DDG Paugam: WTO system can serve as insurance policy for green steel investors

Thank you, Chairman QIAN, Edwin, for the kind words of welcome.

Excellencies,
Ladies and Gentlemen,

It is an honour to address you today.

My key message today is that the World Trade Organisation can and must be leveraged as an insurance policy for your investments decisions in steel decarbonisation.

Your industry is at a turning point as the world shifts to a net zero future, in line with the Paris Agreement. This direction of travel leaves no choice: decarbonization of the steel industry is a global imperative.

• Because steel is an integral part of everyday life.
• Because steel production accounts for 8% of global GHC emissions.
• Because steel is a heavily traded product: In 2022, nearly 25% of global steel production for finished and semi-finished steel products crossed borders. The iron and steel sector represents around 2.4% of annual global trade value.

Steel must go green or risk a serious threat to its license to operate. And going green means we need to reduce emissions from the steel sector by 95% to meet global net zero goals.

We are already witnessing signs of the upcoming “green steel revolution”. Leading automakers are securing contracts for near zero emissions steel, and major iron ore miners are developing innovative  green iron products. For example, Volvo Group has announced an advanced purchase agreement for near zero emission steel from H2 Green Steel. Companies like Vale are moving to meet the demand for higher grade iron ore. Additionally we are seeing the emergence of commercial-scale green hydrogen-based direct reduced iron (DRI) production in China, with facilities like Baowu and HBIS leading the way.

To protect future generations, it is crucial to act immediately and scale up green steel production from a niche market to the mainstream. This requires setting the entire sector on a sustainable, net zero pathway through the right investments and policy frameworks.

Ladies and Gentlemen, what an exhilarating challenge you are tackling!

It is a technological challenge. Experts in your field have identified three key pathways to achieving green steel:

• Increasing efficiency in existing process and blast furnaces is crucial, especially as significant new production capacity is being developed using conventional technologies. Estimates suggest that emissions could be reduced by an average of 20% through efficiency measures.
• Increasing the use of scrap and improving scrap recovery are vital. By 2050, we could meet half of the global demand through Electric Arc Furnace (EAF) based steelmaking. China will have large amounts of scrap available in the coming years, presenting a major market opportunity to significantly reduce the carbon footprint of steelmaking.
• Scaling up breakthrough technologies quickly and cost effectively is essential. These technologies can dramatically reduce emissions from steelmaking, but are currently limited by the availability of renewable energy, green hydrogen and high-quality of iron ore.

It is a financial challenge. The investments required involve significant decisions from companies across the value chain, with estimated costs ranging from 1.4 trillion to multiple trillions when including the full value chain. Investors, understandably, are looking for market rewards which remain uncertain. We need to demonstrate that it is possible — and profitable! to secure a market premium that will cover the investments needed for sustainable steel.

It is a regulatory challenge. Policy certainty and simplicity are essential to enable these investments. Significant work remains to define what constitutes low-emissions or near-zero steel, and it is not clear yet how to establish standards that are globally relevant. We must find ways to address the needs and challenges of countries and companies across different regions and levels of development.

• Underpinning any definition of green steel is the need for common, consistent, and comparable measurement of GHG emissions. Your technical discussions are crucial for advancing the green steel transition and achieving us a shared understanding of emissions measurement. Life Cycle Assessment (LCA) are vital for measuring and managing both greenhouse gas emissions and sustainable resource use. An LCA, combined with certification, builds trust and confidence in claims regarding low emissions or sustainable steel products. Furthermore, international trade connects steelmakers and consumers of these green steel products, facilitating the global transition to sustainable steel.
• Yet, uncoordinated climate policies could significantly hinder the future of green steel. With more than 70 carbon pricing approaches globally, this fragmentation exacerbates the risks of carbon leakage. While subsidies can accelerate the green transition and reduce carbon emissions, they also risk adversely affecting trade and smaller economies with less fiscal space. We are closely monitoring export restrictions of rare earths, critical minerals, or recyclable materials like steel scrap, as these could slow down the global path toward decarbonization. Regarding standards and regulations, we are observing the proliferation of incompatible emissions measurement methodologies, which could lead to trade disputes.

This challenging context involves significant transaction and coordination costs, market barriers, and reputational risks related greenwashing.

How to manage these risks and secure access to emerging international markets for green steel in a highly uncertain global environment? This is where the WTO can play a vital role.

If used effectively, the WTO system serves as a risk management and cost reduction tool for investors. In other words, its serves as an insurance policy.

The core mission of the WTO to maintain an open, rule-based, non-discriminatory, transparent, and predictable global trading system is our best defence to foster economic development. The alternative is a return to the “law of the jungle”. By supporting the WTO, governments can help investors manage and reduce international risks and associated costs.

The steel sector has historically been the focus of many trade disputes due to its strategic importance and sector significant employment. Currently, green steel frictions risk exacerbating existing tensions related to overcapacity and trade defence.

The first job of the WTO is to ease these tensions in several ways: through monitoring them to ensure transparency of world market operations; through disciplining them to ensure that standards and technical barriers to trade are objectively managed based on sound science rather than political frictions; and of course through resolving tensions through our dispute settlement mechanism to address conflicts As you know, the dispute settlement mechanism is currently only partially operational. However, our Members are committed to restoring its full functions.

However, the WTO's work must also rise to the magnitude of the investment challenges you are facing. We need to develop new modalities and platforms to improve coordination of the trade aspects of environmental policies and minimize trade strife.

I am happy to report that our Members are already embracing this challenge. Leading WTO Members, including China and the United States, are advocating for new lines of multilateral work on the interoperability of trade related climate measures. These efforts could help smooth out the differences between divergent climate policy mixes and foster recognition of equivalences. China and the United States have also both called for a specific discussion at the WTO on decarbonization standards in the steel sector.

Our Members emphasize the importance of common emission measurement, which directly involves your work on LCA. This is a key enabler for both reducing trade frictions and providing certainty for decarbonization investments.

In response to these trends and challenges, the WTO Secretariat and worldsteel have been convening multi-stakeholder discussions on the Steel Standards Principles for decarbonization.

Launched at COP28 in Dubai, the Steel Standards Principles aim to promote interoperability and mutual recognition of GHG emissions measurement methodologies for steel globally. The goal is to pre-empt the unnecessary proliferation of standards and encourage the convergence of methodologies. Nearly 50 steel companies, industry associations (including CISA), standardizing bodies and international organizations have endorsed the Principles.

This is pioneering work marking a new approach through direct public-private partnership within a specific sector.

We are collaborating earnestly with worldsteel and our partners to advance implementation of the Principles in 2024, building on the worldsteel mapping exercise which is ongoing. I personally witnessed promising signs of progress at an in-person meeting we held in Brussels last month.

Our efforts with worldsteel are gaining more and more traction in the WTO. Decarbonizing the steel sector requires not only new technologies, inputs and value chains, but also   innovation in our global approach to cooperative governance of world trade.

To tackle this challenge, we must embrace the multilateral system, rather than shy away from it. As my Director-General Dr. Ngozi Okonjo-Iweala likes to say, the best response to today's problems is not “de-globalization”, but “re-globalization”.

To meet this challenge, we need a stronger than ever partnership with the steel industry:

• We need the industry to vocally support the multilateral trading system, especially at a time when tensions are multiplying.
• We need the industry to encourage governments worldwide to come to the multilateral table and cooperate in making polices more interoperable.
• We need the industry to support the convergence of evaluation methods underpinning the definition of green steel.
• We need the industry to collaborate with Standards Setting Organisations and regulatory authorities to deliver these goals as soon as possible.

On our side, we will continue to mobilize our Members to support this work and make strides in facilitating global trade in green steel.

We will maintain and nurture our dialogue with you and all our partners.

We have a clear and measurable objective : to deliver tangible progress in establishing common emission measurement standards and improving interoperability in the steel sector, by COP29, in November 2024, Baku, Azerbaijan.

Thank you again Edwin, for your invitation and our pioneering partnership. Thank you again Chairman QIAN, for the very kind welcome here in Jiangyin.

Note: The WTO has worked with standard setting bodies, international organizations, steel producers and industry associations on establishing a set of principles aimed at aligning how greenhouse gas emissions are measured in the steel sector. The Steel Standards Principles were launched at COP28 in Dubai and have now been endorsed by 49 organizations, companies and standards bodies.