India’s domestic aluminium manufacturers have the highest carbon intensity among global producers, with emissions of 17-20 tonnes of CO2 equivalent per tonne of aluminium, says ICRA. The high emissions are due to their significant use of coal in generating captive power. ICRA highlighted that to meet their targets of a 25% reduction in carbon emissions in the next five-seven years and achieve net-zero status by 2050, the industry will require significant investment in renewable energy (RE) or low carbon-intensive power sources. According to an ICRA note on the primary aluminium industry, this could cost up to $5 billion by 2030 and $20 billion by 2050, depending on the RE mix used.
Entities may choose to sign power purchase agreements to secure RE power rather than making upfront capital expenditures. However, the cost of metal production is still expected to rise significantly. Aluminium entities in western economies have gradually switched to lower carbon-intensive hydro power, with almost 60% lower carbon intensity compared to their Asian counterparts.
Increasing the share of secondary production through higher usage of scrap is another lever for decarbonization. This will require an improvement in domestic aluminium scrap collection, as carbon emissions from secondary production are significantly lower than the primary route. Though secondary production contributes around 38% to the total aluminium production in India, currently, a significant part of this scrap source is imported.
Technologies to reduce process emissions, such as carbon capture and storage, inert anode, and fuel switching in calcination, are at early stages and may take some time to be ready for mass adoption, including in India. Additionally, the industry will need to invest in storage capacity, including battery energy storage systems (BESS), to manage the intermittency associated with wind and solar power. Consequently, the higher cost of production will necessitate a significant premium over the current realization.
In the medium term, global demand for greener aluminium is expected to increase, especially from automotive OEMs with ambitious carbon abatement targets. The recent agreement by the European Union to impose a tax on imports of most energy-intensive industries like aluminium and steel from January 2026, augurs well for the low-carbon aluminium demand. However, India’s export competitiveness could be significantly impacted if the emission level remains unabated, as India exported around 0.5 million metric tonnes of primary aluminium to European countries in FY2022.
Overall, decarbonizing India’s aluminium industry will require significant investment in renewable energy, improving scrap collection, and investing in technologies such as carbon capture and storage. The transition could cost up to $20 billion by 2050.
