Manufacture This

The blog of the Alliance for American Manufacturing

The link between trade and climate change is becoming more clear.

The public sees trade linked to employment all the time, be it a story about jobs coming back to a steelmaking community in Illinois after tariffs go into place, or jobs leaving Indiana when a major employer decides to move production to Mexico. However, the public rarely hears about how trade affects efforts to combat climate change.

Rarely are trade and climate change included in the same story, but they should be.

That is changing. On Sept. 4, the New York Times ran a piece titled, You’ve Heard of Outsourced Jobs, but Outsourced Pollution? It’s Real, and Tough to Tally Up. On Sept. 13, the Washington Post ran an opinion called The glaring loophole in our climate policies. The authors of both focused on how about a quarter of global CO2 emissions are embodied in imported goods; escape acknowledgment in the consuming country; are deducted from the producing country; the challenges this proposes to meeting reduction targets laid out in the Paris Agreement; and what some policymakers in California decided to do about it.

The Golden State!

In October 2017, California enacted AB-262, the Buy Clean California Act, which requires California to purchase steel, glass and other materials used in public works projects that meet certain low-carbon standards. In theory, this Buy Clean legislation is the first to consider embodied emissions (the total amount of emissions from all upstream processes required to deliver a certain product or service) and could help expand the market for companies that have invested in low-carbon production technologies.

When major economies like the United States regulate their domestic emissions, domestic producers incur costs to comply with them. And some producers choose to offshore to areas with lesser – or nonexistent, or unenforced – regulations to avoid incurring those costs. This is among the reasons that while the United States and the European Union have passed a series of air quality legislation regulating emissions of nitrogen oxides and sulfur oxides, total global emissions for both have risen. By adopting a scientific industry-based metric to measure carbon emissions and requiring that taxpayer money only purchase products that meet the specified standard of carbon intensity, policies like Buy Clean are attempting to level the playing field on which producers compete.

This is important, because economy-wide the United States is the largest importer of embodied carbon, followed by European nations like Germany, the United Kingdom, France, Italy and Spain. Conversely, China is the largest exporter, followed by India, Russia and Korea. Countries party to the Paris Agreement are held responsible only for the emissions produced within their own borders. If you consider the issue of production fleeing regulation important – particularly of heavily traded and carbon intensive industries, known as emissions-intensive-trade-exposed goods – you’ll notice the Paris Agreement creates a carbon emission accounting loophole.

In The Case of Steel

Steel is a highly CO2 -intensive product that is traded globally in large amounts. Domestic steel producers in the United States have invested heavily in their operations to meet the regulatory requirements for emissions, yet they continue to compete in a global market with producers operating in countries with lesser – or nonexistent, or unenforced – regulations for emissions (and labor, too, but that’s a topic for another column). 

Compare the American regulatory environment with China’s, the United States’ largest trading partner. In 2015, Lawrence Berkeley National Laboratory found that China’s steel industry on average emits 23 percent more carbon dioxide per ton of steel than American or German manufacturers. 2017 data from the Steel Statistical Yearbook by Worldsteel shows China exported 112 million tons of commodity steel (steel that is produced and traded directly, not steel-containing products). That is 1.4 times the total steel production in the United States in that same year. China is also the largest exporter of embodied emissions in steel, accounting for 27 percent of the total export of embodied carbon in worldwide commodity steel trade, and a quarter of the world’s embodied carbon in exported value-added steel products (that’s steel-containing goods). 

Though we regulate the domestic steel sector’s production emissions, and the sector has invested heavily to assure production complies with the existing regulatory regime, American buyers of imported Chinese steel (and goods made from it) are essentially importing the embodied carbon. For accounting purposes that negates the reductions made here in the United States and simply shifts emissions to China.

Buy Clean can help fix that. By locking up lucrative public procurement markets, it provides an opportunity for companies that have invested in low carbon technologies. And purchasing these companies’ products helps close the carbon loophole.

For domestic steelmakers, Buy Clean indeed offers a promise for a more level playing field when competing globally in such an emissions-intensive and trade-exposed industry. But success in that area requires policymakers to continue to listen to voices in the industry and workforce so they are educated on the processes involved in producing steel, knowledgeable of the energy sources available to steel producers in the United States, and aware of the challenges facing domestic steel production in the global marketplace.

No one said it was going to be easy. But to both remain environmentally responsible and keep American industries competitive, Buy Clean may be what it takes.