US standing in the way of CBAM, think tank says

A November blog post by two staff members of the Council on Foreign Relations, a think tank based in New York, suggests the European Union should rebuff the Biden administration’s protectionist "boondoggle" and refocus on genuine climate goals when it comes to tariffs on steel and aluminum.

Council contributors Inu Manak and Helena Kopans-Johnson say the lack of progress in United States-EU Global Arrangement on Sustainable Steel and Aluminum (GASSA) negotiations is attributable to the U.S. and threats to reintroduce national security tariffs put in place by the Trump administration 25 percent on steel and 10 percent on aluminum to all its trading partners.

Recyclers, electric arc furnace (EAF) steelmakers and secondary aluminum producers in the U.S. and EU likely would benefit from a successful GASSA agreement, particularly if it involves a carbon border adjustment mechanism (CBAM).

Manuk and Kopans-Johnson portray the EU as favoring a CBAM acting as a replacement for existing tariffs and as a way to penalize inefficient, high-emissions metals output in other nations.

“The stalemate stems from the deal’s far-reaching objectives, which go beyond settling the dispute over the Trump administration’s ‘national security’ Section 232 actions (which the Biden administration has not only continued but defended in court)," the post says. "Instead, the Biden administration has complicated the removal of those tariffs by launching talks aimed at two very different goals: decarbonizing the steel and aluminum industries—which account for approximately 10 percent of global emissions—and combatting non-market practices from competitors such as China.

"Though the United States and European Union separately agree that these additional goals are worth discussing, they are deeply divided in their approaches. While Washington’s ‘Green Steel Deal’ calls for the application of the 232 tariffs as a common external tariff levied against third countries, Brussels wants to fully eliminate the 232 tariffs and replace them with a global arrangement based on their Carbon Border Adjustment Mechanism (CBAM). The CBAM policy places tariffs on carbon-intensive products entering the EU that are price matched against the amount of carbon emitted during production.”

The think tank contributors describe what they think is a flaw in the U.S. approach. “The U.S. has proposed calculating steel and aluminum emissions targets through a [national] economywide industry-average emissions-intensity benchmark that would have the effect of giving individual emissions-intensive producers preferential access to the steel club while discriminating against producers that are less emissions-intensive that are located in markets with higher average industrywide emissions," they say.

“Since U.S. and EU steel is already quite green, this would also not incentivize more ambitious decarbonization efforts. The EU, by contrast, has developed an emissions-trading scheme that targets emissions at the firm level, meaning that individual firms are rewarded for efforts to green their industry, and those that do not can be singled out for higher taxes. This not only incentivizes foreign producers to meet EU targets, but for EU producers to strive for even better emissions standards.”

What might be a way forward? Manuk and Kopans-Johnson suggest the U.S. shift its position away from preferring some nations’ output over others, a tactic known as “friendshoring.”

“Any normative framework for friendshoring needs serious consideration of what benefits it can offer trusted partners as well as the U.S.,” the pair writes. “Without such considerations, friendshoring risks becoming a term signifying old wine in a shiny new bottle."