The Roosevelt Institute held a webinar on Tuesday entitled "Green Steel Deal: A Transformative Trade Policy for Our Economy & Environment." I remain skeptical about this approach to reducing carbon emissions, but nevertheless I am following it with interest.
U.S. Trade Rep. Katherine Tai offered remarks at the outset. She referred to the Green Steel Deal as the "global arrangement" and said it is intended to be "the world's first carbon based sectoral agreement on steel and aluminum trade." She later stated:
... the Biden administration has transformed a deep rift in transatlantic trade relationships into a collaborative and innovative partnership between the US and EU to craft what will be the world's first carbon based arrangement on steel and aluminum trade.
Trade agreements have traditionally been driven by a sole focus on lowering costs, often with little attention paid to the resulting impact on greenhouse gas emissions. Without a way to account for those emissions. environmental harm is neither captured nor paid. Our current trade frameworks incentivize and reward cheap and dirty production, the definition of the race to the bottom.
The agreement that we are negotiating will be powerful because it will drive demand to reduce these costs and create a race to the top. By increasing demand for less carbon intensive steel and aluminum produced by American and European companies, we can account for the cost of high carbon steel and help clean industries succeed. To create positive and durable environmental change, our vision requires that other leading countries and economies participate too. Critically, this advances President Biden's climate agenda and demonstrates that trade can and must be both a tool in tackling the climate crisis and a tool for promoting fair competition.
This deal will enable us to work with the EU to address a common challenge and global overcapacity issues, while also pushing back the costs of dirty non-market steel and aluminum onto China.
During the Q & A, I submitted the following question about incentives for China, India and others to participate:
Under the Green Steel Deal, if China or India were to switch to electric arc furnaces and reduce their carbon emissions from steel production to US levels, could they sell their steel in the US duty-free (i.e., no ordinary tariffs, no Section 232 tariffs, no AD/CVD/Safeguards tariffs)? If not, what incentive will these and other countries have to participate?
Todd Tucker of Roosevelt took this question and merged it with another as follows:
Tim, we've gotten a few questions in the chat about how other countries will react to this ... new global arrangement. And in particular, we've heard from Simon Lester from WorldTradeLaw.net, asking ... if China and other sort of major producers of steel and aluminum adopt clean production techniques, how can they expect to be treated? And then we've also gotten a question from Stephen Huddart from the Transition Accelerator, which is a Canadian nonprofit, asking what provisions can Canada expect, and how will Canadian steel be treated ... wondering if you could address some of those questions.
Panelist Tim Meyer offered the following response:
So the administration has indicated that ... it's open to countries that are going to pursue high ambition, decarbonization policies, to participate in this global arrangement. That was part of the discussion with Japan that ultimately led to a replacement to the 232 measures with Japan, but Japan is taking a slightly more wait and see approach, I think than some of these negotiations. But I think with respect to the question about Canada, I think ... Canada has obviously been one of the US's closest allies, and ... I imagine that there is a role for Canada to participate within this system, if ... Canada's willing to engage in these kinds of negotiations.
Simon's question is a little bit trickier. So in principle, I think the answer should be yes, that if China were to pursue decarbonization methods, if it were to pursue the same kinds of high ambition policies that we see in the US, in Europe, and hopefully accelerating in the US and Europe, then in principle, yes.
Now there's a couple of things that are going to have to be worked out in the development of a global arrangement. One of those things, the US-EU are going to convene a technical working group on this, it's just basically, how you account for emissions in the sector, in order to sort of figure out, how are we doing, how do we measure progress within the global arrangement. And so there would be a question, of course, about how that intersects with the Chinese model of production.
The second issue is what you do with state subsidies and the market-oriented nature, because quite an important part of the global arrangement is that, not only that you pursue decarbonization policies, but also that you pursue market oriented reforms. And in particular, again, we saw in the agreement with Japan, that there was some indication that Japan was going to pursue reforms that were designed to essentially protect the market oriented structure of its steel industry.
And so, ... I think that that's a pretty significant challenge for China. It's also a challenge, as Saule and Erin were just talking about, it's also a challenge, I think, for the US and the EU to figure out what kinds of subsidies are going to be permitted under the global arrangement, and what kind of subsidies are going to lead to, or what kind of state support are going to lead to, the concerns about an excessively state interventionist model in the steel sector. And I think that's a problem the US, the EU and any countries that choose to join them are going to have to think through carefully, and clearly would have application to countries like China.
Jane Flegal (Senior Director for Industrial Emissions, White House Office of Domestic Climate Policy) then offered comments on the broader issues here, including the following:
... I think as others have said, we see a really important role for trade regimes to help align real material incentives to cultivate a race to the top, domestically and globally. And that includes ... expanding market access for clean products in aluminum and steel and restricting market access for those dirty products, and that's, I think, a really important way to think about international climate cooperation actually.
... the third thing I'll say, which we haven't talked about that much yet, but given the conversation about WTO, I just want to raise here. I think one of the things that we see as central to the global arrangement is that it helps to establish a kind of new norm and climate and trade, of measuring what matters, which is the emissions embedded in these goods. Much of the conversation about climate and trade to date has focused on the sort of requirement of explicit carbon pricing. And in our view, that's not and really cannot be the case. The climate issue is just far too urgent to require uniform global policy instruments to make progress, and I think that's consistent with the Paris agreement, but I just want to flag that here as something we haven't discussed very much, but I think it's worth highlighting.
And then in response to another question, Tim offered the following thoughts on how to address the needs of developing countries:
I think the question of how this affects developing countries is an incredibly important one, both for the long term success of the decarbonization enterprise. I mean, one of the things we know is that ... we in the United States need to decarbonize, the Europeans need to decarbonize, it's critical that you see decarbonization in places like China, if we're going to successfully tackle the climate change problem. But the developing world more generally has an interest in developing its economies. And so it really is both in our own interest, as well as sort of a moral imperative, I think, to help them do so in a way that is going to respect the environmental imperative, which is to do so on the sort of decarbonize path. And so, ... I think the possibility of asking developing countries to basically adopt ... as part of the common external trade policy, these sort of trade policies, say look, keep out carbon intensive steel and aluminum products, and in exchange, we will help you decarbonize, and develop in a decarbonized way. That kind of approach makes a ton of sense to me. It's a way to build the club. It's a way to basically, sort of spread, I think, US values with respect to both trade and the environment.
And I guess just by way of closing, ... Felicia and Ambassador Tai both started off by talking about Russia's invasion of Ukraine, and I think ...this has really, I think, changed the conversation here in ways that we're going to see a much greater emphasis on a trading system in which countries are thinking about what kind of shared values do we have with the countries that we are are trading with, and what are the threats beyond the trading system that countries with whom we do business pose to peace and security and the environment. And in that vein, ... the idea that we would basically reach out to developing countries and help them decarbonize or help them develop on a decarbonized path really makes a lot of sense in a world in which those shared values are becoming increasingly important to how we define economic relationships.
I appreciate the additional clarifications from the government officials and Green Steel Deal advocates who were part of the webinar. But I still see the same problems with this exercise that I've seen from the outset.
First, as dirty as the steel and aluminum industries might be, I'm not sure it makes sense to look at emissions from these industries separately from other emissions. The Indians in particular have pointed out that in terms of per capita carbon emissions, the United States is worse than most other countries. Cherry-picking the steel and aluminum sectors as the sectors to emphasize in the fight against carbon emissions doesn't change that fact.
Now, it's not surprising that a particular country would focus on the area of carbon emissions where it is good and others are bad, but I'm not sure that's a recipe for negotiating success. While it's fair for the United States to put forward steel and aluminum as a place to start, it's going to have to talk about other areas as well, including those many areas where it is worse than others. As of this moment, I'm not sure it is ready to do so.
Second, the problem with trying to tackle "dirty" and "non-market" products together is that under current AD/CVD law, most steel and aluminum is considered to be "unfairly" traded and in that sense would be considered by some people to be "non-market." Thus, no matter how cleanly these products are produced, they can be subject to high U.S. duties, and as a result I'm not sure what incentive foreign governments will have to push for cleaner production. They could shift their production to electric arc furnaces and make them squeaky clean, but that won't give them better access to a U.S. market in a sector that is one of the main users of AD/CVD laws.
Along the same lines, Tim talked about helping developing countries decarbonize. That's great to hear, but how exactly would the U.S. government do that as part of the Green Steel Deal? It's hard to imagine the Biden administration accepting greater market access for developing country steel and aluminum products in the U.S. market, so what help would the Biden administration offer to these countries? One option is to provide U.S. government financing for a shift to cleaner production, and I can imagine that some people in the Biden administration would support this. But I can also see that approach getting lots of pushback from Congress, so I'm not sure it's politically viable.
Ultimately, I see the "non-market" component of this effort as a poison pill that will doom the enterprise. I think it would be possible to pursue a Green Steel Deal that provides incentives for cleaner production as part of a broader effort to lower carbon emissions. But once you bring in "unfair trade" issues, the progress is going to quickly grind to a halt.
