A club for green steel? In 2021, the EU and the USA jointly proposed a ‘Global Arrangement on Sustainable Steel and Aluminum (GASSA)’ (This Comment focuses solely on steel, although GASSA will cover aluminum as well.). Heralded as a ‘carbon club for green steel’1, this initiative could be an opportunity for the much-needed progress in global industrial decarbonization2,3. It is clear that for steel, a sector that is responsible for ~2.7 GtCO2 in 2022 (ca. 7% of global CO2 emissions)4, transformative changes are urgently needed. Global carbon intensity has stagnated, and total emissions have risen due to increased consumption4.

Many authors have highlighted the benefits of a (climate) club for steel2,3. Clubs stand for the hope to make quicker progress where multilateral governance fails, because they involve fewer actors, can focus on a specific sector, and exclude those who do not want to play by the club’s rules5. The faltering negotiations under the United Nations Framework Convention for Climate Change (UNFCCC) could be complemented by club-like alliances6.

This resonates with the USA-EU initiative to create GASSA, which dates back to a trade conflict between both in 2018. Then-U.S. President Donald Trump had imposed tariffs on imports of steel and aluminum (respectively 25% and 10%, based on Section 232 of the Trade Expansion Act of 1962), which triggered retaliation from the EU. While import quotas solved the conflict temporarily, GASSA was proposed as a permanent solution to Section 232 tariffs7.

GASSA has started as a bilateral process but shall be opened to other potential members in the future7. First candidates might be Canada, the UK, or Japan, which have shown interest8, or South Korea, which is the 4th largest steel exporter globally9. GASSA’s to-be-negotiated core elements are common carbon intensity or content requirements and steel tariffs for non-club members. These envisioned trade rules could initiate the transformation of the steel sector and, through wielding the power of the United States and EU markets (USA and EU are no. 1 and 2 of the world’s largest steel importers), set the pace for steel decarbonization globally5.

However, the USA and the EU disagree on the basic terms of the agreement. GASSA was scheduled to be adopted by October 2023, but negotiations have stagnated, and its conclusion remains uncertain. What enables or constrains the long-awaited launch of the Green Steel Club? In the following, we discuss GASSA’s drivers and barriers along three dimensions: international developments, structural conditions and domestic priorities.

Several International developments influence the conclusion of GASSA. GASSA is negotiated in an increasingly competitive geopolitical environment. Steel is exposed to these tensions because it is produced, consumed, and traded globally (22% of global steel production in 2022)9. At the same time, climate and (green) industrial policies have evolved as a patchwork and vary in their ambition and stringency. Countries increasingly fear the relocation of emissions intensive industries like steel (carbon leakage) and have turned to protectionist measures to safeguard their green investments, for example, the domestic content requirements in the U.S. Inflation Reduction Act (IRA)10.

The global steel sector faces increasing overcapacities (an estimated 33% excess of demand in 2022, most notably in China9,11). China’s steel production accounts for more than half of global output (China: 54%, USA: 4.3% and the EU: 7.2%)9 and is among the cheapest and most carbon intensive12,13. Many countries, such as the USA, have voiced concerns over China’s industrial subsidy policies. As the production of green steel is still relatively expensive, such products are especially sensitive to low-priced steel exported from China. Global oversupply exacerbates unfavorable market conditions for green steel. Additionally, the World Trade Organization (WTO) is too gridlocked to cope with the new challenges of decarbonization and to act as a mediator in an increasingly antagonistic geopolitical environment.

The success of GASSA will depend on global decarbonization efforts in the steel sector and the availability and prices of renewable energy, (green) hydrogen, Carbon Capture and Storage (CCS) technologies, and scrap to produce recycled steel. Renewable energies represent the backbone for decarbonizing the energy-intensive steel sector, whereas the use of hydrogen, CCS, and scrap varies based on the production technology and steel type.

For now, domestic priorities determine the negotiations. The USA and the EU both have an interest in concluding GASSA to avoid the return of Section 232- tariffs and a renewed trade conflict. They also want to smoothen tensions that have developed around domestic policies such as the U.S. Inflation Reduction Act (IRA). Both regions have an interest in coupling their goal to achieve net zero by 2050 with a strong—and protected—industrial sector, as well as satisfying the industries��� demands for more harmonized rules for clean steel production.

Nevertheless, stagnating negotiations show that even an alliance between traditional allies is restrained by fundamentally different visions about what is politically feasible. The steel sector is politically sensitive because—as part of our cars, buildings, or military equipment—it is essential for economic development, has historic-cultural prestige as well implications for national security.

The USA has put forward a proposal that would, first of all, satisfy its own domestic needs. At its core stands the application of the Section 232 regulation as a common external tariff, based on a two-tiered, technology-independent approach. At the time of writing, the proposed threshold for starting to pay a tariff would be set at the carbon intensity level of the highest emitters in the USA. Thus, GASSA members would pay a member tariff rate only if they emit more than the highest emitters in the USA. Steel imports from non-members would be subject to a higher tariff rate. This approach would shield relatively dirty steel plants in the USA and limit costs for the U.S. steel industry. The proposal also contains measures to counteract so-called ‘non-market behavior’ in other words, as ‘unfair’ perceived subsidies14.

In the USA, priorities lie with protecting green investments (e.g., subsidies for clean steel under the IRA15,16) and fighting Chinese market influence while keeping domestic concerns over increasing steel prices at bay. The government’s choices are restrained by the fear of losing support, especially in the steel-producing states of Michigan, Wisconsin, and Pennsylvania, e.g., in the presidential elections in 2024. Carbon pricing or carbon border taxes, though frequently discussed in the US, are not deemed politically feasible and are not being pursued by President Biden17,18

Meanwhile, the EU has suggested that the USA follow the lead of its new flagship climate policy, the Carbon Border Adjustment Mechanism (EUCBAM), and abolish Section 232 tariffs19. The EUCBAM also tackles steel, but this mechanism is based on an equivalent to the EU’s carbon price and methodologies for calculating and reporting emissions embedded in imported goods. While negotiating GASSA, the EU has been busy working on the launch of the EUCBAM in October 2023.

The EUCBAM stands for the EU’s hopes to pressure the hard-to-abate industries to decarbonize more rapidly both within the EU and abroad. It will go hand in hand with the phase-out of free allowances to emit CO2 in energy-intensive industries still granted under the EU Emissions Trading System (EUETS). Any tariffs agreed under GASSA would have to be made technically compatible with the EUCBAM to avoid undermining domestic carbon pricing. Also, EU policymakers worry that the US proposal is not compatible with WTO rules (and thereby, its plan to reform the WTO). Moreover, the EU also prefers a cautious approach towards China.

Structural conditions lead to different starting positions in the US and the EU. The EU has mostly primary steel production based on Blast/Basic Oxygen Furnace (BF) technology, whereas, in the USA, most companies use Electric Arc Furnace (EAF) technologies (EU: 56% BF and 44% EAF; USA 31% BF and 69% EAF of crude steel production)9. EAFs utilize mostly scrap steel and emit roughly only one-third of the emissions compared to BFs. As a result, the USA has a lower carbon intensity (USA: 0.42–1.24 and EU: 0.81–1.97 tCO2/t, average emissions intensity 202113). This difference is responsible for fears that GASSA’s rules could be unfavorable to some stakeholders. If GASSA applied an aggregate, technology-independent standard as proposed by the USA, scrap-based steel production would be favored. EU countries with mainly BF technologies, such as Germany, ultimately fear the closure of production sites at times when the USA already has more favorable industrial investment conditions.

For the GASSA negotiations, the timing of domestic political decision processes presents both a window of opportunity as well as a constraint. In the USA, using Section 232 as the legal basis for GASSA represents an opportunity to work out an agreement without the consent of Congress14. In principle, an international trade arrangement like GASSA could help lock in important decarbonization measures. At the time of writing, the upcoming election in 2024 in the USA and the EU influenced GASSA’s prospects. Yet, the mere anticipation of a change in government results in the postponement of decisions. Ultimately, a new U.S. government might also repeal GASSA and reinstall the full extent of Section 232 tariffs (Table 1).

Table 1 Factors that influence the GASSA negotiations (Source: authors)
Full size table

What is the way forward? The discussed challenges dampen the chances for GASSA to become a green steel club that will start transforming the sector any time soon. Nevertheless, we believe that the USA and the EU should use the opportunity that GASSA’s benefits present and find at least a minimum consensus to launch a basic framework for GASSA. For this initiative to have a positive impact on decarbonization, it should at least contain a common definition of green steel. Negotiations could proceed with more technical issues. Green steel urgently needs a lead market2. For this purpose, the USA and the EU should not focus only on the ���trade aspects’ but also on coordinating additional instruments (e.g., public procurement) to tackle the demand side.

A key point to be considered in the negotiations is how the USA and the EU intend to move GASSA from a bilateral agreement to a club with more partners. With three-quarters of the global steel production already located in Asia and Global South countries9 and at a higher carbon intensity, focusing only on traditional allies is risky. Ultimately, a more nuanced approach toward China might be necessary to deal with both oversupply and decarbonization. Excluding China from a club and forcing it to pay higher steel import tariffs might not drive China towards cleaner production but potentially towards installing further measures for steel or other sensitive sectors and increasing trade tensions. Also, a green steel club will require special treatment of low-income countries to enable investment in decarbonization, possibly by channeling ‘club goods’ such as the income from tariffs or border adjustment measures back to the affected countries in the Global South.

One glimpse of hope lies in the growing knowledge about emissions measurement and accounting in the steel sector. While the EU has started the pilot phase of the EUCBAM and is collecting data on embodied emissions of imported steel products, the U.S. Trade Representative has tasked a major assessment of greenhouse gases in the U.S. steel sector20. Also, information on hydrogen, CCS, and the amount of recyclable steel is improving. For example, experts estimate that the overall availability of scrap steel will not be able to satisfy the entirety of steel demand in the USA and the EU. Such information might make it easier to agree on a definition for green steel that neither discriminates BF-produced primary steel nor EAF-produced scrap-based steel, because both technologies will be needed in both regions21.