At first glance, they are two apparently unconnected stories – the Paris agreement to cut global emissions on the one hand, and the current steel crisis with potentially devastating consequences for the UK’s industrial sector on the other.
Both have been given great prominence by the media and international opinion leaders in recent months. But, as leading nations of the world gather in New York today to sign the Paris deal from last December, we should remember that climate and industrial policy are in fact two sides of the same coin. The future of the steel industry in Europe and the global framework for emissions control are inextricably linked.
At the moment, the EU is in fact an isolated pioneer when it comes to CO2 reduction measures. EU steel producers are among the global leaders not only in steel-making technology, but also in climate protection. For instance, we at voestalpine, a steel-based technology and capital goods group headquartered in Austria with global operations, are running two of the most efficient steel plants in the world.
None the less, steel producers in Europe face environmental costs that make it almost impossible for them to compete in the global market – even for the most efficient ones. According to the European Commission, just “regulatory costs” for the steel industry in the EU amount to almost a third of the sector’s operating profit. Production is becoming utterly unsustainable – even for the best performing and environmentally aware companies.
The result? Production of steel is on the verge of moving outside the EU, with no benefits at all for the world’s climate. Without consistent global standards, the production of steel will follow the path of least resistance. It will go to the parts of the world with lowest costs, meaning lowest environmental standards, an increasing problem that has been labelled “carbon leakage”. In fact, this is no obscure academic theory, but a disaster for the future of industrial sites – not just steel – across Europe and the communities that depend on them.
The deal that was agreed in Paris last December (and will be signed in New York today) is a first step – or more precisely a first attempt – in creating a global level playing field. Almost 200 countries have demonstrated a commitment to ambitious climate measures. This is to be welcomed. But the key question that remains for European energy-intensive industries is whether the