Pricing Carbon, Preventing Leakage: A Comparative Analysis of Steel Decarbonization in the European Union, United States, and China

Abstract

Steel manufacturing is an important pillar of the world economy, accounting for about 7-9% of annual carbon dioxide emissions. This paper discusses the role of climate policy in providing emission reductions in the steel sector without compromising industrial competitiveness and carbon leakage. It discusses the EU’s Emissions Trading System (ETS) and the Carbon Border Adjustment Mechanism (CBAM) within the framework of the USA’s subsidy-based model and China’s state-led industrial strategy. This paper uses comparative policy analysis and case studies of ArcelorMittal, Nucor, U.S. Steel, and China Baowu Steel Group to show that companies operating in environments with stronger climate policies are more likely to invest consistently in low-carbon technologies. The EU’s combination of carbon pricing and border adjustments provides the strongest and most coherent incentives, but China’s coordinated industrial planning shows that state-led investment can also accelerate technological change. In the United States, a hybrid model that combines carbon accountability with continuous investment incentives could be applied to accelerate steel decarbonization. Rising carbon dioxide (CO2) emissions present a significant global challenge, increasing pressure on countries to decarbonize carbon-intensive industries.