Steel: To Tax or Not to (carbon) Tax

Global public opinion seems divided on whether or not to impose a “carbon tax” on the metal and mining sector. This goes double for steel. Depending on which side you’re listening to at a given moment, you’ll get very different opinions on the matter. Many economists, environmentalists, and the general public welcome the idea. The steel sector, of course, is firmly on the other side of the fence.
Historically, the metals mining sector has opposed carbon taxes. This is largely due to fears that it will inflate the final selling price. However, a growing section of economists believe that a carbon tax would be highly effective at reducing carbon emissions. As per World Bank’s figures,  27 countries have enacted carbon taxes so far. That said, only seven of them were mining countries.

Why the Tax on Steel?

Steel serves as one of the most widely-used building materials in the world. The process depends upon coking coal. So, for every ton of steel produced, nearly two tons of CO2 gets released. Altogether, this accounts for around 7% of global greenhouse gas emissions. These figures relate to BOF operations only.
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Where Does the US Stand on a Steel Tax?

Of late, US lawmakers have been working on a bipartisan energy and climate bill. According to reports, it may include a tax on carbon-intensive products entering the country. Last month, US Senator Joe Manchin, D-W.Va., began talking to both Republican and Democratic lawmakers about the possible impacts of such a bill.
According to this report, the discussion was occurring at the same time the European Union (EU) was working to implement a carbon border adjustment mechanism. Green activists feel that such tariffs may eventually cut down on emissions. At the same time, they hope to make domestic manufacturers more competitive against less carbon-efficient foreign companies.
But the proposal for such a bipartisan bill is still in the very early stages.
In July last year, US Senator Chris Coons, D-Del., co-chair of the Senate’s Climate Solutions Caucus, proposed a bill to impose a “polluter import fee.” The policy was intended to affect certain carbon-intensive products entering the US. It would initially apply to commodities like aluminum, cement, iron, steel, natural gas, petroleum, and coal. However, it would eventually expand to other types of imports. The revenue obtained from the fees could then be used to support technologies designed to reduce emissions.
In April this year, Pennsylvania became the first fossil fuel-producing state in the US to adopt a carbon pricing policy. This kind of pricing works by putting a monetary value on carbon. And therein lies the rub. What’s the correct price tag to put on carbon emissions?

Running the Numbers

So far, the Biden Administration has calculated $51 for every ton of carbon released. New York State, on the other hand, pegged the figure at $125. Meanwhile, the International Monetary Fund has been kicking around a “three-tier system.” In this structure, developed countries would pay US $75 (£56) per ton of carbon, while less-developed parts of the world would pay $50 (£37) and $25 (£18).
Carbon markets can be operated in one of two ways, according to the Paris Agreement 2015. The first is through an emissions trading system that caps a total target for emissions. The other option is to use a system that allocates “carbon permits” accordingly.
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Another possibility includes what’s known as a “carbon offsetting scheme.” This provides tradable carbon credits to offset carbon emissions outside the “capped area.” This third option imposes a fee on every ton of carbon emitted.
Ultimately, many in the US oppose levying tariffs on steel and other imports from countries with higher carbon dioxide outputs. This lobby claims that carbon taxes are too complex an issue and that merely imposing a tax will not solve the problem or fight climate change. Their solution? Simply make commodities more expensive.

The US & The EU

Late last year, the European Union and the US negotiated what was billed as the world’s first carbon-based sectoral arrangement on steel and aluminum trade. However, it would not truly take effect until 2024. In the meantime, the two nations arrived at an “interim arrangement” for trade in the steel and aluminum sectors. This deal modified tariffs on EU suppliers and strengthened enforcement mechanisms to prevent “leakage” of Chinese steel and aluminum into the US.

The EU’s efforts

In February of this year, participants in a webinar hosted by Euractiv, a Brussel-based policy events organizer, expressed worries that the European Commission’s Carbon Border Adjustment Mechanism could be counterproductive. They said this would prove especially true if it didn’t provide a solution for those EU exporters of steel and other products impacted by the policy.
Incidentally, the European steel industry exports 20 million MT every year, worth almost EUR £20 billion. The Mechanism is currently in the proposal stage and is still being discussed by the European Parliament.
Europe, however, seems to be ahead of the US in the march toward carbon compliance. Many steel companies, including H2 Green Steel and Hybrit of Sweden, have begun using hydrogen and non-fossil fuels to produce “green” steel.
The de-carbonization of the steel industry is going to be a long journey. Obviously, taxation is an option that’s still on the table. However, steel producers will have to decide on a technologically and economically viable way to decrease their carbon footprint. Whether the use of hydrogen is the answer remains to be seen.
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