I've seen some talk on Twitter and elsewhere about the "Carbon-Based Sectoral Arrangement on Steel and Aluminum Trade" part of the U.S.-EU Section 232 agreement, as the White House referred to it, with people seeming to suggest that this is a big deal (a "green steel deal") and will lead to lower carbon emissions in the steel and aluminum industry. I've been puzzling over something for a couple days now, and I can't figure out an answer, so let me just put a question out there for Tim Meyer or Todd Tucker or any other supporters of this approach: How exactly will this arrangement lower carbon emissions in the U.S., the EU, or other countries?
The most obvious response is probably that by creating a club of countries who have relatively clean steel and aluminum production, with tariffs imposed on steel and aluminum imports from countries that are not part of the club, you can induce them to clean up their own production in order to get access to the club. I assume the supporters have some variation of this in mind. But if that's the argument, it raises a number of specific questions for me.
First, will there be any efforts to improve U.S. and EU carbon emissions, or is everyone just accepting that the U.S. and EU are clean enough right now and the status quo in these two places is OK and thus the focus will be on pushing others to lower their emissions? (For what it's worth, figuring out emissions by country is a challenge, and there is a lot of variation within countries, but here are some reports on it.)
Second, in terms of the other countries, there are probably a number of countries that are similar in emissions levels to the U.S. and the EU, while other countries do worse.
For those countries that are at similar levels, my question is, are their emissions fine as is and they can just join the club right now, or will there be efforts to push them lower?
But the key issue here, of course, is the countries with dirtier steel and aluminum production. With respect to those countries, my question is, what are the tools that are going to be used to induce them to lower their emissions? In theory, you could impose a 25% tariff on these products if they are dirty, and remove the tariff when they get clean. But as just about everyone probably knows, trade in these products is already so heavily restricted by existing AD/CVD orders that the imposition and removal of a 25% tariff is not likely to have much of an impact here. Now, what you could do is remove all the tariffs on these products, including the trade remedy tariffs, after their emissions are clean, but it seems unlikely that the steel industry would ever go for that. So, in this high tariff environment, I'm not sure being able to join this new club acts as much of an incentive to clean up emissions.
It's worth noting at this point that this new arrangement is not just about carbon intensity of production, but also about traditional "unfair trade" issues, as the White House fact sheet states: "the United States and European Union will work to restrict access to their markets for dirty steel and limit access to countries that dump steel in our markets, contributing to worldwide over-supply." With the two issues intertwined like this, I'm not sure there is any scope for the arrangement to use the power of the U.S./EU markets to induce lower carbon emissions in our trading partners. As "dumping" is currently defined in domestic law, it's not easy for companies to stop dumping (unless they just stop selling to the market in question), and domestic industries and investigating authorities will use the flexibilities in the law to keep out imports of these products. So just to reiterate what I said above, as long as unfair trade laws are in place, I'm not sure the carbon tariff aspect can offer much of an incentive for changing carbon producing behavior.
With all this in mind, my broad and general question is, how does any of this lead to lower carbon emissions in the steel and aluminum industry? Which countries are going to feel pressured to make changes in their domestic production? China? India? Brazil? South Africa? China is probably out, because there is no way I can see that imports of steel and aluminum from China are going to start flowing into the U.S. and EU any time soon, even if they make their steel and aluminum solely with geothermal power and plant a million new trees. But what about the others? Could they clean up their production so that it produces less emissions and therefore gets easier access to the U.S. market? Putting aside the previous points about trade remedies, in theory they could do this. But it would take some money, and that money probably will have to come from the government, which of course brings the trade remedy issue right back in, because it means that U.S. and EU producers will bring countervailing duty cases against these subsidized imports. Thus, the 25% carbon tariff would simply be exchanged for an uncertain, and quite possibly much higher, countervailing duty.
That's as far as I've gotten with all of this at the moment, but if any of the advocates of this new arrangement who think it's going to bring down carbon emissions can explain how it will do so, I'd love to hear it!
