Phase-in and phase-out policies in the global steel transition

Abstract

ABSTRACT To reach the goals of the Paris Agreement, global emissions should be reduced to net zero by mid-century. The steel sector is an emission-intensive industrial subsector where low-carbon production routes are emerging, and recent studies have shown that rapid decarbonization of the sector is technically possible. However, several barriers block the sector-wide diffusion of low-carbon steelmaking. Inertia and barriers to exit inhibit the closure of emission-intensive plants, thus driving overcapacity and trade conflicts which in turn risk undermining the global steel transition. Drawing on the industrial transitions literature, we find that phase-out policy has a key role to play in overcoming inertia and barriers to exit, increasing the pace of exits in the steel sector, and enabling market space for low-emission steelmaking. Still, reviewing policy mixes in the top four steelmaking jurisdictions, we observe that these are primarily oriented towards phasing-in low-emission capacity rather than phasing-out emission-intensive capacity. In an analysis of low-emission steel projects in the LeadIT Green Steel Tracker, we find that almost half of these projects are financially backed by government, revealing that support for phase-ins is sparking a renaissance for subsidies in the steel sector. At the same time, we find that green steel projects, in aggregate, are increasing total steelmaking capacity. To minimize overcapacity and trade conflicts in the steel transition, policymakers should develop new corresponding phase-out policies that support and increase the pace of closures, to enable a rapid sector-wide diffusion of low-emission steelmaking.