Final Thoughts
Final Thoughts
May 18, 2023
A lot of steel companies are talking about being carbon neutral by 2050. But how are we going to get there? And how do we get the rest of the world to come with us? As we proceed with decarbonization, what actually qualifies as “green steel,” and who gets to decide?
A conversation today with Kevin Dempsey, president and CEO of the American Iron and Steel Institute (AISI), took this subject out of the realm of conjecture, and placed it squarely in the present moment.
The first thing Dempsey noted about green steel is that “we don’t have an official definition.”
There’s obviously more than one strategy when it comes to decarbonization. It depends on the company, what they produce, where they are located, their access to raw materials, and their source of power. AISI favors a “market-based approach” rather than government mandates, he said.
Dempsey said that the US steel industry is the “cleanest in the world,” and that it got that way through innovation rather than government intervention.
That’s why Dempsey is very precise when he talks about decarbonization and imports. He doesn’t use the term “border-adjustment mechanism.” People might use the term generically, but he said that implies a European framework, “and that means a domestic carbon fee.” AISI is against that.
Right now, the US and EU are trying to hammer out an agreement on the EU’s carbon border adjustment mechanism (CBAM). Under that mechanism, imports to Europe would be charged a tariff if the countries they are from don’t build in a price for carbon emissions. US-EU negotiations on the matter expire on Oct. 1, and an impasse could result in a resumption of Section 232 tariffs on European goods.
Recall that a Section 232 tariff of 25% on EU steel was replaced by a soft quota in late 2021. Eventually, a global framework will need to be determined. But ironing it could prove tricky because the EU favors a more “top-down approach,” Dempsey said.
He prefers the term “carbon tariff” when speaking about CO2 emissions associated with imported steel. If the US steel industry were used as a baseline, imports would be judged on their carbon content compared to domestic products. Additionally, carbon content would be adjusted on a product and category basis, depending on how carbon-intensive the associated production is.
In other words, it wouldn’t be one-size-fits-all across the board. Foreign products would be measured against the baseline set by US products, and the tariff would depend on the differential of carbon intensity. There would be no tariff if the emissions related to imports were the same as those emitted by US producers of the product. “This gives incentives to US producers to keep selling cleaner products, and incentivizes foreign producers to do the same,” Dempsey said.
Also, it makes sure the domestic industry is not undercut by “dirty, imported steel,” he said.
How is your firm dealing with decarbonization, and what approach do you favor for imports? We’d love to hear your thoughts as well.
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By Ethan Bernard, ethan@steelmarketupdate.com
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