Competition and climate policy in the steel transition: Comparing costs and subsidies in the US and the EU

Abstract

The nexus of climate policy and “competitiveness”—how to transition to clean energy while ensuring a competitive economy—is a concern on both sides of the Atlantic. In the United States and the European Union, there has been an attempt to resolve the issue by turning towards green industrial policy and subsidies for low-carbon production, sparking a debate on the merits and risks of a ‘subsidy race’. In this paper, we conduct a transparent and quantified study of how subsidies affect the cost of low-carbon steelmaking as a case of industrial policy in a low-carbon transition. We first map subsidy intervention points across the steel supply chain in the US and the EU, showing how subsidies can cumulate over several segments. Afterwards, we use a bottom-up techno-economic model to quantify and compare subsidies with cost components including raw materials, energy, and labour costs in four hypothetical cases in Ohio, West Virginia, Germany, and Spain. We discuss the subsidy regimes and conclude that there is a dilemma between an equal policy playing field and rapid action on climate change.