Australia Emission Uncertainty Curbing Aluminum Investing-AAC

SYDNEY -(Dow Jones)- Uncertainty over how Australia's plans to introduce emissions trading will impact the aluminum industry has put future investments on hold, the Australian Aluminium Council said Monday. As proposals regarding implementation of mandatory carbon trading from 2010 are discussed, the industry is concerned that the scheme's impact on electricity prices will curb international competitiveness. "There are at least two current operations keen to expand," said Ron Knapp, director of the Aluminium Council, but those expansions are facing a "red light" given uncertainty over power pricing. U.S.-based Alcoa Inc. (AA) has been in talks with the Victoria state government for a number of years to raise capacity at its 355,000-metric-ton Portland smelter by about 200,000 tons - and securing competitive electricity supply has been the main sticking point. And Norway's Norsk Hydro ASA (NHY) wants to expand output at the 150,000-ton Kurri Kurri smelter. Aside from raising question marks over new investment, the trading scheme will seriously threaten the future viability of the existing aluminum smelting industry in Australia, the AAC said. Australia contributes only around 1.5% of global greenhouse gas emissions but tops the U.S. on a per-person basis because of its heavy reliance on hydrocarbons for generating power. Climate change advisor Ross Garnaut in early July issued a draft report recommending the government adopt a tough, broad-based emissions trading scheme that includes energy-intensive sectors - such as aluminum - from the outset. The government will follow up Garnaut's report later this month with a Green Paper outlining the favored scheme design. The biggest issue for business is the lack of detail on the government's planned system. Firms are still in the dark on, for example, how carbon permits will be allocated - and whether the government will offer transitional assistance for trade-exposed and energy-intensive industries. Knapp said while Australia's aluminum industry was at risk from the carbon scheme, it also faced a double whammy from a proposed expansion of renewable energy targets, adding costs for companies using large amounts of electricity. "Decisions here in Australia will not change the supply of global aluminum, just the address of the smelter," the AAC said in a statement. "Mandatory renewable energy targets represent a significant additional cost for companies that rely on large amounts of electricity and where international competitive pressures limit the ability to pass these costs onto consumers," it said. Since 2005, the European Union has operated a system that caps the amount of carbon dioxide that companies can produce, requiring those that exceed their cap to buy so-called carbon permits from companies that have surplus permits. The aluminum industry, while not directly included in the scheme, has suffered because utility companies pass on the increased cost of carbon by hiking electricity prices. -By Elisabeth Behrmann, Dow Jones Newswires