The U.S. steel industry in general, and U.S. Steel Corp., AK Steel, ArcelorMittal SA and OAO Severstal in particular, which operate carbon-intensive integrated mills, could be hurt under a carbon-emissions cap and trade system, WSJ reports.
To pay for emissions, they will be forced to raise prices or, in order to reduce their carbon footprint, produce less steel.
The industry sees a third option. It's lobbying to get credit for the fact that it has reduced carbon emissions since the 1990s. But the Journal says the reason emissions are down is because of "the growing production of steel made by minimills, which melt down scrap steel into new steel" and emit about 66% less carbon.
The U.S. Steel industry has reduced its energy intensity per ton of steel shipped by about 33 percent since 1990 - an improvement on the 29-percent reduction reported in 2006, according to the American Iron and Steel Institute
The worst outcome of cap and trade, according to the industry, would see integrated steel operations move to developing nations where they wouldn't face carbon restrictions.
According to a recent report from the Pew Center on Global Climate Change, an organization that supports a cap on emissions, Industries with energy costs exceeding 10 percent of shipment value, (e.g., metal foundries, cement, and lime) would expect output declines of about 4 percent and consumption declines of 3 percent, associated with a $15 per ton CO2 price, suggesting a 1 percent shift overseas. The report actually finds other industries hurt more - output declines of 3.4 percent in bulk glass, and 3.3 percent in paper, associated with a $15 per ton CO2 price.
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But it's not just the U.S. steel industry that's feeling the heat. This month, EUROFER, the European Confederation of Iron and Steel Industries, released its Manifesto of the European steel industry for Members of the European Parliament 2009 - 2014.
According to the Manifesto, "Without a level playing field in climate change policy, non-EU steel-making competitors will enjoy an unfair competitive advantage that will distort the global market for steel and restrict future investment in the EU, leading to carbon leakage."
The group wants non-EU steel producers to commit themselves to "equal, verifiable and enforceable CO2 reduction targets within the framework of an international agreement on climate change that will cover at least 85% of world steel production."
"As China alone accounts for about 500 million tonnes (35%), its full participation in
any international agreement is indispensable," the document states.
Until such an agreement is implemented, the document says that the "EU must mitigate ETS-related costs for sectors at risk of carbon leakage by continuing to allocate 100% of emissions allowances for free."
Recently, Reuters reported that European steel companies were awarded far more carbon credits than they needed and have reaped a windfall in profits. Steelmakers received a surplus of credits worth about $1.2 billion, based on 2008 carbon prices.
Windfalls may be coming to other areas of the globe too. Rio Tinto is likely to be the biggest recipient of public support under the Australian Federal Government’s carbon trading scheme. Free carbon permits worth $462 million are expected to flow to the company in 2010.
As in the U.S., the threat of EU steel giants moving abroad has been reported. In December, Philippe Varin, chief executive of Corus Group Ltd., the U.K. unit of India’s Tata Steel Ltd., threatened to move the company’s European operations to China "if we are forced to buy CO2 credits on the market without a system to improve our production process."
Also last year, lawyers for steel giant ArcelorMittal told Europe’s highest court that there was no justification for EU lawmakers to exclude the aluminum and chemical industries from 2003 legislation that capped CO2 emissions and that the exclusion puts the steel sector at a “complete disadvantage.”
EU officials have acknowledged that tightening greenhouse gas emissions will take a toll on the competiveness of some heavy industries - in the past considering a carbon tariff on goods from countries whose emission policies aren’t as strong as Europe’s.
