A carbon border adjustment tax is likely to happen in the EU, but it could skew the playing field rather than level it, director general of the World Steel Association (Worldsteel) Edwin Basson told Argus on the sidelines of the association's general assembly in Monterrey, Mexico.
While Basson acknowledges carbon will acquire a cost, and already has a cost in parts of the world, he does not believe politicians and participants have sufficient understanding to ensure these costs do not lead to a "vastly unstable or uneven operating field" between producers in different localities. It is not impossible that a border adjustment could be misused or misdirected, and take on a similar feature to other tariffs, he said.
Many of Worldsteel's members, including the largest global steelmaker, ArcelorMittal, are lobbying for the imposition of a carbon border tax in Europe. They argue that EU mills are paying a cost for carbon, via the bloc's emissions trading system, not borne by producers in other regions. Where those producers have duty-free access to the EU market, they have an unfair advantage, the argument goes.
"For an industry like steel that is already very open and competitive, sourcing the same raw material from the same places at the same prices, it is these artificial adjustments that skew the playing field," Basson said.
Steel is the closest industry to a market competitive model that would be studied in economics 101, according to Basson: more efficient technology will drive out less efficient, and regulation merely interferes with the timescale, not the outcome.
Longer-term vision
Basson said US Steel's acquisition of a 49.9pc stake in Big River Steel indicates the US industry is beginning to form a longer-term vision and contemplating how to re-adjust its asset base to optimise steelmaking.
The deal provides US Steel the option to contemplate its asset base, what it wants to run and close, and gives Big River Steel access to other markets and insights from an established player.
In a developed economy, such as the US and EU, where scrap is readily available and energy sources stable, pivoting from a blast furnace (BF)/basic oxygen furnace to electric arc furnace (EAF)-based production is logical, Basson said. The question of whether EAFs can provide sufficiently clean steel for high-end applications has been answered by the direct reduced iron initiative, which the US has embraced: scrap can contain impurities that are recycled into finished steel, rendering it inefficient for certain applications.
The move from blast furnace to EAF is also logical as the latter is less technologically complex. It can be closed and flexed down required, and offers more control over the entire process. An EAF is also cheaper than a BF and less resource-intensive, Basson said. BF-based production emits more carbon through intensive sintering, coking and burning of coke.
China is also reaching a steady state in which it will transition towards EAF, Basson said. There have long been questions about whether China would be able to utilise its reservoir of scrap or whether it would become a large exporter.
Basson admitted that China's massive upward revision in Worldsteel's short-range outlook was a surprise. He was disconcerted by the fact that Chinese steel consumption is likely to rise by 9pc, saying the association did not see it coming. Two years ago, when a similar phenomenon occurred, Worldsteel pointed to the closure of illegal induction furnace capacity and the demand shifting into China's formally reported sector. There is no known similar event to point to this time, however.
Construction in China has been stronger than expected, while the introduction of new specifications of material, such as bigger rebar, has affected the statistics.
