This paper addresses how a carbon price in the EU alongside an EU border carbon adjustment mechanism (ETS BCA carbon price) may influence, (i) the volume of steel, (ii) the technology mix, (iii) the associated greenhouse gas emissions and (iv) the region mix (shares of EU and non-EU steel) consumed in the EU market.
To answer this, I develop a scenario that implements an ETS BCA carbon price of €50 per ton of emissions for the EU steel sector. I use a stylized graphical derivation based on data from the literature to reconstruct the current state of the EU steel sector. My results indicate that an ETS BCA carbon price reduces emissions primarily by increasing the share of green steel in the market by 24%, and to a lesser extent due to an overall volume decrease. Emissions from steel consumed in the EU decrease by 31%.
Overall steel volume consumed in the EU decreases by 10%. The new region mix is 85% EU steel and 15% Foreign steel from an initial 78% and 22%, respectively, meaning that within the overall volume decrease, 2% can be traced back to a volume decrease supplied by EU producers and 8% to a volume decrease supplied by Foreign producers. The absolute volume supplied by EU producers decreases by 3%. This suggests that an ETS BCA carbon price is a viable tool for policymakers to reconcile environmental and economic concerns. It decreases emissions effectively without decreasing the volume produced by EU steel producers – hence employment and GDP –significantly.
Leiden University College awarded this Capstone the Thesis of Merit award, extended to all students whose Capstone thesis sufficiently meets specific scholarly criteria.