EU's CO2 border adjustment plans threaten German steel industry’s climate-neutral future - report

The European Commission's plans to replace emission rights trading with a Carbon Border Adjustment Mechanism (CBAM), which aims to create a level playing field for EU producers subject to EU carbon pricing, could threaten the German steel industry’s transformation towards climate neutrality, according to research conducted by Prognos AG on behalf of the German Steel Federation (WV Stahl). Calling into question the effectiveness of the CBAM, the paper argues that its planned introduction in 2035 and the reduction of emission rights trading would not only lead to a considerable loss in production capacities for the domestic steel industry, but also to a shift of production and CO2 emissions abroad. “Even under ideal conditions, 40,000 jobs are in danger of being lost,” WV Stahl noted. In the worst-case scenario, conversion of blast furnaces to more environmentally-friendly production processes would collapse before the transformation even starts, resulting in the disappearance of some 200,000 jobs and annual added value losses of around 20 billion euros, according to Prognos. A transformation in the sector enabling massive CO2 reductions is still feasible with the appropriate political conditions, according to the report. To achieve that goal, it’s crucial to close the profitability gap in new green production processes through climate protection agreements and through the establishment of advanced green markets. In addition, comprehensive carbon leakage protection can be achieved by continuing free allocation at the current level in EU emissions trading. “The steel industry needs instruments that give companies scope to invest in the green transformation,” said WV Stahl president Hans Jürgen Kerkhoff. “With its plans, however, the European Commission accepts a drastic increase in the cost of production, with the result that investment opportunities are reduced"

An analysis conducted by think tank Agora Energiewende in September found that the steel industry needed financial support of 13 to 35 billion euros to shift to climate-friendly steel production. The European Union is taking steps towards introducing a CBAM, an instrument that has been hailed as a stimulus for climate action, but also branded as a way to spark new trade wars between the bloc and its trading partners. As the EU is pursuing a higher climate-neutrality target and a green overhaul of its entire economy, the mechanism that has importers pay if their product has a higher carbon footprint than their European counterparts leaves many industries and non-EU governments concerned.