Besides currency valuation, steel is perhaps the most contentious trade issue between China and the United States. Steel products face numerous traditional trade remedy actions in both countries, and are under intense scrutiny in the climate change debate. In the United States, Congress is considering whether to include in climate change legislation additional tariffs on imported steel and other energy-intensive products to offset alleged competitive harm to domestic industries, should other countries not commit to equivalent greenhouse gas (“GHG”) reductions.
China And Copenhagen
China’s chief climate negotiator, Vice Chairman of the National Development and Reform Commission (“NDRC”) XIE Zhenhua, visited India at the end of October where he signed the Agreement on Cooperation on Addressing Climate Change. China and India together called on developed countries to take the lead in reducing GHG emissions and provide financial resources, technology transfer and capacity building support to developing countries.
It was not surprising for the world’s leading GHG emitter to form an alliance with India, another rising industrial power, on the eve of the Copenhagen meeting. Indeed, it was a victory for China to obtain India’s assurance that there “was virtually no difference between the negotiating positions” of the two Asian giants.
China slightly softened its stance in the final negotiations at the Copenhagen meeting, and signaled a willingness to abandon its demand for funding from the developed world. Meanwhile, China’s State Council announced that China would stick to its promise to cut emissions per unit of GDP by 40 to 45 percent by 2020.
Although China thinks this promise to cut emissions is a large concession, it may not be viewed that way from the perspective of developed countries, or of those developing countries that are particularly at risk from climate change. With China’s economy expected to expand at a rate of 7 to 10 percent per year for the next decade, a 45 percent reduction per unit of GDP would mean that China’s GHG emissions would still rise substantially while China expects developed countries to make drastic reductions.
Climate Change And The Steel Industry
Even though China’s promise is not binding, Beijing is not paying mere lip-service to climate change. China has realized that it is in its interest to improve energy efficiency, particularly in the steel sector. Improved energy efficiency is the most cost effective way that China can lower its GHG emissions.
A case study of Hebei Province, China’s leading iron and steel producer (18 percent of the nation’s total iron and steel output in 2007), illustrates the benefit to China of improved energy efficiency, with reduced GHG emissions being a favorable side effect. The case study also demonstrates the difficulties Beijing faces in pushing local governments to shut down small and inefficient steel mills.
Low energy efficiency is one of the reasons why Hebei’s contribution to the nation’s economic growth lags behind coastal provinces. Gross industrial output created by Hebei’s large companies in 2007 was US$230.5 billion (RMB1,705.5 billion), accounting for 4.2 percent of China’s total; industrial value-added was US$65.2 billion (RMB482.3 billion), about 4.1 percent of the nation’s total. In contrast, the same indices for coastal Jiangsu Province, also a major steel producer, were roughly three times those of Hebei (13.2 percent and 11 percent respectively).
Increasing energy efficiency, and reducing GHG emissions, in Hebei’s steel industry depends upon closing old, inefficient mills. However, both the provincial government and the public are reluctant (or unable) to force the iron and steel industry to close those mills. Hebei Province relies heavily on energy intensive industries. It has attracted 112 of China’s Top-1000 energy consuming enterprises, with steel companies the most important. The industrial profit generated by the province’s large ferrous metal producers was US$6.8 billion (RMB50 billion) in 2007, 27.3 percent of the province’s total industrial profit produced by large companies in all industries. Steel employed in 2008 some 450,000 workers, 15 percent of the province’s total employment. As the unemployment rate is rising in Hebei, neither the provincial government nor the public wants to see those small inefficient steel mills closed.
So far, the province has taken one major step to improve the steel industry’s energy efficiency. It consolidated the province’s top two steel groups and launched the Hebei Iron & Steel Group (“HBIS”) in 2008, which became China’s number two steel producer. The creation of HBIS was to improve the competiveness and efficiency of Hebei’s steel industry. However, a recent Chinese study pointed out that China’s giant iron and steel producers are not necessarily more efficient than smaller companies. Compared to the size of a steel company, technology plays a more important role in improving efficiency, particularly energy efficiency.
As in the United States, steel is a major employer in China, and as in the United States, there is insufficient political will to sacrifice steel industry jobs on behalf of climate change. Industry consolidation is inevitable in China as it has been in the United States, but data do not support the perception that fewer, bigger steel mills must translate into reduced GHG emissions. It is not so much size as age that matters. Inefficiency may drive smaller, older mills out of business, but they are less likely to shutter because of a desire to clean up the environment.