Unveiling the Link: How Climate Change Factors into U.S. Steel Tariffs

The Biden administration is actively working to forge a fresh agreement with the European Union concerning tariffs on steel and aluminum products.

Previously, a 25% tariff on imported steel and a 10% tariff on aluminum, initially adjusted through a tariff rate quota (TRQ) accord signed in October 2021, are now being reconsidered with a focus on incorporating climate change concerns into the transatlantic trade of these materials. This new tariff arrangement with Europe could potentially impact U.S. product manufacturers more than domestic steel producers.

According to Kevin Dempsey, President and CEO of the American Iron and Steel Institute, the direct consequences of the EU's Carbon Border Adjustment Mechanism on the U.S. steel industry might not be overly dramatic, given that less than 1% of American steel exports are directed towards the EU. However, he points out that steel imports into the U.S. in 2019 resulted in more than 11 million additional metric tons of CO2 emissions compared to if the steel had been produced with average U.S. emissions standards. This is why the American steel sector is advocating for the implementation of a border carbon fee that takes into account the disparity in carbon intensity between cleaner domestic steel manufacturing and more polluting imported steel.

In July, U.S. Trade Representative Katherine Tai engaged in two productive meetings with European Commission Executive Vice President Valdis Dombrovskis. These discussions revolved around the concept of the Global Arrangement on Sustainable Steel and Aluminum, a concept that emerged concurrently with the TRQ agreement between the U.S. and EU in 2021. The original announcement set an October 2023 deadline for finalizing the details of this Global Arrangement, resulting in the fruitful conversations between Tai and Dombrovskis in July. In a joint statement, they emphasized the importance of generating ambitious proposals to jointly address concerns related to carbon intensity and nonmarket excess capacity within the steel and aluminum industries.

Should an agreement be reached between the EU and U.S., the tariffs applied would be contingent on the carbon emissions generated during the manufacturing of specific steel products. Tariffs would be eliminated if no carbon emissions were produced, and they would escalate progressively in alignment with the level of carbon emissions. This agreement holds significant merit in its effort to penalize countries such as China and other developing economies that are known for producing steel with higher carbon footprints.

However, there remains a point of contention regarding the methodology to measure carbon emissions in steel and aluminum production. U.S. Trade Representative Tai, during congressional hearings this year, emphasized the importance of the currently available emissions data and indicated that more comprehensive emissions data would be required to determine the final implementation approach, working in consultation with the EU.

The European Union has already taken a substantial stride in this direction by introducing a Carbon Border Adjustment Mechanism (CBAM). This mechanism will commence its transitional phase on October 1, with the initial reporting period for importers concluding on January 31, 2024. The CBAM will initially apply to imports of specific goods and selected precursors with carbon-intensive production processes, including cement, iron and steel, aluminum, fertilizers, electricity, and hydrogen. Importers falling within the scope of the new regulations will be required to report greenhouse gas emissions embedded in their imports during this period, without immediate financial obligations.

The Biden administration could potentially utilize Section 232 of the Trade Expansion Act, the same provision invoked by President Trump, to finalize an agreement.

Senator Sheldon Whitehouse from Rhode Island expressed his stance, stating, "If this aligns with a genuine commitment to the EU CBAM, I fully support it. However, any attempts to dilute its impact would meet my strong opposition," in an interview with the online news platform Axios.

Source : the fabricators (Reporting by Stephen Barlas)