Phase-in and phase-out policies in the global steel transition.

To reach the goals of the Paris Agreement, global emissions should be reduced to net zero by mid-century. The steel sector is an emission-intensive industrial subsector where low-carbon production routes are emerging, and recent studies have shown that rapid decarbonization of the sector is technically possible. However, several barriers block the sector-wide diffusion of low-carbon steelmaking. Inertia and barriers to exit inhibit the closure of emission-intensive plants, thus driving overcapacity and trade conflicts which in turn risk undermining the global steel transition. Drawing on the industrial transitions literature, we find that phase-out policy has a key role to play in overcoming inertia and barriers to exit, increasing the pace of exits in the steel sector, and enabling market space for low-emission steelmaking. Still, reviewing policy mixes in the top four steelmaking jurisdictions, we observe that these are primarily oriented towards phasing-in low-emission capacity rather than phasing-out emission-intensive capacity. In an analysis of low-emission steel projects in the LeadIT Green Steel Tracker, we find that almost half of these projects are financially backed by government, revealing that support for phase-ins is sparking a renaissance for subsidies in the steel sector. At the same time, we find that green steel projects, in aggregate, are increasing total steelmaking capacity. To minimize overcapacity and trade conflicts in the steel transition, policymakers should develop new corresponding phase-out policies that support and increase the pace of closures, to enable a rapid sector-wide diffusion of low-emission steelmaking. Key policy insights: While rapid emission reductions are technically possible in the steel sector, frictions such as overcapacity and trade conflicts risk impeding the transition. The steel sector's inertia and barriers to exit are exacerbating these frictions, and targeted phase-out policies are needed to overcome these blockages. Steel decarbonization policies in top steelmaking jurisdictions are oriented towards phasing-in green steel, not on phasing-out emission-intensive steelmaking. Green steel projects are increasing total steelmaking capacity, and to a high degree are financially supported by governments. [ABSTRACT FROM AUTHOR]