Hydro plants on the Lower Thjorsa, above, could potentially provide energy for a new aluminium smelter. Credit: Lowana Veal/IPS

By Lowana Veal
REYKJAVIK, Jun 9 2013 (IPS)

The new Icelandic government was only a day old when it announced in mid-May that it would do all it could to push ahead with the Helguvik aluminium smelter. Construction for the smelter began in in 2008 but since then has met with a variety of problems, mostly energy-related.

Critics of the project say that too many aspects of the project still remain unresolved and allege that the rush to build the smelter is a corporate tactic to draw Iceland’s government into developing infrastructure that it will be forced to continue supporting, to the detriment of the country’s protected areas.

Environmental concerns, meanwhile, were nearly inconspicuous during election campaigns, and on May 1, a few days after election results were announced, a Green March tagged along behind the trade unions’ march to remind political parties that the election had been won on a platform of cutting taxes and slashing home loans rather than on building new aluminium smelters.

The Green March focused on environmental issues and specifically the fact that the new government had no mandate to build more aluminium plants – which consume large quantities of energy and produce pollutants such as carbon dioxide and perfluorocarbons – or power plants.

Yet the day before the April 27 elections, Michael Bless, the head of Century Aluminium, which owns the plant, said he was optimistic a new government would ensure that development of the Helguvik plant could continue in earnest.

The governmental agreement issued two weeks ago by the winning Independence Party (IP) and Progressive Party (PP) emphasised that conservation and utilisation could proceed hand-in-hand.

The environment section began, “Clean renewable energy…offers great marketing opportunities that could lay the base for increased exports and a stronger image of the country.”

As Iceland’s geothermal and hydro energy is seen as renewable, a previous environment minister, Siv Fridleiksdottir, justified building the Karahnjukar dam and Fjardaal aluminium plant by saying that building energy-sucking aluminium plants in Iceland, where the energy is clean and renewable, was preferable to building them where they would run on dirty energy.

Energy blocks

The new minister for industry, Ragnheidur Elin Arnadottir, comes from the constituency which houses the partly built Helguvik smelter. It also has the highest unemployment rate in the country, and the municipality sees the smelter as a potential source of employment. She is keen for the project to go ahead.

Arnadottir told IPS that she is looking into possible incentives from the government side to facilitate the project, including possible state aid for various aspects of infrastructure such as road building and harbour expansion.

But the main stumbling block is still the lack of energy needed to fuel the plant and the price that Century Aluminium is willing to pay for the electricity, especially with the current global price of aluminium at rock-bottom.

Until a few years ago, aluminium companies in Iceland paid very little for electricity, as they consumed so much electricity and their operation was considered good for the economy.

But times have changed, and now energy companies are demanding higher prices for the electricity they produce.

The environmental impact assessment for Helguvik assumed a total capacity of 250,000 tonnes of aluminium produced annually, although ideally Century would like the smelter to produce 360,000 tonnes to be more cost-effective.

Energy for the plant was supposed to be provided by the regional heating company HS Orka and capital city-based Orkuveita Reykjavikur (OR) and sourced from geothermal plants, none of which have been built yet.

New pollution regulations for hydrogen sulphide (H2S), which is produced by geothermal plants, will also mean that at least one of these plants cannot be built until H2S emissions can be contained.

Despite these plans, Ketill Sigurjonsson, an energy specialist from the energy consultancy firm Askja Energy Partners, says that geothermal plants will probably be too expensive for an aluminium smelter.

“There may be some options in low cost hydropower, but it is still unclear if these will be enough to provide a full-sized aluminium smelter with sufficient electricity,” he said.

Earlier this year, the Icelandic government approved the Master Plan for Hydro and Geothermal Resources, which categorises all potential hydro and geothermal power plants into three categories: utilisation, meaning the plant faces no obstacles for development; pending, meaning more research is needed; or protection, meaning development is not allowed.

But in late May, Sigurdur Ingi Johannsson, the minister for fisheries, agriculture and the environment, announced that he had ordered a review of the plan, with the aim of moving some of the plants from the pending category, such as the hydro plants in the Lower Thjorsa River, into the utilisation group.

These plants could potentially provide energy for Helguvik or other large-scale industrial projects, such as a silicon factory. But Johannsson’s statement has caused unrest amongst environmentalists, some of whom have campaigned to save the Lower Thjorsa from development.

Tactical moves?

Arni Finnsson, from the Iceland Nature Conservation Association, has strong views on the matter. “Century Aluminium has conducted its business in a totally irresponsible manner with regard to a new smelter in Helguvik,” he said.

“Without having secured any energy at all for a new aluminium smelter…it started building the smelter, apparently in order to put pressure on politicians who are sensitive to high unemployment rates, for them to deliver the energy,” Finnsson told IPS.

“To build a smelter of 250-360,000 tonnes a year would require major destruction of valuable nature areas,” he added, pointing out that both local and national energy companies would have to draw on energy from several projects that had not yet been designed or planned.

“Century Aluminium’s plan is to start the smelter with some 180,000 tonnes a year and then force the Icelandic government to provide more energy against a threat of decommissioning the plant,” he explained.

“Iceland would have to build power plants in areas which are currently protected or have been slated for protection,” he concluded.

Aluminium, opposed by environmentalists mainly because of the amount of energy needed to produce it, is one of the targets of the heated campaign against hydroelectric dams in Brazil’s Amazon jungle region.

But production of aluminium is helping to drive industrial development in the Northeast, Brazil’s poorest region, Adjarma Azevedo, the president of the Brazilian Aluminium Association (ABAL), which represents the industry, told IPS.

Because energy is the biggest input, growth of the industry is fuelling the construction of large hydropower complexes in this country, which are touted as a renewable energy source but opposed by environmental and indigenous rights activists.

Aluminium is also the product with the highest recycling rate in Brazil, said Azevedo.

Aluminium production fuels the construction of hydroelectric dams in Brazil, like the Santo Antônio hydropower station, seen here under construction in October 2010. Credit: Mario Osava/IPS

The growing use of aluminium facilitates faster construction and saves on transport fuel because aluminium weighs less than other products.

Consumption of aluminium in Brazil is growing faster than the economy in general, and it is driving demand for low-cost energy, in order to meet domestic needs with nationally produced aluminium.

ABAL estimates that the domestic market will grow at an average of 7.2 percent a year up to 2025, despite the fact that aluminium is a product sensitive to swings in trade.

In 2009, the use of aluminium fell 10 percent due to the global economic crisis. But demand rallied the following year, when it climbed 31 percent. And it continued to grow, by 8.2 percent, in 2011. But it has stagnated once again this year.

The fast growth of activities and products that use abundant aluminium, such as the construction, packaging and automotive industries, explain the optimistic projections, Azevedo said.

The rise in wages and incomes among working- and middle-class families in Brazil in the last few years has led to a boom in housing renovation and improvements, which has increased demand for construction materials.

Demand for aluminium has also been driven up by the works required for holding the 2014 world football cup in 12 Brazilian cities, and the 2016 Olympic Games in Rio de Janeiro.

At the same time, the government has adopted rules establishing that new cars must reduce emissions – an environmental goal that will require new technologies, as well as lighter-weight elements made of aluminium, the president of ABAL said.

But domestic production of the metal is unlikely to keep up with demand if the cost of electricity in Brazil remains one of the highest in the world: it currently represents more than one-third of the cost of production of primary aluminium.

In September, the centre-left government of Dilma Rousseff proposed measures to reduce the cost of electricity, including tax cuts and an extension of concessions for the generation, transmission and distribution of electric power, which would expire between 2015 and 2017.

The main objective is to bolster the competitiveness of industry in general, to prevent the premature and irreversible shrinking of the manufacturing sector in the face of the sharp increase in production costs in recent years.

According to ABAL, however, the measures fall short and are vulnerable, because they depend on approval by Congress, where the government bill has already been bombarded with 431 proposals for amendments.

“With the megawatt-hour at 35 dollars, it is possible to maintain aluminium production at the current levels. But if the price dropped, it would stimulate new investments to expand production,” Azevedo said.

The average global cost of electricity stands at around 40 dollars per megawatt-hour. But the average goes down to 27 dollars if China – where electricity is subsidised – is excluded from the estimate. Businesses in Brazil complain that they have paid up to 60 dollars per megawatt-hour.

The aluminium industry is seeking to cut costs by generating its own electricity. To do that, the industry has become the main partner, for example, in the Estreito hydroelectric dam on the Tocantins River in central Brazil, with a potential of 1,087 MW.

In Tocantins, some 500 km downstream, the enormous Tucuruí dam was built 28 years earlier, with a capacity to generate 8,370 MW, much of which is used by aluminium mining and industrial complexes.

Activists accuse the industry of promoting the construction of the Tucuruí dam to obtain energy at subsidised prices, with no regard to its negative social and environmental impacts. For example, the reservoir flooded nearly 3,000 square kilometres of land, mainly forested, and displaced tens of thousands of people who lived in the area.

Azevedo, who previously presided over the Brazilian branch of the U.S.-based ALCOA, one of the companies that supposedly benefited from the dam, sees things in a different light.

Brazil was suffering from the effects of the sharp rise in oil prices after 1973, and needed abundant energy to carry out its ambitious economic development plan and replace expensive imported oil.

Tucuruí offered a solution, Azevedo said, and Japanese investors and transnational companies likeAlcoa were invited to develop large-scale projects to mine bauxite and convert it into alumina and aluminium.

The companies thus served as “anchors that fixed energy in the region,” where the small scale of the economy and the sparse local population did not generate enough demand for such a large hydroelectric dam, he said.

But Azevedo added that “it wasn’t a good location,” because it was far from the main consumer markets, in an area without roads, infrastructure, skilled workers, or suppliers of services.

Nevertheless, the companies accepted the challenge, making Tucuruí feasible, and training suppliers and local workers, he added.

To offset the costs, the government offered a 10 percent discount for 20 years in the contracts to supply extra-high voltage electricity, after the first 230 kilowatts. But, he insisted, it was not a subsidy.

Alcoa also partnered with two other transnationals, BHP Billiton and Rio Tinto Alcan, to build the Alumar industrial complex and produce alumina and primary aluminium in São Luis, capital of the northeastern state of Maranhão, 980 km east of Tucuruí.

It would have been better to set up shop closer by, thus avoiding long-distance power transmission as well as the transportation of raw materials over nearly 2,000 km, said João Meirelles, director of the non-governmental Peabirú Institute, based in Belém, the capital of the northern state of Pará.

Aluminium is a logical product to exploit in the eastern Amazon jungle, especially in Pará, where enormous deposits of bauxite are concentrated along with rivers with hydropower potential, Meirelles told IPS, differing from his fellow environmentalists by defending this development option.

Aluminium is “a material of the future” and “the most reusable product,” he argued.

But, Meirelles said, “local production must be verticalised,” and final products should be manufactured, instead of merely exporting primary aluminium to the more-developed south of Brazil and to other countries, as is the case today. He also called for the promotion of “integrated development,” which generates more jobs for skilled workers and “local human capacity.”

Meirelles acknowledged the environmental and social damage caused by industrial undertakings that exploit natural resources in the Amazon region. But he believes it is possible to mitigate the damage, as Alcoa is attempting to do at its new bauxite mine in Juruti, in the state of Pará.

And he put the damage caused in perspective, saying cattle ranching is the main culprit to be fought to curb deforestation.

He also advocated new forms of negotiating compensation for the impacts of major works like hydroelectric dams, mines and roads.

It is necessary to fight “for strategic goals” such as an end to deforestation in the rainforest, instead of merely limiting demands to solutions for local problems, like getting hospitals built or sanitation systems expanded in towns and cities affected by the projects, which are questions that should be addressed by the government, he said.