Subsidies not optimal solution for clean steel, aluminum: OECD panel

Government subsidies in the steel and aluminum industries do not represent the best approach for achieving decarbonization initiatives because they instead pose the risk of counterintuitively contributing to environmental concerns, industry representatives and observers said.

“We’re increasingly seeing subsidies claiming to encourage better environmental practices,” Julia Nielson, deputy director of trade and agriculture for the Organization for Economic Cooperation and Development, said during a panel discussion hosted by the Washington International Trade Association.

Nielson said subsidies can have other unintended effects on the environment and emissions as production capacity increases. These impacts can be augmented or mitigated by methods of production, use of technology and raw material consumption, and these factors should be examined more closely when subsidies are involved, she added.

“As we look at Chinese subsidies, a lot of them are cloaked in environmental terms,” he said. “We just have to be mindful that you can reduce your per ton amount of pollution but add to the overall problem by constantly enlarging total capacity and having devastating price effects that undercut competitive producers.”

Subsidization in China has also forced other countries to provide similar support to their steel and aluminum industries, Price said, adding that “too often industries survive or not survive based upon the levels of subsidies.”

The North American aluminum industry has largely been able to lower its carbon emissions over the last 30 years with an increased emphasis on recycling while China’s emissions have increased exponentially amid industry subsidization, Aluminum Association board chairman Buddy Stemple said.

“Subsidies tend to encourage extraction, production, processing and export in greenhouse gas-emitting production systems based largely on fossil fuels,” he said. “Subsidies also discourage the development of energy saving and waste reducing recycling systems, which is particularly important for aluminum as it is 100% recyclable.”

The panelists discussed how recycling has been key for lowering emissions in the US steel and aluminum sectors, but Price said energy-intensive primary production will always be needed. To promote “greener” production, Price said governments can help the industries by improving electrical grid infrastructure and funding third-party research in new decarbonization technologies, instead of offering subsidies for capacity upgrades.

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