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EU-US green steel trade deal bullish for hydrogen

02 November 2021 Cristina Brooks

The US has agreed what might be the first in a series of protectionist trade deals meant to buoy its steel and aluminum production and clear the way for hydrogen-enabled "green steel" that is still in its infancy.

On 31 October, the US promised to remove certain tariffs it imposed on EU steel and aluminum, and the EU agreed to lift those it imposed in response, as they sketched the outline of a trans-Atlantic carbon trade deal for the sectors.

The same day, the US Chamber of Commerce said it was discussing similar deals with Japan and the UK, where steelmaker British Steel last year was bought out of liquidation by Chinese steelmaker Jingye Group.

The White House pointed the finger at global steel market leader China and said it would work with the EU to counter "the flood of cheap steel by other countries, including the People's Republic of China" by clamping down on imports.

European and US steel prices are higher than in markets like Russia, India, Brazil and Mexico and the gap is expected to increase. But Chinese steel prices are starting to rise, according to IHS Markit analysts.

Steel prices are on the upswing in China as energy shortages have led provinces to curtail steel production, they said.

Meanwhile, a rising appetite for aluminum amid supply chain constraints, such as in China, has pushed prices to a 13-year high, according to Bloomberg. The costs to produce it in the US increased to a new record in September, IHS Markit analysts found.

For the steel and aluminum sectors at least, the deal could bring closure to an EU-US trade spat that dates to the administration of former US President Donald Trump. In 2018, he decided to put a 25% tariff on steel and a 10% tariff on aluminum imported from the EU.

This week's deal returns the tariffs to their levels before the passage of the 2018 rule under Section 232 of the US Trade Expansion Act.

For example, imports of steel or aluminum below a maximum annual tonnage (the Tariff Rate Quota) will cease to be hit with the newer, increased tariffs, according to law firm Mayer Brown. Steel imports need to be "melted and poured" in the EU to qualify for duty-free status.

Countering the Trump move, the EU imposed a 25% tariff on US goods such as whiskey, orange juice, and motorcycles.

Now the two have agreed to press pause on all related disputes pending before panels at the World Trade Organization.

This isn't the first time the two powers have been at loggerheads: allegations of unfair competition between airline manufacturers led to retaliatory tariffs. The 2004 dispute came to a close after 17 years when they brokered a deal in June.

Greener steel trade

The deal gives a leg up for the climate and for fledgling production of "green steel," accomplished using hydrogen, in addition to greening aluminum.

The US and the EU intend to negotiate "a global arrangement to address [steel's and aluminum's] carbon intensity" within the next two years, and they will start by launching a working group to discuss ways to share data on their embedded emissions.

The negotiations might also lead to carbon intensity standards related to production.

In the EU, these would be on top of existing rules for manufacturers restricting emissions under the Industrial Emissions Directive as well as carbon trading obligations, which are already set to increase under a package of net-zero legislation proposed in July.

Against this backdrop, the EU and the US plan to hold talks on future arrangements for trade in the sectors. They will also set up "trade defense rules" for lower carbon steel and will "encourage other like-minded economies to participate," the EU said.

The US also wants to start rewarding American low-carbon steel production with "domestic policies [that] support the production of steel and aluminum with low carbon intensity." It didn't say in the statement whether this would be in the form of subsidies, but it did note it would "provide relief" from the higher price of US steel, presumably including low carbon, to the US manufacturers buying it.

As recently as June, Swedish steelmaker SSAB, power generator Vattenfall, and state-owned iron ore miner LKAB claimed to be the first to produce fossil-fuel-free iron sponge at a pilot scale using green hydrogen instead of coal and coke to remove oxygen.

The coal and coke used, as well as other parts of the steelmaking process, contribute to the emissions of a sector responsible for about 7-9% of global anthropogenic CO2 emissions. Aluminum counts for around 2%.

US carbon border tariff possible

Existing global green steel initiatives include SteelZero, created by nonprofit The Climate Group, under which manufacturers set voluntary commitments in 2020 to procure or stock 100% net-zero steel by 2050.

The nonprofit said it was the "first" global green steel initiative of its kind, with the potential to have a significant impact on investment and policy.

The European steel industry welcomed greater protection from the deal announced this week while noting the EU is a "frontrunner" on climate policy.

"We welcome the announcement of the agreement, which could be the starting point of a new, trans-Atlantic partnership tackling global trade distortions and climate change together, addressing the inter-linkage between both," said Axel Eggert, director general of the European Steel Association.

The American Iron and Steel Association supported the US-EU joint agreement and recommended "effective carbon border adjustment measures" that would enshrine tariffs on high-carbon imports.

The EU is further along on a carbon border tariff. EU legislative bodies are currently weighing a controversial tariff on imports of energy-intensive metals like aluminum and steel.

Posted 02 November 2021 by Cristina Brooks, Senior Journalist, Climate and Sustainability

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