Climate true‐cost analysis of industrial goods and its regulatory implications on value chains and global competition

Abstract

AbstractClimate change and its damaging consequences for ecology and humanity is advancing. Industry and its metals sector are responsible for most greenhouse gas emissions. Current costs of industrial goods do not reflect the true costs caused by the externalized climate damages of its production and thus offer no competitive incentive to decarbonize. Additionally, regional climate regulation can lead to competitive distortion. We therefore aim to investigate the impact of climate cost internalization on the metals industry. Using true‐cost analysis for an exemplary and widely used metal product, the effects of climate true costs depending on production region, technology, and energy mix, CO2e taxation and value chain are examined. Based hereon, the impact of internalizing climate true costs together with the introduction of a carbon‐border tax on the carbon leakage problem, climate protection, and the cost situation for companies in global competition are investigated. The results of the study show that steel and wire production is responsible for most CO2e emissions showing significant decarbonization effects by steel recycling whereas production location and logistics play a minor role. On a competitive level, cost internalization has hardly any effect on the product costs because of the currently low CO2e‐taxation rates. Thus, almost no incentive to produce or consume in a climate‐protective way is generated, incentivizing production in pollution havens versus highly climate regulated regions. Instead, to realize emission efficiency gains and innovations leading to a competitive advantage of decarbonized products and value chains, a significant increase of CO2e‐taxation rates together with a carbon‐border tax is necessary.