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Climate Policy and the Steel Industry: Achieving Global Emission Reductions by an Incomplete Climate Agreement

Lars Mathiesen and Ottar Maestad

Year: 2004
Volume: Volume 25
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol25-No4-5
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Abstract:
The steel industry is one of the largest sources of global CO2 emissions and hence a candidate for climate policies. A carbon tax on emissions in industrialized countries, however, will cause relocation of steel production to non-industrialized countries, and because of their relatively high emission intensities the effect on total emissions is ambiguous. Using a partial equilibrium model of the steel industry, this paper finds that global emissions from this industry are likely to decline substantially. This is primarily due to factor substitution within the integrated steel mills in the industrialized countries, and to some extent a shift between steel making technologies. Such effects are not well accounted for in economy wide models, which typically lump individual industries into aggregates. Furthermore, it is shown that border taxes on steel products are potentially useful instruments for achieving a given reduction in global emissions with less restructuring of domestic steel industry in the industrialized countries.



The Heterogeneous Impact of Coal Prices on the Location of Cleaner and Dirtier Steel Plants

Francois Cohen and Giulia Valacchi

Year: 2022
Volume: Volume 43
Number: Number 2
DOI: 10.5547/01956574.43.2.fcoh
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Abstract:
Climate policy will predominantly affect industries that primarily rely on fossil fuels, such as steelmaking. Within these industries, exposure may be different by country according to the energy-intensity of national plants. We estimate the effect of coal prices on steel plant location worldwide and production preferences for BOF, a polluting technology, and EAF, a greener one. A 1% increase in national coal prices reduces BOF installed capacity by around 0.37%, while it has no statistically significant impact on EAF capacity. We simulate the implementation of a stringent European carbon market with no border adjustment and find a non-negligible shift in steel production outside Europe, with a concomitant impact on the technologies employed to produce steel. If applied worldwide, the same policy would primarily affect production in Asia, which relies on BOF and currently benefits from lower coal prices than those expected to emerge in the future.





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