# Aluminium and Thermal coal Most aluminium in India and China is smelted with coal-fired captive power, so coal sets much of its cost and most of its carbon footprint; that footprint now carries a price at the EU border from 2026. Source page: https://www.materialinsights.org/links/aluminium-and-thermal-coal/ [Aluminium](https://www.materialinsights.org/commodities/aluminum/) (commodity) and [Thermal coal](https://www.materialinsights.org/energy/thermal_coal/) (energy): 4 relationships. ## How they are linked ### 1. Captive coal power for smelters *Physical flow · Strong · Thermal coal → power → aluminium* Smelters need large, steady blocks of electricity around the clock, and in India and China the cheapest reliable way to get it has been a coal power plant owned by the smelter. - **about 96%** share of India's aluminium smelters relying on captive coal power (2024-25) - **over 80%** share of China's aluminium capacity based on coal-fired power (2021) - **about 4 Mt a year** Indian primary aluminium capacity and production, 2024-25 Captive power shields smelters from grid tariffs but ties their cost to coal price and supply, including domestic coal allocation and rail logistics in India. When coal tightens, smelters either pay more or cut output, which is how coal shocks reach the aluminium market. Sources: [Grantham Research Institute, LSE](https://www.lse.ac.uk/granthaminstitute/wp-content/uploads/2026/08/Decarbonising-the-aluminium-sector-in-India.pdf); [Mining.com (Wood Mackenzie report)](https://www.mining.com/chinese-aluminium-smelters-forced-away-from-captive-coal-fired-power-report/) ### 2. Carbon intensity and CBAM *Policy · High in India · Coal power raises aluminium's carbon cost* Electricity for electrolysis causes roughly 80% of aluminium's emissions, so smelters on coal power carry a much higher footprint, which the EU now prices through its carbon border adjustment. - **about 19.6 t CO2e** per tonne of Indian primary aluminium, against a global primary average of about 14.8 t - **about 20%** share of Indian primary aluminium exports going to the EU (2023) - **$250 to 300 a tonne** estimated extra cost of producing green aluminium (ICRA, 2023) The CBAM definitive period began in January 2026, so coal-based Indian and Chinese metal faces a higher border cost than metal smelted with hydro power. ICRA estimated in 2023 that producing lower-carbon aluminium would add about $250 to 300 a tonne to cost, which frames the trade-off for Indian producers. Sources: [Grantham Research Institute, LSE](https://www.lse.ac.uk/granthaminstitute/wp-content/uploads/2026/08/Decarbonising-the-aluminium-sector-in-India.pdf); [ICRA](https://www.icra.in/Rating/DownloadResearchSummaryReport/5352) ### 3. Shift from coal to hydro and renewables *Transition · Rising · Smelting moves away from coal power* Climate targets push smelters to replace captive coal with hydro or renewable power, which cuts emissions sharply but exposes them to weather. - **about 12.36 t CO2e** per tonne of Chinese aluminium from coal-fired power in 2020 (Wood Mackenzie) - **2 Mt a year** hydropower-based aluminium project built in Yunnan - **about 15%** share of China's capacity, 6.56 Mt, planned to move to Yunnan China planned to move about 6.56 Mt of smelting to hydro-rich Yunnan, but erratic rainfall meant only a little over half of the shift had happened by 2024, and smelters there reported output cuts of 10 to 40%. The shift trades carbon risk for weather risk. Sources: [Mining.com (Wood Mackenzie report)](https://www.mining.com/chinese-aluminium-smelters-forced-away-from-captive-coal-fired-power-report/); [Reuters (via BusinessWorld)](https://www.pressreader.com/philippines/business-world/20240514/281762749354050) ### 4. Price link: power cost *Cost and price · Moderate · Both ways* Dear coal raises the cost of captive power and so of smelting, and both prices respond to the Chinese industrial cycle. - **0.38** monthly change correlation - **0.59** 12-month change correlation - **1.12** fitted elasticity The link is moderate and immediate, with no lag. It is partly a cost link and partly a shared demand cycle, since Chinese construction and manufacturing lift both power use and aluminium demand. Sources: [Material Insights (World Bank, FRED, IMF data)](https://www.materialinsights.org/commodities/aluminum/correlation/) ## For investors ### Key learnings 1. About 96% of Indian smelting runs on captive coal power, so Indian aluminium margins depend on coal cost and supply as much as on the aluminium price. 2. Indian primary aluminium emits about 19.6 t CO2e per tonne against a world primary average of about 14.8 t, so EU border charges from 2026 put a discount on coal-based metal. 3. Moving to hydro and renewables lowers carbon cost but brings weather risk: erratic rain in Yunnan cut smelter output by 10 to 40% at some plants. ### What to track - **Indian domestic and imported thermal coal prices**: Sets captive power cost for smelters (Monthly · Coal India notified prices, Argus or Platts) - **EU CBAM certificate price and default values for aluminium**: Sets the border cost on coal-based metal (Quarterly · European Commission) - **Renewable power contracts signed by smelters**: Shows the pace of moving away from coal (Quarterly · company results) ## For policymakers ### Key learnings 1. Indian aluminium's reliance on captive coal puts its carbon intensity well above the world average, which exposes the roughly a fifth of primary exports that went to the EU (2023). 2. Access to firm renewable power at industrial scale, through open access and storage, is the main lever to cut aluminium emissions. 3. Coal allocation and rail logistics policy directly affect smelter costs, since most smelters run their own coal plants. ### What to track - **Emission intensity of Indian smelters**: Shows progress against carbon credit targets and CBAM exposure (Annual · Bureau of Energy Efficiency, company reports) - **Coal supply to captive power plants**: Shortfalls force smelter cuts or costly imports (Monthly · Ministry of Coal) - **Aluminium exports to the EU**: Shows the trade effect of CBAM (Monthly · DGCI&S) ## India About 96% of India's smelters, run by Vedanta, Hindalco and Nalco among others, rely on captive coal power, giving Indian aluminium about 19.6 t CO2e per tonne and exposing its EU exports to CBAM from 2026. ## Sources 1. [Decarbonising the aluminium sector in India](https://www.lse.ac.uk/granthaminstitute/wp-content/uploads/2026/08/Decarbonising-the-aluminium-sector-in-India.pdf), Grantham Research Institute, LSE (2026) 2. [Chinese aluminum smelters forced away from captive coal-fired power, report](https://www.mining.com/chinese-aluminium-smelters-forced-away-from-captive-coal-fired-power-report/), Mining.com (Wood Mackenzie report) (2021) 3. [EU carbon tax impact on Indian primary aluminium producers](https://www.icra.in/Rating/DownloadResearchSummaryReport/5352), ICRA (2023) 4. [Price correlation, Material Insights](https://www.materialinsights.org/commodities/aluminum/correlation/), Material Insights (World Bank, FRED, IMF data) 5. [China's push for green aluminum hit by erratic rains and power cuts](https://www.pressreader.com/philippines/business-world/20240514/281762749354050), Reuters (via BusinessWorld) (2024)