Towards a Green Steel Deal

The climate crisis is a global problem, but we have no global government. How to get nations to act? @Tim_L_Meyer and I have see trade as a key lever in our new paper: A Green Steel Deal. Thread. (rooseveltinstitute.org/publications/a…)

About a third of global carbon emissions are embedded in trade flows, especially in manufactured products like chemicals, cement, paper, aluminum, glass, and steel. (oecd.org/sti/ind/carbon…) Indeed, while only 23 percent of global economic output is traded, the portion that is traded accounts for up to 70 percent of the total environmental or social impact. So there’s no addressing the climate crisis without having a trade strategy. (nature.com/articles/s4156…) Moreover, if some countries try to decarbonize their manufacturing sectors and others don’t, industries could just relocate from the former to the latter. That’s called carbon leakage, and it simply relocates rather than reduces pollution — hurting both the climate and jobs.

The EU is converging on one way of addressing carbon leakage called carbon border adjustment measure, or CBAM. It’s complex, but I’ll single out a few elements. First, it will attempt to impose on imports a comparable burden to what domestic producers are facing under the EU’s rising carbon price. (bloomberg.com/news/newslette…) Second, the EU is insisting that the CBAM can, must, and will be compatible with World Trade Organization (WTO) rules. (jdsupra.com/legalnews/euro…) Third, the bloc is urging the US to adopt its approach. That did not land particularly well. (ft.com/content/3d00d3…)

Why not? Team Biden has focused on a decarbonization approach that emphasizes climate standards and investment (aka industrial policy), not carbon pricing and market mechanisms. (joebiden.com/clean-energy/) There’s a sound reason for that. Recent social science evidence (learning from the EU’s experience) has cast doubt on the political efficacy of carbon pricing, and its ability to decarbonize quickly enough to meet Paris targets. See @mmildenberger (mitpress.mit.edu/books/carbon-c…) And @dcullenwald and David Victor (amazon.com/Making-Climate…) And @greenprofgreen, among many others. (environment.utoronto.ca/professor-jess…)

At the same time, the Biden administration has been warm to the idea of using trade to encourage other countries to take climate action. (reuters.com/article/us-usa…) Historically, the idea of a domestic carbon price and border carbon measure have been linked. In our paper, Tim and I argue the time has some to divorce those two concepts and to pursue so-called “sectoral strategies” that scholars like @thomasnhale and Victor et al have been exploring.

We identify the steel industry as an early candidate for Trans-Atlantic sectoral strategy. Why? The production of steel is incredibly carbon intensive, and is on track to consumer 50 percent of the remaining carbon budget by 2050 if not decarbonized. (rmi.org/insight/the-di…) Our Green Steel Deal consists of several elements.

1. Create a climate club for countries, where the condition of membership is to convert all domestic steel production to green methods. The method would be up to countries, but the decarbonization targets would be binding.

2. Apply a common external tariff (initially 25 percent) to countries outside the club. Within 10 years, ban the production and trade of “dirty steel.”

3. Agree to technology and information sharing on best practices.

4. Plow tariff revenue back into green steel demonstration projects.

5. Modernize WTO rules to accommodate this transition, rather than letting current WTO rules dictate the transition.

The paper goes through more detail on each of these elements and why they’re needed. It builds on an earlier piece Tim and I wrote for @lawfareblog. (lawfareblog.com/trumps-trade-s…) In addition to the above, we learned a lot from @HendricksB @MarkVinPaul @LeahStokes @GernotWagner @Noahqk @Rgunns @rebeccawdell @KateAronoff @BreakThrough @rhodium_group @RockyMtnInst @ItifDC @ProfDavidHart and many more.

The link, again: (rooseveltinstitute.org/publications/a…)

And trade buffs watch this space in the coming days for a more technical (WTO and US) law focused sister paper. END (papers.ssrn.com/sol3/papers.cf…)

We did not plan the release of this paper for the same day of a leak of the EU’s CBAM proposal, but it’s a good example of how prioritizing WTO compatibility (while trying to maintain jobs and administrative feasibility) will probably end up sacrificing all 3.

Our Green Steel Deal is easy to administer and takes the politics seriously. This means it’s likely to work well, which will generate will to modernize WTO rules or render them moot. Design should follow priorities, and the priorities should be decarbonization and jobs. Green steel = Green jobs + green trade + workability… Now, that’s a winning proposition.

(Adapted from this thread.)

I write about democracy, political economy, and trade. Fellow at the Roosevelt Institute and Roosevelt Forward.