How can the world curb carbon emissions in the difficult-to-abate iron and steel industry? How can the radically polarized United States develop bipartisan cooperation on climate policy? And how might the U.S. Congress pass a form of carbon tax in 2025? Those were among the high-priority, and admittedly hard, subjects addressed during the initial discussions at the Harvard Salata Institute for Climate and Sustainability’s second annual “Climate Action Week” that began June 10.
In introductory remarks, vice provost for climate and sustainability James Stock noted that even with the rapidly declining cost of wind and solar electricity, and of batteries, combined with tax credits and other carbon abatement incentives contained in the Inflation Reduction Act, the United States is not close to meeting its commitments under the Paris Agreement to reduce carbon emissions 50 percent (relative to 2005) by 2030. That goal is generally accepted as the path to net-zero emissions by 2050, the key to holding the global average temperature increase to 2.0 degrees Celsius (3.6 degrees Fahrenheit). But, Stock said, the world is currently on track for warming of 2.5 to 3 degrees Celsius—a level thought to be radically destabilizing of essential natural systems and threatening to human habitation in much of the world. Well before such increases in average temperatures, the effects are already hard to ignore. Last year, 5 percent of Canada’s forests burned in wildfires, increasing hospitalizations and mortality downwind. India recently recorded temperatures in excess of 120 degrees Fahrenheit for the first time. And predicted for this summer in North America are more severe wildfires, heat waves, and a record hurricane season.
Greening Steelmaking
With that, Stock opened the day’s inaugural plenary session on decarbonizing the iron and steel industries, the first of 85 events scheduled to take place during the week. “Steelmaking today accounts for 7 percent of global carbon dioxide emissions,” he said, adding that the industry could grow by as much as one-third during the next quarter-century. Reducing emissions in this sector means eliminating all the diesel fuel burned in mining and transporting iron ore, including bunker fuel for ships, as well as the coal used to chemically convert iron ore to iron. “Both of our guests lead large, legacy companies that historically have deployed the carbon-intensive technologies of the industry,” Stock continued. “So, both face challenges of shifting vast enterprises to a new set of technologies, goals, and sensibilities. Both also face market realities, which include the currently niche nature of voluntary demand for green steel, and a global policy environment that is highly uncertain and regionally varying.”
Joining moderator Nili Gilbert ’99, vice chair of Carbon Direct, on the Sanders Theatre stage were Andrew Forrest, founder and chief executive chairman of Australia-based Fortescue, the world’s fourth largest producer of iron ore, and Aditya Mittal, CEO of ArcelorMittal, the world’s second largest steel producer. Fortescue had announced in 2020 that it would reduce its operational carbon emissions (as opposed to carbon embodied in capital assets such as buildings) 26 percent by 2030. But in 2023, it announced a far more ambitious program: to achieve “real zero” operational emissions by 2030—without fossil fuels or the purchase of carbon offsets. ArcelorMittal aims to reduce European emissions 35 percent by 2030, and emissions across its operations worldwide by 25 percent by 2030. The company is poised to use green hydrogen (hydrogen produced using renewable energy) in its European and Canadian steel mills once that is available, and plans to use carbon capture and storage (CCS) technologies to sequester its CO2 waste streams. The company is also investing in innovative metallurgical technologies such as electrolysis to enable zero emission steelmaking.
Forrest, who has a Ph.D. in marine ecology, said that he was motivated to action by warming of the oceans, which represent “98 percent of the livable space” on Earth and compared to the terrestrial environment “are really suffering.” To effect change at Fortescue, a highly successful company that is Australia’s third largest taxpayer, he asked his workforce, “Why can’t we change?” Forrest said the resistance he felt came from senior leadership, rather than the tens of thousands of rank-and-file employees, who “strongly contributed” with innovative solutions to a range of problems. “So we had quite a change in senior leadership.” But the result was a “pathway to stop burning a billion liters—that’s about 350 million gallons of diesel,” he said—“a year. We’ll get most of it done by 2028.”
The barriers are not technological, Forrest and Mittal emphasized. Fortescue’s plans to achieve its ambitious goals include the use of electrified mining and transport equipment supported by wind and solar energy, as well as green transportation fuels. One unit of the company is investing in green hydrogen production, including a new facility in Arizona. Forrest described how he had asked his engineers to develop a hydrogen-powered truck and was told it would take three years. He responded that he needed it in a hundred days. With each pushback from the team, he told them they had one less day. “Now that first massive mining truck”—the kind with wheels as high as a ceiling—“rolled out of that shed with no noise, no pollution, in 93 days.” The truck can be recharged in 22 minutes. “I find that a little heartbreaking,” Forrest said. “That just because we said, ‘Do it,’ that it got done. This could have happened 100 years ago, and we wouldn’t be in the stew we’re in now.”
Both Forrest and Mittal addressed the regulatory and market challenges they face. Fortescue, for example, will forgo $300 million Australian a year in diesel fuel rebates once it has phased out its billion-liter consumption of the fuel. “We’ll use the same amount of energy,” said Forrest, “it’s just not diesel, so we’ll lose that advantage. So government policy has to come with us.” Mittal addressed some of the market challenges to increasing “green steel” production. Steel has advantages over other materials in that it is “indefinitely recyclable,” does not pollute the oceans, and has a lower per-ton carbon footprint, he said, than any major competing material, such as aluminum or carbon fiber. The reason steel has such a large carbon footprint globally is because it is “the fabric of the modern world.” Cost is the only barrier to green steel, and the cost is small in one sense, he explained: a car made of green steel would cost only $200 more. But consumers can’t differentiate between a dirty and a green product at the moment. And looking at cost from a “system-wide perspective,” he added, manufacturing green steel would add $600 billion to the price of manufacturing this key global product. Given uncertain regulation and market demand, companies like ArcelorMittal are seeking ways of reducing the cost of green steel—and hope for recognition that would differentiate the zero-emission product in the marketplace.
Forrest believes that consumer demand will not be enough to drive the change. Instead, he said, government policies must equalize the playing field—specifically, some form of carbon tax that recognizes the inherent harms of carbon-intensive production technologies.
Bipartisanship and Policy: Toward a U.S. Carbon Tax?
That point—the need for government intervention—was an appropriate segue to the subject of the two subsequent plenary sessions. In a discussion of bipartisanship, former U.S. Representative Carlos Curbelo (R-Florida) emphasized that across-the-aisle cooperation is essential for crafting durable climate policies. Curbelo, who co-founded and co-chaired the bipartisan Climate Solutions Caucus during his service in Congress from 2014 to 2019, pointed out that unilateral efforts can be unstable and subject to repeal. That complicates the planning efforts of business leaders who want to decarbonize, but must remain competitive in markets built around fossil fuels, which are often subsidized (as Forrest noted in the case of Australia).
U.S. Senator Ed Markey (D- Massachusetts), sponsor of the Waxman-Markey Bill (when he served in the House of Representatives; that energy legislation, which would have established an energy trading program, died in the Senate), echoed Curbelo, pointing out that climate change affects everyone, regardless of political affiliation. Discussing the passage of the Inflation Reduction Act (IRA), enacted in the Senate without Republican support, Markey noted that two-thirds of the legislation’s benefits are nevertheless being realized in red states (where investments in new electric-vehicle battery factories, for example, are concentrated). He hopes such investments will help build future bipartisan support for climate policies. Curbelo sought to explain broad Republican opposition to climate legislation to date by pointing to the uneven nature of climate philanthropy, which flows overwhelmingly to left-leaning organizations, and thus, he claimed, contributes to the partisan divide on this issue. But discussion in the next session pointed instead to the Supreme Court’s Citizens United v. FEC decision—because it enabled corporations, including fossil fuel producers, to make expenditures connected to federal elections—as the moment that Republican participation in climate legislation largely ceased. Both Curbelo and Markey agreed that younger voters are much less ideologically divided on climate issues, and represent hope for the passage of durable, bipartisan climate policies in the future.
In the next session, “Carbon Pricing in 2025?” the discussion among U.S. Senator Sheldon Whitehouse (D-Rhode Island), MIT professor of energy economics Catherine Wolfram ’89, and vice provost James Stock (who is professor of political economy and of public policy) turned to the possibility of a U.S. tax on carbon (excluding retail gasoline). The prospect seems wildly improbable on its face, but because the European Union (EU, and probably Great Britain) will begin imposing a tariff on carbon-intensive products in 2026 (the Carbon Border Adjustment Mechanism, or CBAM, which exempts goods on which a carbon tax has already been paid), the United States and other major exporters to the EU will have an economic incentive to follow suit, as Wolfram later explained in detail (see below).
In addition, Stock pointed out, many of the 2017 tax cuts enacted during the Trump presidency are set to expire at the end of 2025, which could lead to a broad discussion of climate and tax policies—particularly since the United States has high levels of public debt relative to gross domestic product (a measure of national economic output). To retain the popular 2017 tax cuts in this fiscally constrained environment, new sources of revenue—perhaps including a carbon tax—will be needed to craft a balanced budget.
Whitehouse, chair of the Senate Budget Committee, has long sought to put a price on carbon. Explaining why, he invoked the late economist Milton Friedman, “who taught that if you’re going to have a real market economy, the price of the harms of a product, what economists call negative externalities, needs to be baked into the price of the product.” Failing to do so in the case of the climate-change impacts of carbon emissions, said Whitehouse, represents a subsidy—one that the International Monetary Fund has estimated at $700 billion annually to the U.S. fossil fuel industry alone. Stock pointed out that putting a price on carbon is a very efficient way to reduce carbon emissions while minimizing the budgetary impact, and outlined several different scenarios for proceeding.
Wolfram, who served in the federal government as deputy assistant secretary for climate and energy economics in 2021 and 2022, provided global context for the movement toward carbon pricing. Among the G-20 countries (including most of the world’s largest economies), only three have not implemented or begun discussing carbon-price legislation: Russia, Saudi Arabia, and the United States. The rest are responding, in large part because of CBAM. The way EU tax policy applies to traded items, she explained, is that “it adjusts at the border for the carbon intensity of an import”:
For instance, if you’re a Malaysian steel producer, and you’re sending imports to the EU, say it takes two tons of carbon to make a ton of your steel, at the border you have to pay the same carbon price that the EU-based steel producers are paying. So, if they’re paying $100 a ton, and it takes two tons of CO2 to make your ton of steel, you have to pay this [$200] tariff at the border. But the key thing is that this CBAM credits you for whatever carbon price you’ve already paid. So, if Malaysia already has a carbon price, then its steel producers get credited for that when they’re exporting to the EU [and don’t have to pay that border tax].
The consequence, Wolfram continued, is that countries without a carbon tax whose manufacturers export to the EU have begun thinking actively about carbon pricing. Turkey, for example, exports half its manufacturing output to the EU, she explained. “And so the Turkish government is thinking, ‘Alright, my manufacturers are already going to be paying this price, they’re just sending the check to Brussels.’” If Turkey taxes the carbon content of their products, the government keeps the revenue, and without much complaint from manufacturers, because they would pay it regardless. “So, that kind of logic,” she concluded, “is…leading a lot of countries to think about carbon pricing.” Eventually, she believes, the United States will come to the same realization. The question is when.
Harvard’s Climate Action Week continues through Friday, June 14. Many of the sessions can be joined virtually.
