Macroeconomic implications of a 2°C-compatible transition path in the European iron and steel industry

The primary objective is to evaluate macroeconomic implications of a switch from conventional to hydrogen based steel production in the European Union. Nine out of ten tonnes of steel produced globally are derived from GHG process emission intensive blast furnaces. Currently, there are signs that European key-players in the iron and steel industry intend to go for an alternative technological route which is hydrogen based direct reduced iron. This alternative would allow to cut down process emissions to zero and, as such, would make the 21st century steel-making GHG emission-free. We deploy a dynamic recursive multi-region multi-sector computable general equilibrium model and implement a transition pathway for the European iron and steel sector up to 2050. In our working paper we show that higher unit costs for the alternative iron- and steel-making technology leads to lower gross domestic product and welfare levels in the EU compared to a reference path (which is calibrated to the shared socio-economic pathway 2). We intend, in particular, to compare these costs of action with the costs of inaction. The latter will be derived by evaluating the abated GHG process emission levels with the Social Costs of Carbon assessed by the Interagency Working Group.