The US Inflation Reduction Act has caused a lot of consternation in Europe. Governments from Paris to Berlin have fretted over the astronomical subsidies and tax breaks offered by Joe Biden’s government for manufacturers “reshoring” their supply chains for batteries, electric vehicles, and a whole manner of sectors deemed critical for national security, “resilience”, and the green transition.
In response, the EU has offered a “Green Deal”, which some economists have judged as “superior” to the US act because it combines subsidies with carbon emissions pricing. Even Germany, normally hostile to any sniff of state aid or excessive government intervention in markets, loosened its stance in a panic over whether there would be a mass exodus of productive capital from the continent because of Biden’s subsidies. So far, we haven’t seen that exodus. But tensions over US-EU trade were still evident at a Brussels summit last week.
Crucial talks over the pithily titled Global Arrangement on Sustainable Steel and Aluminium (Gassa) went right down to the wire. Long-standing disagreements originate in the former (and future?) US president Donald Trump’s imposition of tariffs on European steel five years ago. While the aim of the Gassa talks was to remove permanently these barriers between two friendly economic blocs, they also sought to address the difficult process of reducing emissions from the carbon-intensive steel and aluminium industries. Gassa has been called a “totally new type of trade deal” that will “link market access to climate action”, meaning it sets conditions on lower tariffs to measurements of how “green” the steel is.
In the UK, this is something that is very much on the radar of the Labour Party and the small “L” labour movement. Keir Starmer posted a video to Twitter this week telling his followers that we’re going to need “a lot more steel” to achieve his “mission” of clean energy by 2030 (those hundreds of miles of cables and pylons have got to come from somewhere). Speaking over a jarring rock-n-roll soundtrack, Starmer promised to preserve jobs while creating “a bridge to the future” and “a decade of investment in green steel”.
But someone hasn’t quite got the memo. “Greening” carbon-heavy industries like steel (which despite their large carbon footprints are, somewhat paradoxically, essential for net zero) will not automatically create lots of nice green jobs. News last month from Port Talbot steelworks was that the government would spend half a billion pounds helping Tata switch to greener, electricity-powered (rather than coal-fired) production. But there was a catch: 3,000 people would be made redundant. The head of the GMB union representing workers on the century-old site condemned “the spectacle of leaders talking up the fantasy land of a ‘just transition’ while the bitter reality for workers is them getting the sack”.
Back in Brussels, talks over transatlantic trade in steel and aluminium reached fever pitch. The US didn’t want its own producers hurt by Europe’s so-called carbon border adjustment mechanism (CBAM), which means importers must price-in the carbon emitted in production. The Europeans, for their part, didn’t want the reimposition of tariffs, which, they say, harms co-operation and hampers the green transition. In the event, the US has now suspended the threat of reimposing steel tariffs – for now – while the two sides continue talks around encouraging green steel production and jointly penalising a mutual competitor: China.
But herein lie the contradictions of this brave new era. Getting to net zero might be quicker, and cheaper, if the US and the EU were less concerned about decoupling or “de-risking” trade with Beijing. Last month Ursula von der Leyen, president of the European Commission, complained of too many cheap Chinese electric vehicles entering the European market. If and when EU tariffs make these vehicles more expensive, consumers might wonder why they’re paying inflated prices for green vehicles. Similarly, manufacturers might wonder why they can’t source the cheapest possible product, whether it be steel, aluminium or precious metals necessary for battery production – but again, these industries are increasingly protected behind trade barriers, increasing costs for producers.
That’s because governments have other priorities. For all the rhetoric around tackling climate change, strong defences are being erected around national economies in a manner that some say creates more trade frictions and hinders net zero. The fashionable economic nomenclature of “resilience”, “security”, green jobs and the “sustainable economy” may be constantly invoked as if these things can always be pursued in tandem. But it’s clear they do not always fit together so easily.
This article was originally published as part of Spotlight’s weekly Green Transition newsletter. Subscribe here.