'Energy target worse than tax', says aluminium industry

THE aluminium industry will ask the federal government for greater relief from its renewable energy laws, warning that over the next few years the laws will have a greater impact than the carbon tax on smelters confronting falling metal prices and a surging dollar.

The Australian Aluminium Council, the peak body for the $5 billion industry, will lobby for more generous exemptions for smelters under the government's Renewable Energy Target when the scheme is reviewed this year.

While the RET is not as politically charged as the carbon tax -- the scheme secured bipartisan support when it passed through parliament in 2009 -- AAC executive director Miles Prosser said it imposed a greater cost on smelters than the starting carbon price.

"When we look at the cost of government policy and particularly government policy that is imposed in Australia and isn't imposed on our competitors, the RET is actually bigger than the carbon price in terms of what we worry about," Mr Prosser said.

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"If the government is looking for levers that can provide some sort of relief, that is one that is available."

Alcoa has not raised the RET in its talks with the Gillard government about the Point Henry smelter, which is being reviewed by the company. "Just as the review wasn't triggered by a price on carbon, it also wasn't triggered by the RET," an Alcoa spokesman said.

However, Alcoa has raised anomalies within the RET treatment of aluminium with the Office of Renewable Energy Regulator. "In the case of smelting in Australia, the RET is a significant issue because aluminium smelters are the most energy intensive activity in Australia," the spokesman said. "Because smelters use so much power, the exposure that they get after their partial exemption certificates are still quite significant."

A spokesman for Climate Change Minister Greg Combet said the RET review, to be done by the newly formed Climate Change Authority, would examine "the effectiveness of the partial exemption arrangements for industries like aluminium".

The review is required to report by the end of this year.

Under current RET arrangements, which force heavy energy users to source a minimum proportion of their electricity from renewable sources or buy renewable energy certificates to offset their emissions, aluminium smelters are granted a nominal 90 per cent exemption.

The AAC, in a submission to the Senate Standing Committee on Economics in July 2009, warned that, because of the way the RET was applied, the true exemption offered to aluminium was only 55 per cent. In its submission, it warned the combined impact of the RET and carbon price would "change Australian facilities from operations that would be profitable in the long term, operate at high capacity and attract future investment to operations that have no long-term future".

Curtailment of production -- such as witnessed this year at the Kurri Kurri smelter in the Hunter Valley -- and smelter closures were raised as likely outcomes.

The AAC estimates the cost of the RET to smelters at $80 million a year. The cost of the carbon tax in its first year will be $40m, rising to about $170m by 2020.