Aluminium
So in effect where an aluminum company also owns or is affiliated with renewables such as hydro, this then classifies the Aluminum as ‘green’?
Practical examples for two Australian smelters:
1. Tomago Aluminium is located in NSW and sources electricity under contract from AGL (ASX: AGL).
Tomago has a complex ownership structure but RioTinto Alcan is the operator and majority owner (51.55%).
AGL generates the vast majority of this electricity from the Bayswater and Liddell power stations in NSW, both of which use conventional technology and are fueled by coal.
As such, aluminium produced by Tomago has a relatively high emissions “footprint” on account of the emissions arising from the electricity used, albeit generated by an unrelated company.
2. Bell Bay Aluminium is located in Tasmania and sources electricity under long term contract from Hydro Tasmania (not listed, being 100% state government owned).
Bell Bay Aluminium is owned by Pacific Aluminium, itself 100% owned by RioTinto Alcan.
Hydro Tasmania generates the vast majority of its electricity from 30 hydro-electric power stations and two wind farms in Tasmania, and most of the rest from a high efficiency gas-fired plant.
As such, aluminium produced by Bell Bay Aluminium has a relatively low emissions “footprint” since the electricity used, generated by an unrelated company, has a very low emissions intensity. To the extent that Bell Bay Aluminium does have emissions it’s primarily from incidental aspects – the anode blocks which all smelters use in production do emit some CO2, emissions from shipping and so on but overall it’s at the low end compared to the aluminium industry globally.
Now if a company which purchases aluminium has a desire to market themselves as “green” then they may seek to source materials from low emissions suppliers as part of that. Zero difference in the product, aluminium is aluminium, but they can claim to be doing their bit for the environment by choosing one supplier over another. Same concept as a company saying they won’t accept child labour being used on farms and things like that.
The concept is in its infancy but Nestle has a contract with RioTinto Alcan which requires that the aluminium supplied to Nestle is from low emissions sources. Both companies have made some announcements regarding it.
RioTinto Alcan has options with where to source that from since they are also the majority owner of the Tiwai Point smelter in NZ which sources electricity under contract with Meridian Energy (a listed company). Meridian generates this power from various hydro and wind farm operations in NZ and so, as with Bell Bay Aluminium, has a low emissions intensity.
The basic concept behind this is the notion that companies, particularly those with a brand image to protect, maybe willing to pay a premium price for materials sourced in a manner which results in a lower environmental impact. For purely commercial reasons those smelters able to do that, and also their electricity suppliers, are keen on the concept since it improves their viability (and increases the bargaining position of the power supplier also).
To put the costs into perspective, it is widely rumoured in the energy industry that the Tiwai Point deal with Meridian, which was extended last year, is priced at about NZD 55 per megawatt hour (MWh). I don’t think either company has confirmed it but it sounds about right, it’s the sort of number that you’d expect. 
