Report recommends green industrial policy package for steel sector

Center for American Progress says growing demand, evolving trade dynamics and expanded investments, policies and mandates from governments are contributing to the pivot toward green steel.

steelmaking bucket with sparks flying

Photo courtesy of Nucor

A new report from the Center for American Progress (CAP), a Washington-based independent, nonpartisan policy institute, says the United States has a “once-in-history” opportunity to transform its steel industry as the world moves toward cleaner—and eventually decarbonized—iron and steelmaking.

However, CAP says that won’t happen without more investment, better trade policies and direct support to produce truly clean steel.

According to “The Next Frontier in American Industrial Policy: Saving the Steel Industry by Decarbonizing It” by CAP’s Mike Williams and Jamie Friedman, “Tariffs alone cannot catalyze growth or foster investment at the scale needed to rebuild American industry,” though they say they are “necessary to counteract the negative impact of predatory imports and protect nascent industries.”

To be effective in supporting existing manufacturing, the author say, tariffs must be used “in concert with other tools of economic statecraft, including regulation, procurement, research and development and—perhaps most importantly—actual investment in U.S. manufacturing.”

According to the report, “The world has recognized the climate crisis, and while action continues to fall short, there is a movement growing toward cleaner industrial processes. The future competitiveness of [the steel, cement and chemicals] industries —on which all economies rely—hinges on who can best supply the best clean materials. This is where green industrial policy enters the conversation.

“It should be accepted that it is functionally impossible to build everything within U.S. borders. But it is politically, morally and economically foolish to think that the United States can do without robust industrial sectors. The solution is to figure out the industries and/or parts of supply chains where the United States wants to have a foothold,” arguing that green steel should be one such industry.

“In a world where coal costs are increasing and investments in natural gas and green hydrogen are growing exponentially, the economic future of steelmaking seems almost foretold. The cleaner the production, the more profitable steel will be."

While clean steel is not cheaper or more competitive than traditionally made steel, CAP says, the day that flips is fast approaching, citing growing demand from buyers, evolving trade dynamics and expanded investments, policies and mandates from governments around the world.

Policy recommendations

The report makes several recommendations for U.S. officials to craft a green industrial policy package for the steel industry:

  • Establish an Office of Critical Industries within the White House.
  • Use the Defense Production Act’s authority to establish voluntary agreements to explore and create public-private collaborations for key emerging sectors.
  • Expand the federal government’s research and development budget.
  • Provide grants to deploy multiple 100 percent clean steel plants and 100 percent clean iron plants built in legacy communities with unions.
  • Cover the “green premium” by creating a tax structure to support producing clean iron and steel and to spur demand.
  • Create policies to require infrastructure projects funded with federal dollars to prioritize buying domestically produced 100 percent-clean steel.
  • Develop a trade enforcement strategy to eliminate carbon-intensive imports of steel or iron.

“The domestic industry received an injection of support from the IRA [Inflation Reduction Act], which, combined with private investments, has positioned it not only to weather the global transition to decarbonized iron and steelmaking but also, potentially, to thrive," the report says.

“The IIJA [Infrastructure Investments and Jobs Act, or Bipartisan Infrastructure Law] and IRA, likewise, have sparked a boom in manufacturing and clean energy through several policies to decarbonize heavy industry. In March 2024, The U.S. Department of Energy’s Office of Clean Energy Demonstrations (OCED) awarded $1.5 billion for six iron and steel decarbonization projects funded by the IRA and IIJA. Together, the projects will avoid 2.5 million metric tons of carbon dioxide emissions annually, which is equivalent to more than 747 wind turbines running for a year or about 4 percent of domestic iron and steel emissions.

The IRA provided grants to manufacturing facilities to decarbonize, tax incentives to support the production of key goods across the clean tech supply chain and tax credits to support the consumption of those products, while the IIJA included a significant expansion of “Buy America,” directing agencies to prioritize domestically produced materials for federally funded projects, the report notes.

Recreating the US steel industry

According to the report, the U.S. can recreate its steel industry “as a driving force of the domestic clean energy economy while breaking the antiworker paradigm and giving workers the tools they need to build a future for their communities. Taking on this opportunity will also aid in the fight against another China shock due to overcapacity.”

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The authors add, “The shift to cleaner steelmaking—while not moving fast enough—has already begun around the world, and the United States is best suited to lead that transition. Already, the United States is second only to China in EAF [electric arc furnace] capacity but with a higher proportion of EAF to BOF [basic oxygen furnace] usage (70 percent compared with 14 percent in China).

"The technical solutions to get to net-zero GHG emissions are available and being further developed, but they will require significant investments, smarts and prompt attention. In steelmaking, the United States has the perfect opportunity to turn domestic investment and innovation into solutions that will work at a global scale and transform the market.”

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