From the end of 2019, the European Commission is considering the possibility of introducing a border tax on CO2 emissions, covering all industries. At first glance, this looks like another protectionist measure aimed at keeping European production in the face of imports, which supposedly lower local costs. In truth, a tax that aims to reduce emissions in Europe can be viewed much more positively than the many protectionist tariffs that have been introduced around the world recently.
In the steel sector, President Trump’s section 232 tariffs, introduced in 2018, curbing external competition, only protected large U.S. steel producers who were able to increase profitability without the need for additional investment or rationalization. Capacity utilization in the U.S. grew rapidly but fell sharply when the Covid-19 pandemic hit demand and workers. The output is only now reaching the level of 232 sections.
EU safeguard quotas were introduced in early 2019 as a direct response to the US government’s actions to prevent the flow of steel from its normal channels to the European basin. These measures have undoubtedly received the approval of the large steel producers, who remain interested in expanding them and have had the desired effect of containing imports. However, as with all such blunt instruments, there were unintended consequences.
Structural hollow sections, a growing market and heavily dependent on Turkish imports, saw quotas being exhausted within days of opening as the associated material was cleaned up, followed by shortages, resulting in a significant jump in prices. In other countries, independent processors and processors have been unable to access the imports they rely on, as European businesses prefer their own domestic activities.
However, it would be very wrong to give up the idea that the European steel industry is lacking in investment. Great strides have been made in the search for alternative methods of iron and steel production to replace the highly polluting blast furnaces. HYBRIT in Sweden, where SSAB, LKAB and Vattenfall are working to create fossil-free steel, the Salzgitter SALCOS project and the use of a hydrogen dillinger in a blast furnace are practical examples of achieving the EU’s goal of reducing greenhouse gas emissions by 50% in the near future. ten years.
Such efforts are extremely expensive and time-consuming, with little immediate benefit to individual companies. Without any intervention, European steelmakers risk investing in new technologies, while cheaper competition that does not obey similar rules drives the market away. In an extreme case, this could lead to a serious production cut in Europe with significant job losses without actually reducing the carbon footprint of production.
A CO2 border tax targeting polluting steelmaking countries will act as a well-deserved financial reward for those firms that have already invested in new technology and push manufacturers around the world towards cleaner operations for the benefit of the world population.
Governments around the world have an important role to play in promoting CO2 emissions reductions that may portend reasonable and sustainable flows of global steel trade, rather than resorting to protectionist measures that allow obsolete technology to proliferate.