Asst. USTR for Environment Said Reaching Agreement on Sustainable Steel Trade 'Not Easy'

Assistant U.S. Trade Representative for Environment and Natural Resources Kelly Milton said that the discussions to create a common understanding between the U.S. and the EU on steel and aluminum not only have to define what green steel is or green aluminum is -- they also have to agree on how to block metals from their markets that were produced from non-market principles.

"It certainly is not an easy lift," she said at a Washington International Trade Association webinar on Climate Diplomacy and Trade. The session was part of a two-day trade conference.

Once it's settled, however, Milton said, "we can have a new trade paradigm that does take into account carbon intensity in these sectors."

She said the U.S. feels it's important to create a comprehensive emissions profile, at the facility level, which takes into account inputs that have high carbon intensities and takes into account the emissions associated with the electricity that powers the mill or smelter.

She said she hopes the arrangement will "provide a future example of how to account for carbon intensity in traded goods."

The EU is already moving forward with a broader trade policy to address the embedded carbon in traded goods, called the Carbon Border Adjustment Mechanism. It will cover steel and aluminum, fertilizer, cement, hydrogen and a few other items.

Dan Esty, a Yale professor in the School of Environment and Yale Law School, currently on leave and working at the World Trade Organization, said it's great that the EU has advanced the conversation on carbon border adjustments, but he's concerned that its proposal will not be fully administratively workable or environmentally effective. He also said there are questions about its WTO compatibility, and whether it's politically advisable.

Still, he said, countries are deciding that establishing comparative advantage by cutting corners on the environment is not something they want to support through their imports.

"Trade really should be understood as a critical point of leverage for climate action," he said.

He said he hopes the Environmental Goods Agreement at the WTO can get past political barriers, because he thinks it could help disseminate clean energy technologies more quickly if it becomes reality.

"We need trade cooperation in support of climate change action," he said.

Jo Tyndall, director of the environment directorate at the Organization for Economic Cooperation and Development, said that with sharply higher costs for fossil fuel energy in Europe and other places, there's a push to build domestic energy security. Countries want access to critical raw materials so they can build renewable energy equipment, but they know "for many of those raw materials, they are really concentrated in one or two countries in the world." She said critical minerals are "really rising up to the top of the agenda."