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The European Union's aim to become climate neutral by 2050 necessitates ambitious efforts to reduce carbon emissions. Large reductions can be attained particularly in energy intensive sectors like iron and steel. In order to prevent the relocation of such industries outside the EU in the course of tightening environmental regulations, the establishment of a climate club jointly with other large emitters and alternatively the unilateral implementation of an international cross-border carbon tax mechanism are proposed. This article focuses on the latter option choosing the steel sector as an example. In particular, we investigate the financial conditions under which a European cross border mechanism is capable to protect hydrogen-based steel production routes employed in Europe against more polluting competition from abroad. By using a floor price model, we assess the competitiveness of different steel production routes in selected countries. We evaluate the climate friendliness of steel production on the basis of specific GHG emissions. In addition, we utilize an input-output price model. It enables us to assess impacts of rising cost of steel production on commodities using steel as intermediates. Our results raise concerns that a cross-border tax mechanism will not suffice to bring about competitiveness of hydrogen-based steel production in Europe because the cost tends to remain higher than the cost of steel production in e.g. China. Steel is a classic example for a good used mainly as intermediate for other products. Therefore, a cross-border tax mechanism for steel will increase the price of products produced in the EU that require steel as an input. This can in turn adversely affect competitiveness of these sectors. Hence, the effects of higher steel costs on European exports should be borne in mind and could require the cross-border adjustment mechanism to also subsidize exports.
The steel industry in the European Union (EU), important for the economy as a whole, faces various challenges. These are inter alia volatile prices for relevant input factors, uncertainties concerning the regulation of CO₂-emissions and market shocks caused by the recently introduced additional import duties in the US, which is an important sales market. We examine primary and secondary effects of these challenges on the steel industry in the EU and their impacts on European and global level. Developing and using a suitable meta-model, we analyze the competitiveness of key steel producing countries with respect to floor prices depending on selected cost factors and draw conclusions on the impacts in the trade of steel on emissions, energy demand, on the involvement of developing countries in the value chain as well on the need for innovations to avoid relocations of production. Hence, our study contributes to the assessment of sustainable industrial development, which is aimed by the Sustainability Development Goal “Build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation countries”. By applying information on country-specific Human Development Indexes (reflecting aspects of life expectancy, education, and per capita income), we show that relocating energy-intensive industries from the EU may not only increase global energy demand and CO₂-emissions, but may also be to the disadvantage of developing countries.