Steel production, air pollution, and electricity prices

China’s top steel-producing city—Tangshan, Hebei province—is undergoing campaigns to reduce smog through stringent pollution standards and to tackle overcapacity, which entail reduced production, plant shutdowns, and plant renovation. The smog campaigns are part of a larger program to address air pollution and limit coal consumption, while the effort to reduce overcapacity comes as China is working to restructure its economy by reducing the share of energy-intensive industry and increasing the share of services. According to the International Energy Agency (2014), in Hebei, China’s largest steel-producing province, the average estimated electricity price for electric arc furnace steel producers in 2013 was roughly $85 per megawatt-hour (MWh), compared to roughly $50/MWh in Indiana, the largest steel-producing state in the U.S. It is noteworthy that under the recently finalized U.S. Clean Power Plan, EPA modeling projects that in the industrial Midwest, retail electricity prices will be roughly five percent higher in 2020 than business-as-usual, but this increase will diminish after that. Even the effect of these price increases can be reduced or eliminated through energy efficiency improvements and policy measures. Thus electricity is likely to remain significantly cheaper for U.S. electric arc furnace steel producers than for Chinese producers.

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