Leibowitz: The Steel Mess—Decarbonization, Overcapacity, and Stalemate

The upcoming conference has caused me to ask a few questions about steel policy and climate change. There is a lack of clarity about priorities in setting steel trade and climate policy. The United States and Europe have dueling proposals concerning steel decarbonization.

US-EU Decarb Policies Diverge

The United States wants to impose yet more tariffs on steel imports that are not as clean as steel made in the US. This makes sense if the goal is to limit US imports of steel. But if the goal is to reduce carbon emissions in the world, it will probably be ineffective to impose punitive tariffs. Carbon emissions around the world will not fall because of this policy.

The US industry claims that it is, collectively, the cleanest steel industry in the world. A key data point supporting that claim: three-fourths of US steel production is from electric-arc furnaces (EAFs), which are considerably less carbon-intensive than basic oxygen furnace production.

There is little evidence to support contentions that US BOF production is the cleanest in the world. To prove that, Senators Chris Coons (D-Del.) and Kevin Cramer (R-ND) have introduced a bill to have the Department of Energy survey the US and other countries to determine their “carbon intensity.” The PROVE IT Act would then supply a database to see which countries need to improve the most.

With all this information, climate advocates are saying that even the cleanest countries need to do more to achieve climate goals, such as carbon neutral industry by 2050, or to prevent global average temperatures from increasing more than 1.5 degrees Celsius (C.) by 2030. A recent United Nations report states that, to limit global temperature increase to 1.5 degrees C., greenhouse gas emissions must peak by 2025 and decline 43% from there until the end of the decade.

This will not happen.

The US has not set a goal for climate action that is serious. The long-term goal of “net zero” greenhouse gas emissions by 2050 is probably unrealistic, especially for a democracy whose leadership is up for grabs every four years. To reduce greenhouse gases to “net zero,” major behavior changes are necessary that would probably lose elections.

For now, we are stuck with a policy that says, “we’re the best there is” in the world, and those industries that lag behind will be hit with tariffs. Those tariffs will hurt steel-consuming industries in the United States as downstream products. That’s because that production will move offshore to escape carbon tariffs, Section 232 tariffs, Section 301 tariffs on Chinese steel, and myriad antidumping and countervailing duty actions.

The problem of carbon emissions is global. As President John F. Kennedy said, “We all breathe the same air.” The United States has not seriously proposed how we will get to global net zero greenhouse gas emissions by 2050 without working together. Unilateral tariffs and quotas won’t do it.

The EU plan of putting a “price on carbon” for carbon-intensive industries at least encourages other countries to introduce market effects into the effort to reduce greenhouse gas emissions. It also works to encourage EU industry to improve its carbon emission profile. The US plan does not do much on that score. It would basically tax countries whose record is worse than ours.

The US and the EU Can’t Do It Alone

Policy makers must remember and acknowledge that the US and EU put together are relatively minor steel producing regions. Last year, the top steel-producing countries (plus the EU) were:

1. China: 1,013.0 million tons
2. EU (27): 132.7 million tons
3. India: 124.7 million tons
4. Japan: 89.2 million tons
5. United States: 80.7 million tons
6. Russia: 71.5 million tons

The United States lags the EU in steel production by 52 million tons and China by a whopping 933 million tons. Whether the US reduces its greenhouse gas emissions at all will hardly be noticed on a global scale. One expects that new capacity in the US coming online over the next few years will be cleaner than older capacity. Almost all the new production will be from EAFs, which will push down carbon emissions by itself.

The good news for carbon emissions may be that, over the next 25 years, US steel production from blast furnaces will decline from 25% now to 10%, according to projections from the US Department of Energy.

The bottom line is that greenhouse gas emissions are a global problem. Countries working together to address the problem in a coordinated way is the only answer that makes sense. So far, our diplomats are trying, but not succeeding.

Lewis Leibowitz

The Law Office of Lewis E. Leibowitz

5335 Wisconsin Avenue, N.W., Suite 440

Washington, D.C. 20015

P: (202) 617-2675

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lewis.leibowitz@lellawoffice.com

Editor’s note: This is an opinion column. The views in this article are those of an experienced trade attorney on issues of relevance to the current steel market. They do not necessarily reflect those of SMU. We welcome you to share your thoughts as well at info@steelmarketupdate.com.