Berlin A CO2 border adjustment for steel would burden the metalworking industry and increase the risk of companies relocating to non-European countries. This is the result of a study by the Institute for the German Economy in Cologne (IW), which is available to the Handelsblatt. The study was commissioned by the German Steel and Metal Processing Association.
The CO2 border adjustment is one of the instruments used to implement the “Fit for 55” package of the EU Commission. The aim is to reduce CO2 emissions in the EU by 55 percent by 2030 compared to 1990 levels. In order to achieve this goal, the primary industry in particular has to make massive investments in new plants and at the same time bear higher costs for the ongoing operation of the new plants.
All in all, this means that steel manufactured in Europe, for example, will in future be significantly more expensive than steel from other regions of the world where no or less ambitious climate protection requirements apply. Climate protection is already imposing costs on European steel manufacturers through emissions trading, which are partly offset by the free allocation of emissions certificates.
In order for steel from Europe to remain competitive, steel imports from other regions of the world are to be subject to a CO2 border adjustment from 2023 according to the ideas of the Commission. The compensation should correspond to the amount of CO2 costs that European manufacturers have to bear. The EU Commission is also considering a CO2 border adjustment for cement, aluminum and some products in the fertilizer industry.
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But while the border adjustment can compensate for the cost disadvantages of the directly affected industries in Europe, the processing industries in Europe would be confronted with serious problems. Steel that is processed in Europe would be more expensive than steel in other regions of the world.
“Higher steel prices affect numerous customer industries, above all metal processing, manufacturers of electrical equipment as well as machine and vehicle construction,” says the IW study. According to IW, the ten most affected sectors represent one fifth of economic output and one sixth of employment in Germany.
At the European level, the ten industries generate, according to the information, with more than 30 million employees, almost two trillion euros in added value and thus around one sixth of the total economic output of the EU.
By halting the protection of basic industries such as steel production, the EU Commission is depriving the downstream stages of the value chain such as the steel processing industry from competitiveness. WSM General Manager Christian Vietmeyer
For customers in the steel industry, the aluminum industry and other raw material producers, the CO2 border adjustment means “above all higher prices”, writes the IW. If the carbon price had a full impact on steel, the costs of metalworking companies in Germany would increase by two billion euros, according to IW, which would correspond to 3.5 percent of the added value.
The IW refers to the introduction of tariffs in the USA, which would have had similar effects: “The introduction of the US tariffs meant that jobs in the US steel industry could be saved, but in the downstream steel processing industries, up to 200,000 in 2002 and 2018 According to initial estimates, around 75,000 jobs have been lost. “
The EU Commission is passing the problem on to the manufacturing industry
The summary of the IW is correspondingly sobering: “The border adjustment mechanism in the form planned by the EU Commission is not suitable for maintaining the protection against carbon leakage risks that has been in effect so far,” the authors write. Carbon leakage describes the relocation of production capacities abroad due to CO2 costs.
Companies that process steel and other raw materials in Europe would have to face higher costs that their non-European competitors would not have to shoulder to the same extent. Therefore, the probability of relocation to non-European countries increases for downstream industries, the authors warn.
“By stopping the protection of basic industries such as steel production, the EU Commission deprives the downstream stages of the value chain such as the steel processing industry from being competitive”, criticizes Christian Vietmeyer, General Manager of the German Steel and Metalworking Association (WSM). Steel is becoming more expensive for the steel processing industry in Europe, while competition from countries outside the EU does not have to bear the burden. “The carbon leakage risk is thus shifted one step further to the processor,” said Vietmeyer.
Higher steel prices are having a negative impact on several economically relevant sectors in Germany.
(Photo: dpa)
“The steel processing companies in the EU would clearly feel the distortion of competition in two ways: Competing imported products, such as deep-drawn sheet metal parts from Asia, enter the European markets without border adjustment levies and thus have an unfair competitive advantage. And the company’s own products have to compete on the export markets outside the EU with products that were manufactured without a border adjustment tax, ”said Vietmeyer.
Therefore, the border adjustment mechanism must relate to the entire value chain up to the end consumer. “This could be done through a system comparable to sales tax, in which the entrepreneurs in the value chain remain unencumbered by the burden when buying and the relief when selling,” he recommends.
Other experts also see the risks outlined in the study. For example, the Science and Politics Foundation (SWP) pointed out the dangers for the manufacturing industry in a study published in July.
The steel manufacturers themselves are not happy with the CO2 border adjustment either. You absolutely want to keep the free allocation of CO2 certificates in emissions trading. The companies complain that a CO2 border adjustment does not offer sufficient protection for the export of steel from Europe to other regions of the world. They also warn that a CO2 border adjustment could provoke a trade war.
More: How the economy reacts to the EU climate plans.