On the eve of the Glasgow climate summit, the Biden administration concluded a stunning deal with the EU that uses governments regulatory powers to marry industrial goals to climate goals.
The deal creates a club of nations committed to cleaner manufacturing technology and erects a border chargea green tariff by another nameagainst countries that use dirty production. The charge is levied in precise proportion to how carbon-intensive the manufacturing process is.
The immediate industries covered are steel and aluminum, but the deal is a template for U.S.-EU collaboration to decarbonize production technologies in other famously dirty industries, such as chemicals, cement, paper, and aluminum. The deal is a triple win, in that it rewards domestic industry to the extent that industry cleans up its act. It also puts Biden squarely on the side of saving union jobs and bringing more jobs back to America. It is an industrial policy also aimed squarely at China, far and away the dirtiest steel producer.
Come to think of it, the deal is really a quadruple win, since it enabled Biden to end Trumps poorly targeted trade war with the EU, on terms that both players can feel good about, helping to heal the breach between the U.S. and the EU generally. Under the Green Steel Deal, the European Union may export up to 3.3 million metric tons of steel annually into the United States duty-free. Shipments above that would have to pay the 25 percent tariff. Aluminum, which had been subjected to a similar tariff, now gets similar treatment.
The agreement places tariffs on products that are finished in Europe but use raw steel imported to Europe from China, Russia, or other countries. To qualify for the duty-free treatment, the steel must be made from start to finish in the European Union.
The deal enables Biden to end Trumps poorly targeted trade war with the EU, on terms that both players can feel good about.
One of the first people to propose this concept of connecting climate policy to trade policy to industrial policy was Todd Tucker of the Roosevelt Institute. Tucker was one of those who noticed that Trumps tariffs might be revised in a progressive direction. His most recent policy paper, co-authored with Timothy Meyer of Vanderbilt Law School, makes a convincing case that industry-based carbon reduction strategies are far more effective than general carbon taxing and trading schemes. And as a practical matter, carbon taxing and trading is highly unlikely to be approved by the U.S. Congress.
This fall, the stars aligned for what became the Green Steel Deal. The EU had taken the lead on what Europeans called a Carbon Border Adjustment Mechanism. But neither Biden climate envoy John Kerry nor the Obama administration before him liked the idea, which seemed to be directed against the U.S. There was a need to get both the EU and the U.S. aligned.
Second, Biden was looking for a way to end Trumps steel and aluminum tariffs against the EU, but without giving up trade or climate goals relative to China. And third, Biden needed something concrete both at the October 3031 Group of Twenty (G-20) summit in Rome and at the Glasgow meetings immediately afterward. Finally, Biden also wanted to deliver something to his allies in the Steelworkers union that signaled defending and increasing domestic jobs.
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If you look closely at this problem set, says Tucker, the answer reveals itselfas long as you dont have neoliberal blinders on. Those blinders are reflected in the almost religious support for the World Trade Organization as the repository and enforcer of the free-trade ideology (with no concern for climate issues).
But the Biden administration has broken with that orthodoxy. As Bidens U.S. trade representative, Katherine Tai, has pointed out, today the WTO is considered by many as an institution that not only has no solutions to offer on environmental concerns, but is part of the problem.
The EU has taken the position that its green tariffs are compatible with WTO rules, as long as they are applied neutrally without discrimination. And with the U.S. and the EU dropping their complaints against each other, in practice the WTO can be substantially ignored as a player.
The fact that U.S. and EU interests broadly aligned in this deal doesnt mean getting to yes was easy. U.S. negotiators took a hard line on dirty steel produced outside the EU and then shipped to Europe for finishing.
Because of the administrations close alliance with the Steelworkers, labor had more influence than usual on the final terms. The details of the deal went all the way to Biden personally, and the president even got involved in the technical aspects of how to measure the origin of imports.
One of the best aspects of the Green Steel Deal is that it aligns industrial and climate goals. It puts the steelworkers and the domestic steel industry on the same side, since it promotes domestic production as long as it is increasingly clean production.
At the end of the day, the deal is the one highly specific climate achievement to come out of events related to the Glasgow meetings. Most of the Glasgow commitments are hazy and general, asking for improved commitments next year as necessary.
If you think Bidens administration is inept, based on the blockage of Build Back Better (which is hardly Bidens fault), the elegance of this Green Steel Deal, and the conceptual work and hardball diplomacy that brought it about, should make you feel a lot better.