US steelmakers have warned that a new climate bill currently being prepared by President Barack Obama's administration risks increasing their production costs and could result in loss of their market share to emerging economies such as China, which has not committed to similar emissions targets.
Leo W. Gerard, international president of the United Steelworkers, appeared before the US House of Representatives' subcomittee on trade earlier this week (24 March) to request House members to consider the risk of 'carbon leakage' (see EurActiv LinksDossier) when deciding on US climate legislation.
The industry boss warned lawmakers that commodity-based industries like steel, glass, chemicals, rubber and paper are vulnerable to even small differences in production costs. "Finding a way to mitigate the competitive disadvantage that will be placed on these industries is not only an imperative if we are to continue the recovery from the current recession, but it is an imperative if we are to actually achieve the goal of stopping climate change," he said, according to Reuters.
Gerard said he supported EU-style cap-and-trade schemes for US industries. However, he rejected the idea of 100% free allocation of emissions rights for the power sector, which he said would lead to windfall profits and offer little incentive to maintain domestic production.
The US should also consider trade mechanisms that put a higher price on imports of products coming from countries which do not impose similar obligations on their industries, according to Gerard.
"Access to our consumer market is the most powerful incentive the US has to encourage other nations to commit to reducing climate change. It must be used in a strong and effective manner," he said.
Chinese advantage
American energy-intensive industries consider China as a particular threat to their competitiveness.
The Alliance for American Manufacturers published a report on 21 March arguing that China is failing spectacularly to enforce its already weak pollution control standards and is thus gaining an unfair competitive advantage.
Propped up by massive government subsidies, China's steel industry now produces more than the US, Russian and Japan put together: a third of global production. While the American steel industry has become 25% less energy-intensive over the past 20 years, China alone is responsible for half of the world's CO2 emitted from steelmaking, the Alliance states.
Moreover, its standards for air and water pollution stemming from the steel industry are much less stringent than in the US, it argues.
"China's steel industry is not only harming the health of its own people, but spreading pollution around the world and contributing to global warming," said Scott Paul, executive director of AAM. "At the same time, China benefits economically from its failure to control pollution, giving it a significant advantage over its foreign competitors," he added.
Writing on his blog, Paul said Chinese products had to be treated equally to American products under any cap-and-trade or tax regime. Otherwise, American jobs would flee the country and the climate problem would worsen, he added.
"American steelmakers comply with air and water pollution standards that are six times tighter than China's. They spend at least twice as much to operate and maintain pollution control equipment. So it's important for policymakers to recognise that it is essential to keep manufacturing in the US in a cap-and-trade world," Paul argued.
Echoes from the EU
The calls from the US steel industry mirror those made by European industries when the bloc agreed on a revision of its emissions trading scheme. Eventually, the energy-intensive industries received derogations for continued free emissions allowances, in sectors deemed at significant risk of carbon leakage (EurActiv 12/12/08).
"The concerns of the American steel industry are well founded," Gordon Moffat, director-general of the European Confederation of Iron and Steel Industries (Eurofer), told EurActiv.
Most industrial emissions take place outside of Europe, most notably in China, India and Brazil, he said. Imposing strict emissions limits only in Europe or the US both puts these regions at a competitive disadvantage and is ineffective in terms of climate protection, he argued.
"The US produces around 100 million tonnes of steel. We produce 200 and China 500 tonnes, so you can see the extent of the problem," Moffat said.
Europe produces 1.4 tonnes of CO2 per tonne of steel while the figure is around 3-4 in China, he explained, concluding that limiting cap-and-trade to Europe would thus not address the problem of emissions.
Until a global system is put in place, cap-and-trade systems in the EU and the US would expose their energy-intensive sectors to carbon leakage and considerable competitive pressure, Moffat said.
