USA and EU: a green steel deal?

By Susanne Dröge

Susanne Dröge is Senior Fellow at the Stiftung Wissenschaft und Politik

While the world looks to Glasgow for climate policy breakthroughs, the EU and the US announced a project on the sidelines of the G20 summit last weekend that aims to reduce emissions in a new way. With a “Global Arrangement on Sustainable Steel and Aluminum“, the two trading partners aim not only to settle their long-running dispute over US tariffs on steel and aluminum products but also to drive decarbonization in the two energy-intensive sectors. Can this succeed and is this a viable “climate club”?

The negotiations, which are scheduled to last two years, will be interesting in three respects. Firstly, the punitive tariffs of 25 and 10 percent on steel and aluminum imports from the EU and other countries introduced under President Trump in 2018 will be withdrawn immediately. The EU challenged their justification before the WTO and in return imposed tariffs on American consumer goods.

The conflict has now been defused, although not yet fully, because for the time being, there is only duty-free treatment for the quantities that have been traded up to 2018. However, this paves the way for closer cooperation in trade policy and better cooperation on climate policy projects.

Common standards for emissions

Secondly, this transatlantic project is an important test for climate policy coordination. The agreements, which have yet to be specified, could help to reduce CO2 emissions from two energy-intensive sectors. After all, global steel production accounts for eight percent, and aluminum for two percent of the annual global volume of this greenhouse gas. To this end, the two parties want to do something about global overcapacities as well as talk about common standards for emissions and agree on methods for measuring them.

The deal thus takes the sand out of the gears, which is severely disturbing the connection between the Commission’s Green Deal and Joe Biden’s climate agenda. With its plans for a carbon cap and trade mechanism (CBAM), the European Commission had ensured that the still-new US administration was under pressure at the beginning of the year to position itself with its offers and proposals.

In July, the Commission then fleshed out the draft CBAM as part of the Fit for 55 legislative packages. A levy on imported goods from four industrial sectors and electricity imports, based on their CO2 content, is intended to ensure that EU producers remain competitive in the face of rising CO2 prices in the future.

China remains outside

The US was not enthusiastic about the idea, especially since crediting foreign CO2 prices for US goods is not possible – this is because the US does not have a CO2 price. Instead, there are strict standards and other regulatory measures to reduce emissions in the US industry. The negotiations will therefore also be about reaching an understanding on reciprocal crediting of climate policy measures.

In proclaiming a “global” arrangement, there also seems to be an invitation that this deal could encompass more than just the two transatlantic partners and thus have the makings of a blueprint for a “climate club“.

However, both initiators have already disqualified one important partner: China. Steel from China will instead confront continued access restrictions to the EU and US markets because Chinese companies are accused of dumping and of emitting too much CO2. The White House stresses that this would encourage carbon leakage, but in doing so it is primarily addressing American voters who are more afraid of Chinese job competition than climate change.

The plan could therefore turn into a poisoned gift to the global community if it alienates potential supporters and possibly only lasts as long as the Democrats in the US remain in power. For the EU the question also arises whether it wants to combine climate protection with market isolation from the biggest climate polluter in the long term. Given the COP26 and its diplomatic minefields, more openness towards the Chinese partners would have done a better job.

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