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The making of green steel in the EU: a policy evaluation for the early commercialization phase

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  • Valentin Vogl
  • Max Åhman
  • Lars J. Nilsson

Abstract

In the attempt to reduce greenhouse gas emissions from steel production, several large industry decarbonization projects have emerged in Europe. The commercialization of low-emission steel technology, however, faces systemic barriers such as a lack of infrastructure and unclear demand for greener steel. As part of its new commitment to climate-neutrality, the European Commission has announced plans to more actively create and reshape markets for green basic materials. The approach is inspired by the recent success story of renewable energy, where market interventionist policy has successfully led to cost reductions and supported the diffusion of wind and photovoltaics. However, the applicability of this type of policy to decarbonize basic materials has so far not been investigated. In this study, we evaluate the effectiveness, feasibility, efficiency and fairness of early commercialization policy support for the decarbonization transition of steel. We compare two approaches: demand side market creation and direct production subsidies through carbon contracts for difference. We find that the subsidy approach can more effectively enable the realization of primary green steel production. A complementary use of market creation policy instruments can reduce the production subsidy volumes needed and aid the global diffusion of new production methods. Although effective, we find that production subsidies will distribute the costs and benefits of the transition unequally. In order to improve effectiveness and fairness of the policy, parallel programmes such as electricity price guarantees and transitional assistance policies for disadvantaged regions are needed.Key policy insights Carbon contracts for difference are the most promising policy instrument to commercialize low-emission primary steel but are likely to lead to unequal distribution of transition costs.Market creation policies can support the global diffusion of low-emission primary steelmaking.Material efficiency and demand reduction can reduce the need for primary steel production by more than 50%.Regions without access to large amounts of renewable electricity are especially disadvantaged.Unclear EU ETS benchmarks currently create a perverse incentive that keeps firms from investing in breakthrough technologies.

Suggested Citation

  • Valentin Vogl & Max Åhman & Lars J. Nilsson, 2021. "The making of green steel in the EU: a policy evaluation for the early commercialization phase," Climate Policy, Taylor & Francis Journals, vol. 21(1), pages 78-92, January.
  • Handle: RePEc:taf:tcpoxx:v:21:y:2021:i:1:p:78-92
    DOI: 10.1080/14693062.2020.1803040
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    Citations

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    Cited by:

    1. Philippe Quirion, 2022. "Output-based allocation and output-based rebates: a survey," Chapters, in: Handbook on Trade Policy and Climate Change, chapter 7, pages 94-107, Edward Elgar Publishing.
    2. Jakob, Michael, 2021. "Climate policy and international trade – A critical appraisal of the literature," Energy Policy, Elsevier, vol. 156(C).
    3. Calzadilla, Alvaro & Winning, Matthew & Domenech, Teresa, 2022. "Synergies and trade-offs between climate and circular economy policies in the steel industry," Conference papers 333480, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    4. Lopez, Gabriel & Galimova, Tansu & Fasihi, Mahdi & Bogdanov, Dmitrii & Breyer, Christian, 2023. "Towards defossilised steel: Supply chain options for a green European steel industry," Energy, Elsevier, vol. 273(C).
    5. Bożena Gajdzik & Radosław Wolniak & Wies Grebski, 2023. "Process of Transformation to Net Zero Steelmaking: Decarbonisation Scenarios Based on the Analysis of the Polish Steel Industry," Energies, MDPI, vol. 16(8), pages 1-36, April.
    6. Preis, Philipp, 2023. "Turning German Steel Production Green: Quantifying Diffusion Scenarios for Hydrogen-Based Steelmaking and Policy Implications," Junior Management Science (JUMS), Junior Management Science e. V., vol. 8(3), pages 682-716.
    7. Lena Tholen & Anna Leipprand & Dagmar Kiyar & Sarah Maier & Malte Küper & Thomas Adisorn & Andreas Fischer, 2021. "The Green Hydrogen Puzzle: Towards a German Policy Framework for Industry," Sustainability, MDPI, vol. 13(22), pages 1-19, November.
    8. Arens, Marlene & Åhman, Max & Vogl, Valentin, 2021. "Which countries are prepared to green their coal-based steel industry with electricity? - Reviewing climate and energy policy as well as the implementation of renewable electricity," Renewable and Sustainable Energy Reviews, Elsevier, vol. 143(C).

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