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The Heterogeneous Impact of Coal Prices on the Location of Cleaner and Dirtier Steel Plants

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  • François Cohen; Giulia Valacchi

Abstract

Climate policy will predominantly affect industries that primarily rely on fossil fuels, such as steelmaking. Within these industries, exposure may be different by country according to the energy-intensity of national plants. We estimate the effect of coal prices on steel plant location worldwide and production preferences for BOF, a polluting technology, and EAF, a greener one. A 1% increase in national coal prices reduces BOF installed capacity by around 0.37%, while it has no statistically significant impact on EAF capacity. We simulate the implementation of a stringent European carbon market with no border adjustment and find a non-negligible shift in steel production outside Europe, with a concomitant impact on the technologies employed to produce steel. If applied worldwide, the same policy would primarily affect production in Asia, which relies on BOF and currently benefits from lower coal prices than those expected to emerge in the future.

Suggested Citation

  • François Cohen; Giulia Valacchi, 2020. "The Heterogeneous Impact of Coal Prices on the Location of Cleaner and Dirtier Steel Plants," CIES Research Paper series 65-2020, Centre for International Environmental Studies, The Graduate Institute.
    • Handle: RePEc:gii:ciesrp:cies_rp_65
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    More about this item

    Keywords

    Steel industry; firm relocation; technological change; energy prices; carbon market; coal.;
    All these keywords.

    JEL classification:

    • F0 - International Economics - - General

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