Incentives for Green Steel Could Lead to Trade War, WTO Panelists Say

Both the director-general and Deputy Director-General Jean Marie Paugum, who is concentrating on this issue, said that various regions or countries coming up with their own solutions can slow down progress.

"The proliferation of uncoordinated policies and initiatives to promote steel decarbonization can pose the risk of fragmentation which can increase cost and uncertainty and slow down the net zero transition," Paugum said.

Steel is a highly export-oriented sector, Director-General Ngozi Okonjo-Iweala noted, and tax incentives and grants for steelmakers to shift to cleaner methods, as well as carbon prices "can alter the competitive balance."

She said that as a result, there could be an increasing number of trade disputes over steel trade at the WTO.

Yasar Jarrar, senior advisor to the United Arab Emirates' ministry of economy, one of the panelists at the Sept. 13 event in Geneva, asked: "How can we bring coherence, so it's not good just for the bigger players?" Jarrar noted that steel is already an industry riddled with trade disputes, "and now we're adding this new layer of decarbonization."

"If we don’t agree on a set of standards on abatement, we don’t have a common language," he added.

Rajiv Mangal, vice president of safety, health and sustainability at global steelmaker Tata Steel, said that while operating electric arc furnaces with natural gas is cleaner than blast furnaces, which produce 70% of the world's steel, those cost 40% more to run. He said green hydrogen-fueled steelmaking costs 70% more.

"Until we find the answer to absorb these costs it would be unrealistic to expect a steep transition," he said, but the EU's Carbon Border Adjustment Mechanism is going to allow European steelmaking to survive, because imports with higher emissions that don't pay a price on carbon in their home markets will have to pay the same carbon price that EU producers will.

"All steel sold in Europe will have to pay based on the inherent carbon embedded in that particular steel," he said.

A reporter in Geneva said that standards coordination isn't enough, and he asked how the EU and the U.S. could manage their differences on decarbonization strategies without creating a steel trade war. "The EU has clearly signaled they do not intend to give the U.S. a free pass on CBAM," he said.

Mangal, who noted that electric arc furnaces, which are the majority of production in the U.S., create only 25% as much greenhouse gases as blast furnaces, which are more common in Europe. But he said to truly understand the embedded carbon, the scrap that is fed into EAFs must be analyzed, as it could have come from inefficient, coal-fired furnaces.

Paugum asked Erika Chan, the head of sustainability at U.S. Steel, how the negotiations between the U.S. and the EU on these matters are going. She said she doesn't know, but emphasized that the final agreement needs to address overcapacity as much or more than carbon.

She said carbon capture and using green hydrogen to make steel are massive investments, and the technologies aren't mature yet, either. She said U.S. steel needs "to be able to operate profitably" for many years to swing such investments.

"The failure of governments to reach a comprehensive global solution on overcapacity is a significant challenge," she said, and said some other countries subsidize their steelmakers to the point that it increases overcapacity.

The panel included a representative from China's largest steelmaker -- China is the top steel producer in the world -- but his remarks were not translated from Mandarin for the video audience.

Ola Hansen, public affairs director for Sweden's H2 Green Steel, said he agreed with the reporter's analysis that the EU and the U.S. could be headed for conflict in steel because the U.S. wants to offer carrots (subsidies) rather than sticks (a carbon tax or price).

"How to solve it, I don’t really know," he said. "I think it's more a political situation. I think the politicians themselves are struggling with finding a way around it, or a way forward."