A Limping Coalition of the Willing?
Transatlantic Cooperation on Climate and Trade
Speaker:
Charlotte Unger, DAAD/AGI Research Fellow
Moderator:
Peter Rashish, Vice President; Director of the Geoeconomics Program at AGI
In a world of multiple crises, climate policy is becoming increasingly linked with more traditional areas like trade and security. Yet many of the international rules covering these issues are not fit to manage this new reality. While accelerating climate change requires urgent action, multilateralism under the Paris Agreement is too slow to achieve its own targets. At the same time, diverging climate policy approaches (such as the U.S. IRA and EU CBAM) are causing tensions among partners in a political environment characterized by growth in decarbonization technologies and changing supply chains and markets.
In the past couple of years, the United States, the EU, and Germany have launched several initiatives to tackle this situation and could become first movers among a group of countries that want to take ambitious climate action. A key example is Global Arrangement on Sustainable Steel and Aluminum (GASSA) with common standards for carbon intensity and coordinated domestic measures such as tariffs and subsidies.
Charlotte Unger
Dr. Charlotte Unger is a Senior Research Associate at the Research Institute for Sustainability Helmholtz Centre Potsdam (RIFS). She holds a PhD in political sciences from the Technical University of Munich (TUM). Her work focuses on global climate governance, innovative climate alliances, carbon markets, and climate policy in Germany, the EU, and the United States. She also managed the scientific groundwork for the Berlin Climate Citizens Assembly and represents the RIFS in national and international climate fora, e.g., the United Nations Framework Convention on Climate Change (UNFCCC). Charlotte draws from many years of experience in the field of environmental policy, gained in civil society, governmental, and scientific institutions.
Her current research is motivated by the state of international climate politics: As countries’ national pledges are not ambitious enough to achieve the Paris Agreement’s climate goals, an increasing number of additional global climate initiatives, pledges, and clubs have emerged. These innovative initiatives are often transnational and usually focus on a specific sector (e.g., the Global Methane Pledge) or group of actors. Also, initiatives which originally were aimed at other issue areas, such as trade, economics, and security, are increasingly active in climate policy (e.g., G7). Dr. Unger researches these initiatives from a comparative, case studies perspective to discover their contributions to the global climate regime. Further, she is interested in what drives countries to launch and be active in these alliances, specifically the United States, EU, and Germany, but also countries from the Global South.
Event Summary
In 2018, former president Donald Trump implemented tariffs on steel and aluminum imports, causing a trade conflict with the EU and other countries. To set EU-U.S. relations back on the right track, in 2021, the EU and United States proposed the Global Arrangement for Sustainable Steel and Aluminum (GASSA), which is designed to decarbonize the steel and aluminum industries and combat global overproduction. However, since the announcement of GASSA, the fundamental aspects of the global arrangement have yet to be agreed upon by the two sides, threatening a relapse of tariffs if a deal is not struck by October this year. Decarbonizing the emissions-intensive steel sector is a crucial step in the fight against climate change, but doing so will prove difficult, as countries around the world have different approaches and paces for climate policy. With many legal, financial, political, and logistical obstacles standing in the way of an agreement, U.S. and EU policymakers have their hands full negotiating a mutually satisfactory deal while making progress in decarbonizing the steel sector.
As the effects of climate change increasingly disrupt global sectors, the urgency for solutions that effectively combine economic progress with substantial climate action is higher than ever. In a step in the right direction, the European Union and United States proposed the Global Arrangement on Sustainable Steel and Aluminum, which seeks to create a protected space in the heavy metals sector for ‘the willing’—countries that wish to engage in green trade practices. Along with attempts to combine the climate and trade sectors, the deal also targets economic and security anxieties, as fighting heavy metal overcapacity in China is among its main initiatives in the United States. It is now up to policymakers on both sides of the Atlantic to hash out the complicated fundamentals of the agreement.
The main topic of negotiation is the establishment of a common standard for clean or sustainable steel and aluminum. There is also the question of what incentives will be brought to the table for those countries that switch to green steel and aluminum practices. Could compliant countries be exempt from tariffs on heavy metal exports? Or could a system of subsidies be introduced, granting tax credits to nations who endorse the outlined green practices? Whatever the legislative instrument ends up being, the ideal situation would be the creation of a market for clean steel and aluminum, in which the costs for these clean metals can be lowered, and consequently, a competitive advantage established. Furthermore, if the United States and EU can harmonize their rules, then they will hold a powerful position in the market as ‘first movers,’ giving them the advantage of being able to exclude countries from the ‘club’ and drive the industry on their terms.
Another particularly daunting aspect of the negotiations is that they must comply with the system of rules set in place by international organizations such as the World Trade Organization, which are not prepared for a shift to economic policy dominated by climate concerns. GASSA must also comply with regional initiatives, such as the EU’s Carbon Border Adjustment Mechanism (CBAM) and the United States’ Inflation Reduction Act, among others. Along with domestic initiatives, domestic politics also play an important role, as election cycles often call into question whether the momentum of climate reform talks will persist through a change in leadership. For GASSA, especially the U.S. elections in 2024 are decisive: Before the elections, the administration will seek to avoid conflicts with strong interest groups such as the steel industry, as well as the public’s discontent over potentially rising costs and inflation. But also, a change in government could put a hold to the negotiations.
The negotiations for GASSA are also subject to changing geopolitical developments. Most pertinently, with China’s dominance of supply chains in the heavy metal sector, what appetite is there for the United States and EU to tackle these discrepancies in the interest of economic security vis-à-vis de-risking? Additionally, the global energy crisis and price increases have put enormous pressure on the steel industry. It depends on the availability of renewable energies at large scale to facilitate decarbonization. The last factor that will play a role in the substance of GASSA is the stakeholders and other interest groups involved, whose opposing interests further influence the direction standards for clean steel might take.
The transatlantic alliance is currently looking at a window of opportunity, with momentum to come up with a deal by the October 2023 deadline holding steadfast. If the hindering factors of GASSA’s complexity and logistics can be overcome and the EU and United States manage to get the framing right, the future of green steel and aluminum will look promising.
Discussion
In the Q&A session, the question of how to include the Global South in this ‘climate club’ was raised. Less developed and economically weaker countries that might be eager to join, such as Brazil, have different starting positions regarding the carbon intensity of their respective steel industries, and the foundations must be laid out so that they can be integrated into GASSA. Reaching the goal of carbon neutrality is crucial, and in doing so the Global South must be included. The foundations for their involvement must be laid out in writing in GASSA.
This event is supported by the DAAD with funds from the Federal Foreign Office.
