Strong international cooperation, domestic policies needed for green steel deal: panelists

To advance the US-EU plan for the world's first carbon-based arrangement on steel and aluminum trade, it is going to take strong international corporation, coupled with supportive domestic policies, panelists said during a webinar March 22.

The US and EU first announced plans in October to negotiate arrangements for trade in the steel and aluminum sectors that take account both global non-market excess capacity as well as the carbon intensity of these industries.

"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 industries succeed," US Trade Representative Katherine Tai said in pre-taped remarks during a webinar hosted by The Roosevelt Institute, a liberal think tank. "What this agreement offers us is a high standard example for the rest of the world to follow."

The US and EU previously said they will invite like-minded economies to participate in the arrangements, taking a club-based approach rather than using an outlet like the World Trade Organization for negotiations, which has not successfully completed negotiations on any subject since its creation in 1995, said Tim Meyer, professor of law and director of the International Legal Studies Program at Vanderbilt Law School.

This approach, along with the support shown by the domestic steel industry for a global agreement of this nature, are both benefits to the potential for decarbonizing the sector and could help decarbonization efforts beyond steel, he added.

"When you start to think about the idea of a club-based approach...and you see that you've got the backing of industry, the backing of the US and its allies in Europe, I think you start to see the makings of a policy that is likely to be very effective as what we might think of as a demonstration project for the broader applicability of trade policy as part of a toolkit to pursue decarbonization," Myer said.

Domestic policies need to support efforts abroad

However for the US to be successful in its efforts to tackle overcapacity and emissions abroad, it is going to require domestic policies that support clean domestic production to progress in tandem, said Erin Mayfield, assistant professor of engineering at Dartmouth College.

"As the US decarbonizes there is going to be an increase in products derived from steel and aluminum, like [electric vehicles], wind turbines and solar panels, so policies like clean energy standards and EV purchase subsidy incentives drive demand for these products," she said.

Domestic policies like federal or state procurement provisions can also ensure that demand is met through materials that are produced through low-carbon processes, Mayfield said. In addition, federal funding streams to demonstrate technologies and infrastructure related to carbon capture and hydrogen hubs are also necessary in enabling actions that will drive large emission reductions in domestic industrial sectors in the future, she said.

Saule Omarova, senior fellow at The Roosevelt Institute and professor of law at Cornell Law School, said she sees the green steel trade agreement the US is working on with the EU as a big step toward what is promising to become the country's new investment strategy.

"Of course successfully implementing this emerging strategy requires plentiful and reliable financing over both the short and long terms," she said.

An economy-wide shift to clean products and technologies is a capital-intensive process with a long lifespan, Omarova said.

"It will take a tremendous amount of ongoing investment to generate economic, environmental and social benefits spread well into the future," she said. "It will also require a great deal of coordination among many actors and on many levels to ensure capital is deployed to the maximum benefit of the American people."

To provide this kind of strategic long-term investment, the US government needs new tools that are much stronger and more flexible than what it currently has at its disposal, she said.

President Joe Biden and Congress have already committed to ramping up investment in US infrastructure supply chains, with several legislative proposals in front of Congress, including the Build Back Better Act and America COMPETES Act, which dedicate significant money to building up domestic industries, she noted.

Jane Flegal, senior director for industrial emissions at the White House, said the Biden administrations is also working to implement new investments in the deployment of clean hydrogen and new actions to help scale carbon capture responsibly, both of which could help to reduce emissions from steel and aluminum production.

From an international perspective, one of the big challenges for the US and EU will be working out how to account for emissions in the steel and aluminum sectors and how progress is measured, Myer said. Additionally, the parties will have to figure out what kind of subsidies will be permitted under this type of arrangement and what will be deemed excessive, he added.