The role of border carbon adjustments and subsidies in incentivising investment: comparing equivalence in the context of steel recycling and decarbonisation

Abstract

AbstractThe need to decarbonise has accelerated the quest to find solutions for sectors considered emissions-intensive and trade-exposed. Steel production is one such sector. Policymakers are responding with market-pull and technology-push mechanisms. Risks of carbon leakage have prompted consideration and implementation of border carbon mechanisms. Measures have drawn both positive and negative attention in internationally traded markets. This research quantifies the equivalence of differing measures to promote decarbonisation. It simulates the annual cost-saving equivalent and net present values of different mechanisms in a theoretical conversion to steelmaking with Electric Arc Furnace (EAF) technology from traditional steel production. It demonstrates that, under certain assumptions including removal of free allocation of emissions certificates, incentives per tonne of direct and indirect greenhouse gas emissions for carbon pricing and border carbon adjustments lie in the range EUR 18–76 whereas for cost-of-capital support measures it was EUR 24–41 per tCO2e. Whether firms act upon these incentives will depend on appetite for risk, availability of technology, feedstocks, choice they have in making changes and perceived sustainability of the assumptions made in investment analysis. There are implications for regulators, policy makers and managers as they prepare strategies to be competitive in an increasingly carbon-constrained environment.