One of the largest federally mandated
programs ever is coming down the pike and it will impact every
aspect of U.S. steelmaking.
It's expected to become the law of the land
soon after a new president moves into the Oval office. When the
law is signed, as most expect it will be in early 2009, U.S.
manufacturers will have to cap their emissions, probably at
2009 levels. At that point, depending on the bill's language,
they will either be sold or given emissions "credits." The
credits will be bought and sold among emitters, and as the
price of carbon rises so too will the incentive to accumulate
more credits. It will be in the economic interest of
manufacturers, therefore, to reduce their emissions and thereby
save the planet from the catastrophic impacts of global
While the idea of cap and trade is simple-the
system's goal is to reduce carbon emissions, the leading
contributor to global warming-drafting the bill, not to mention
its implementation, could be a nightmare.
Europe, the first to implement a
cap-and-trade program, made significant mistakes right out of
the gate. It gave away too many credits for free, and the price
of a ton of carbon has suffered as a result. The U.S. Congress
would rather get it right the first time, and its main
legislative vehicle, the Lieberman-Warner bill, is expected to
come up for vote in the Senate in June.
Despite their best efforts to stop it, steel
producers have mostly accepted the idea that there will be a
mandatory cap-and-trade program. Steel industry lobbyists are
now focusing on how to get the best possible deal and are
spending a lot of money to try to steer the legislation in
But a battle may be brewing between the two
major groups of producers, according to sources. Because of
their blast furnaces, integrated steel companies like
Pittsburgh-based U.S. Steel Corp. and ArcelorMittal SA,
Luxembourg, produce more emissions than mini-mills with
The growth of recycling and the widespread
deployment of electric-arc furnace technology in the United
States since the early 1980s are major reasons for the
declining carbon footprint of the U.S. steel industry, Jim
Slattery, a trade attorney, told Congress in March.
American steelmakers emit an average of only
a little over 1.2 tons of greenhouse gases per ton of steel
produced, according to the American Iron and Steel Institute
(AISI). Mini-mills produce about 0.6 ton while the integrateds
produce about 1.7 tons.
On average, steel producers around the world
emit more than 1.7 tons of greenhouse gases, directly and
indirectly, for every ton of steel produced. China, the world's
largest steel producer, emits maybe three times that amount,
although sources say data on Chinese emissions is
Today, the production of steel accounts for
less than 2 percent of total U.S. greenhouse gas emissions.
According to the U.S. Environmental Protection Agency, the
steel industry directly emitted 86.2 million tonnes of CO2 in
1990. In 2005, those emissions totaled 46.2 million tonnes, a
reduction of nearly 50 percent even though steel production in
2005 was more than 7 percent higher than in 1990.
As it currently stands, the cost impact of
the Lieberman-Warner bill would be about three times greater on
integrated mills, where emitting carbon is a necessary part of
the process of making steel. "We are condemned to create CO2 no
matter how much anyone tells us to stop it," one integrated
The integrated producers want the bill to
acknowledge that inevitability, and one steel industry lobbyist
said they are making progress getting so called "process
emissions" exemptions included in the bill. Cap and trade also
encourages manufacturers to increase their energy efficiency,
but that's something integrated producers say they have already
"maxed out" on.
But that doesn't mean the bill lets
mini-mills off the hook. Electric-arc furnaces suck up a great
deal of electricity, more than half of which comes from burning
coal. Cap and trade likely would raise the price of traditional
energy sources like coal in order to promote increased use of
renewable and clean energy technologies. To help offset this,
the mini-mills want a recycling credit put into the bill.
At closed-door meetings of the American Iron
and Steel Institute (AISI) in Washington, the mini-mills and
integrateds are discussing ways for the cap-and-trade pain to
be evenly distributed so that the balance of U.S. production
remains at its current level of 60 percent mini-mill and 40
But the mini-mills also see an opportunity to
get a leg up on their integrated competitors, and one source
said the temptation for them to let that happen is great.
Still, the mini-mills realize they need the integrateds-after
all, if the integrateds went out of business completely the
minis would eventually face a serious scrap shortage.
Publicly, however, the mini-mills say they
are in arm-and-arm with the integrateds.
"I think the bill hurts all sides of our
industry because energy costs are going to skyrocket," Patrick
J. McFadden, director of governmental affairs at Charlotte,
N.C.-based Nucor Corp., said. "As an industry, we have already
reduced our emissions significantly."
Thomas Danjczek, president of the Steel
Manufacturers Association, agrees. "It's not winners and
losers, it's just losers and bigger losers," he said.
Duke Energy Corp., Charlotte, N.C., one of
the country's largest generators of electricity, predicts that
a cap-and-trade program could cause electricity prices in the
Duke service area to rise by 53 percent by 2012.
The AISI, meanwhile, is funding research on
an ironmaking process called hydrogen flash smelting, which
doesn't use carbon as a fuel and therefore produces no carbon
dioxide emissions. That technology is still in the research
The integrateds have at least one advantage
over the minis some of them already operate under the European
cap-and-trade system. "U.S. Steel's European operations (in
Slovakia) are currently regulated under the EU (emissions
trading system)," Scott Salmon, director of government affairs
at U.S. Steel, said.
Another concern that cuts across the
production chasm is how to keep U.S.-produced steel globally
competitive since most of the rest of the world doesn't have a
cap-and-trade system. One answer is to tax imports at a level
that reflects what they would have cost to produce under U.S.
laws. That's a problematic solution, however, and would
certainly invite challenges at the World Trade Organization.
Still, without some border-adjustable component, producers fear
production would move overseas.