Excessive government intervention

Background

For many decades, governments around the world have intervened in the steel industry to ensure their country has and retains large amounts of steel capacity. Such interventions include plant ownership, the provision of low-interest loans, grants, tax benefits, free allocations in carbon pricing schemes, and large subsidies.^[1] Even though such interventions effectively caused the fast growth of steel capacity, the growth was not market-based. Therefore, the global supply now significantly exceeds the global demand, a phenomenon called “overcapacity”,^[1] which can create unnatural advantages for inefficient technologies like higher emissions and energy-intensive steelmaking. With an estimated current global overcapacity of 25% and growing, many steel plants are only operating at low capacity levels, as evidenced by the 72% average capacity levels of the top ten steel producers.^[2] Continued government intervention makes efforts to incentivize the green steel transition less effective, as industry will thereby remain less susceptible to market conditions and regulations.

Policy Action

Policy targets to reduce government intervention and excess capacity include:^[3]

Analyze national steel capacity, steel demand, and government interventions in the steel market to identify overcapacity, inefficient plants, and nonconstructive government practices.^[1]
Create strategies to deal with existing excess capacity, e.g., mandate closures of underutilized and inefficient plants or prohibit reinvestments. This requires collaboration with financial stakeholders and steel producers.
Eliminate public sector financial assistance to carbon-intensive steel production, including the construction and maintenance of existing BF-BOF plants, export credits, or free allowances in carbon schemes.^[1]^[4]
Stop government interventions in raw material markets, as well as industrial planning and decision-making.^[1]
Reduce import tariffs and trade barriers, as well as barriers to exiting the steel industry.^[1]
Under conditions where overcapacity is deemed important, require a switch to EAF production, which can be switched off during times of underutilization, in contrast to BF-BOF plants. This will also reduce stranded assets.^[5]
Design and implement an international agreement to reduce or eliminate steel subsidies and tariffs, as well as other government interventions to prevent future market distortions.^[1] This could be done in collaboration with the Global Forum on Steel Excess Capacity (GFSEC).^[6]