Border tax could stop carbon leakage, not global competition

In the absence of a binding international agrement on climate change regions are likely to continue developing their own regulations separately. However, this means regions which pursue stricter regulations will also have to protect the competetiveness of their industries.

SBB 11 April Border adjustments to compensate for the added costs to the European steel industry of the Emissions Trading System (ETS) would be World Trade Organisation (WTO) compliant, argues Susanne Dröge, head of global issues at the German Institute for International & Security Affairs.

Speaking at Steel Business Briefing’s Green Steel Strategies conference in Brussels on 5-6 April, she warned steelmaking capacity could still move to other geographies because of international competition.

A border adjustment on imports would be legal if applied to all regions and on a basis that refers to a non-discriminating standard. For example, using a ‘best available technology’ standard to ensure regions and producers with lower emissions levels are treated fairly, according to Dröge.

A border adjustment on imports and exports would be necessary to combat carbon leakage from the EU. However, working out the exact details of these adjustments would be a long and complicated process, she suggests. Export adjustments are also more difficult to handle under the WTO, she adds.

It is also important to note that the EU steel industry will still face competition from emerging markets. Although China is not a low cost producer compared to CIS, Latin America and the Middle East, it does have low investment costs, fast construction times and a number of other advantages. Meanwhile, the EU continues to face significant steelmaking overcapacity.

Compared to these factors, the effect of the ETS is minor. The EU may therefore see steelmaking capacity decamp to emerging markets even without carbon leakage, Dröge suggests.


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