of the slight change in weather that has currently happened, a massive warming of the Earth would occur. It is theorised that instead of a gentle 1.5-4 degrees Celcius average rise of the planet's temperature that an average rise of 6 degrees Celcius would occur.

Personally I don't want to live in a city that would get 55 degree celcius days. Airconditioning would be essential everywhere, aluminium would be called for astronomically due to it's lightweight insulative properties. By that time perhaps Alcoa had gone under.

My point is, while it is imperative that we reduce fossil fuel use and find more effecient ways of using them when we need to, a sudden decrease could have a worse effect on our planet than if we were to continue as we are. A gradual tax increase would aid this progress, yet should not be the deciding key. We need to look for alternatives in "seeking the alternatives".

Posted by: Rowan Streeter on 30 Jun 05

I owned a 1961 Austin Healy Bugeye Sprite with part aluminum body that got about 48mpg. Light-weighting for efficiency is old hat and waiting to be fished out of the closet for a new generation.

This discussion misses two essential points: 1.) aluminum is an extremely energy intensive product to make. (Only chorine exceeds it as a commodity raw materia)l. Plus, the extraction an benefaction of bauxite (it's ore) is a landscape destroying proposition for third world countries; and, 2.) enerrgy intensity is OK if recycle rates are high, but hey are not. In fact they have been plummenting and continue to fall in the low teen percent range. This whole concept is empty rhetoric until and when the day comes that structural aluminum recycle rates surpase that of steel, which currently recycled at rates exceeding 99.5%. Considered the gauntlet thrown!

Posted by: John Laumer on 1 Jul 05



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