U.S. injecting climate change into steel tariffs

Trade representatives from the U.S. and the European Union are trying to decide how best to penalize the trade of steel that was made using processes that emit excessive greenhouse gas emissions. sinceLF / Royalty-free / Getty Images

The Biden administration is trying to structure a new agreement with the European Union on steel and aluminum tariffs.

The Trump 25% tariff on imported steel and a 10% tariff on aluminum, which were altered slightly in a tariff rate quota (TRQ) agreement signed in October 2021, would be changed again in an effort to inject climate change concerns into the transatlantic trade of steel and aluminum. A new tariff arrangement with Europe would hurt U.S. product manufacturers more than U.S. steel producers.

“Less than 1% of American steel exports go to the EU, so the direct impact of the EU [Carbon Border Adjustment Mechanism] on the U.S. industry will not be dramatic,” said Kevin Dempsey, American Iron and Steel Institute president and CEO. “Based on 2019 data, the steel imported into the U.S. accounted for greater than 11 million more metric tons of CO2 emissions than if that steel had been produced at average U.S. emissions levels. That is why the American steel industry supports implementing a border carbon fee based on the differential in carbon intensity between cleaner domestic steel manufacturing and dirtier imported steel.”

U.S. Trade Representative Katherine Tai met twice in July with European Commission Executive Vice President Valdis Dombrovskis. The meetings focused on the Global Arrangement on Sustainable Steel and Aluminum, which was announced conceptually at the same time the TRQ agreement between the U.S. and EU was signed. That 2021 announcement set a deadline of October 2023 for details of the Global Arrangement to be set, resulting in the two July meetings between Tai and Dombrovskis. In a statement, they stressed the importance of both sides generating ambitious proposals to address shared concerns on carbon intensity and nonmarket excess capacity in the steel and aluminum industries.

Any deal between the EU and U.S. would set tariffs depending on the carbon emissions produced by the steel manufacture of a particular product. If no carbon was emitted, the tariff both ways would be zero. Ascending levels of tariff based on the carbon emissions would be applied accordingly. A significant part of the rational for an agreement is to penalize mostly China and other developing economies who produce allegedly dirty steel.

However, parties have not agreed to one procedure to measure carbon emissions in steel and aluminum production. At congressional hearings earlier this year, Tai focused on the emissions data currently available and reported that more emissions data would be necessary to determine their ultimate implementation approach in consultation with the EU.

The EU has already taken a big step in this area by establishing a CBAM. The CBAM will begin its transitional phase on Oct. 1, with the first reporting period for importers ending Jan. 31, 2024. It initially applies to imports of certain goods and selected precursors whose production is carbon-intensive and at most significant risk of carbon leakage: cement, iron and steel, aluminum, fertilizers, electricity, and hydrogen. During this period, importers of goods within the scope of the new rules only have to report greenhouse gas emissions (direct and indirect) embedded in their imports, without making any financial payments or adjustments.

The Biden administration might have authority to complete a deal using Section 232 of the Trade Expansion Act, which is how President Trump justified the tariffs.

“If that runs in parallel with getting serious about the EU CBAM, I have no objection to it. But if there's an effort to water it down, then I am vehemently opposed,” said Sen. Sheldon Whitehouse, D-R.I., told online news site Axios.