What Norway Can Teach the World About Switching to Electric Vehicles

Essay by Christina Bu, Time magazine, Jan. 7, 2022

I live in a country far north, stretching way above the Arctic Circle, with long driving distances, rugged mountains and a very cold climate. Norway is not the most likely place to start a transportation revolution, but electric vehicles (EVs) are suddenly the new normal here. I would claim that if Norway can do it, any country can.

The shift won’t happen overnight, but the speed of the transition here has surprised everyone. Almost sixty-five percent of new passenger cars sold in Norway in 2021 were electric; in addition, 22% were plug-in hybrids. Put differently, only 14% of new cars were sold without a plug. Now that there are many models to choose from and the range has improved, EVs are purchased all over the country. It took us only 10 years to move from 1% to 65%, and next year I believe we will pass 80%. The U.S. and other governments should use 2022 to enact policies that incentivize a similar shift.

So, how did Norway become the world’s top-selling electric-vehicle market per capita? Not because of suitable conditions, and definitely not because Norwegians are more environmentally friendly or concerned about climate change. We can instead credit strong demand-side policies kept in place for a long time. After all, it takes time to electrify all the cars on the road. Most cars are purchased secondhand, and people in the secondhand market are dependent on the choices made by new-car buyers. The government therefore taxes the sales of new polluting cars heavily but does not tax EVs at all, making EVs, which are more expensive because of their production costs, a competitive and appealing option. The Norwegian parliament has also decided that all sales of new cars and vans shall be zero emission by 2025. The faster we get to 100% EV new sales, the faster we get there with all cars on the road.

Half a million people in Norway now drive EVs. I met one of them recently. His name is Kåre, and he had just turned 100 years old. He bought his first EV when he was 99 and uses it to take his 103-year-old sister on Sunday trips. If Kåre can do it, everyone can do it.

It’s not as if the rest of the world isn’t interested. Norway’s progress has, of course, been helped by important emission restrictions directed at car manufacturers internationally, and we have seen the start of a global rollout of charging infrastructure. Did you see the final Super Bowl ad from GM? Will Ferrell told us he hated Norway because of the high uptake of EVs and that GM and the U.S. were going to catch up. And the U.S. has started! President Biden’s infrastructure bill includes $7.5 billion for a nationwide charging network.

But the U.S. can go further in 2022, as can other countries, and implement policies directed at the demand side. This can be done in different ways; the key is to start taxing new sales of at least the most polluting car models and use this money to subsidize EVs. This is a fair way to implement climate policies as it is aimed at people buying a new car, rather than an indiscriminate tax at the gas pump. Consumers are given an option when buying a new car; they could, for instance, choose a model with lower emissions like a plug-in hybrid, which is not taxed, or even an EV that is subsidized. (To be clear, tax policies on purchase alone won’t get where we need to be fast enough – in Norway, there are also several incentives in place such as lower road tolls, partial access to bus lanes and cheaper public parking for those who drive EVs – but it is the most important and effective step that countries around the world can take.)

Yes, the transition to EVs might be more politically difficult in some countries than others, but several, like Sweden and New Zealand, have already started, with good results after implementing EV tax policies. New markets are also helped with better technology and massive investments in electric mobility. In fact, some countries are moving even faster than Norway. While Norway took 2.5 years to move from 2% to 10% EV market share, UK took 1.5 years and Germany only one.

2022 is also the year that all governments should join the first 38 countries that signed the COP26 declaration on accelerating the transition to 100% zero-emission cars and vans. It states that they will work toward all sales of new cars and vans being zero emission globally by 2040, and by no later than 2035 in leading markets.

Frankly, I don’t think any manufacturer will produce cars with internal combustion engines after 2035. Still, I cannot stress enough that the transition to EVs must be fast and strong policies are urgently needed. The United Nations’ last climate report was called “code red for humanity.” We are in a hurry when it comes to cutting emissions. So, when there are alternatives that are more than good enough, why not speed things up?

Bu is the secretary general of the Norwegian EV Association

https://time.com/6133180/norway-electric-vehicles/

Why the cost of carbon is increasing — and how that affects climate policy

NPR, “All Things Considered,” Dec. 16 2021

NPR's Mary Louise Kelly speaks with Michael Greenstone, professor and director of the Energy Policy Institute at the University of Chicago the impact of the rising cost of carbon on climate policy.

MARY LOUISE KELLY, HOST:

Here in the U.S., many power companies and manufacturers have little idea about how much carbon they emit. Whereas in Europe, they know exactly how much. That's because they have to pay for it. It's known as a carbon market. The idea is to give businesses flexibility by letting them buy the right to pollute instead of having the government set limits on each power plant or factory. Businesses bid against each other for these pollution rights because there are only so many for sale. And now the price of carbon is going up. Michael Greenstone directs the Energy Policy Institute at the University of Chicago. Here's how he explains the jump in price.

MICHAEL GREENSTONE: I think we're swinging out of the COVID recession and there's tons of economic activity going on around the world, and that's leading people to drive more, buy more things and use more power. And so what it means is that there are more people competing for a fixed set of allowances, and that causes the price to go up.

KELLY: The price of carbon recently hit 90 euros a ton in Europe. It could hit 100 euros by the end of the year. Greenstone says those rising prices incentivize polluters to pollute less. They also present an opportunity for companies that make green technology.

GREENSTONE: They send a signal to firms, hey, come up with a new idea on how to produce energy with less carbon or to pull carbon out of the atmosphere or to bury it as it comes out of the smokestack. And right now, that price signal is, you know, largely not present around the world, and higher prices send a much clearer signal. I expect if we had consistent carbon pricing, they would pave the way to kind of a golden era of innovation in climate.

KELLY: So, in a way, is this carbon markets doing exactly what they were designed to do? They're supposed to make it financially attractive for companies to pollute less. If it's costing a company more to pollute, that's the market kicking in and doing exactly what it was designed to do.

GREENSTONE: You know, it's in the heart of every economist that rather than having government dictate to plants or to industries exactly how they reduce their carbon emissions, that there be this price signal and then that can set off creative ideas and innovation and looking for new ways to cut carbon. But the key thing is that in the places that have these cap and trade markets, the level of CO2 emissions is fixed.

KELLY: And what is the set up here in the U.S.? I mentioned in Europe, power companies know exactly how much carbon they emit; here in the U.S., not so much, although California has a robust carbon market. Is it state by state?

GREENSTONE: There's effectively two markets in the U.S. California has one of its own. And then there's kind of 10 New England or mid-Atlantic states that have banded together for something called the Regional Greenhouse Gas Initiative, or RGGI. And they have their own carbon market. But I think if you were to step back from it, what's really noteworthy is carbon pricing is an example of kind of American exceptionalism, and probably not the American exceptionalism we want. We're the only G-7 country without a national carbon price. And I think, you know, to be kind, or maybe unkind, the reason that we're exceptional with respect to carbon pricing is that we're effectively ignoring the science and economics of climate change and just wishing they weren't true.

KELLY: For ordinary people listening, we all obviously have a stake in our planet and climate and wanting to rein in emissions, which is what these markets are designed to do. Is there any other practical impact? Do higher prices for polluters in the carbon market translate down to, I don't know, bigger utility bills that are going to hit my mailbox?

GREENSTONE: Absolutely. And some people think of that as a bug. I think of it as a feature. If you're causing carbon emissions, you're causing damages to my children, your children and their children. And there should be a penalty for that. And that's exactly what carbon pricing does. So it absolutely filters down. And that filtering down is what causes people to make different choices over the long run.

KELLY: I understand there's some debate now over whether prices are too high, whether government should step in and do something about that, or to the point you were making earlier, that this is exactly how these markets are supposed to work. Who's right?

GREENSTONE: Oh, I think it's very clear, even with the run-up in Europe, no, they're not too high. In fact, I would say they're too low. And so even in Europe, where the prices are maybe about 90 euros, those prices are lower than the damages from releasing an additional ton of CO2 as best we understand.

KELLY: Let me guess, you're also the guy who argues that American gas prices are too low and we should be paying more to use less. I'm going to make you really popular with people listening.

GREENSTONE: Yeah. I think they're too low relative to the damages that we do when we drive. And we might not like it. We might not like paying for higher prices, but when we're using gasoline, we're increasing the odds of disruptive climate change and making our lives and our children's lives and their children's lives more complicated and difficult. And the idea of doing that to my children is not very appealing, and even though I dislike paying the higher gas prices, but that's just the way it is.

KELLY: Michael Greenstone, professor and director of the Energy Policy Institute at the University of Chicago. Professor Greenstone, good to speak with you. Thank you.

GREENSTONE: Thank you.

https://www.npr.org/2021/12/16/1064951646/why-the-cost-of-carbon-is-increasing-and-how-that-affects-climate-policy

Battery Storage Soars on U.S. Electric Grid

Falling costs and green mandates are boosting demand for batteries capable of storing large amounts of wind and solar power for later use

By Jennifer Hiller and Katherine Blunt

The Wall Street Journal, Dec. 21, 2021

Companies are poised to install record amounts of batteries on America’s electric grid this year, as government mandates and a steep decline in costs fuel rapid growth in power storage.

The U.S., which had less than a gigawatt of large battery installations in 2020—roughly enough to power 350,000 homes for a handful of hours—is on pace to add six gigawatts this year and another nine gigawatts in 2022, according to S&P Global Market Intelligence.

Demand for utility-scale storage is expected to keep rising world-wide for the next several years, driven by rapid growth in the U.S. and China, as new storage technologies and pressure to add renewable energy sources to stem carbon emissions reshape the electricity industry.

Giant batteries, often paired with solar farms, can charge when sunshine is plentiful, then send electricity to the grid later when the sun goes down or demand otherwise spikes and power is more valuable. The installations, most of which currently use lithium-ion batteries like the ones found in electric vehicles and laptops, resemble rows of boxy shipping containers, and usually provide up to four hours of backup power.

The surge in battery development has the potential to substantially change the power generation sector. Electricity discharged from batteries is increasingly replacing electricity generated by gas-fired power plants in certain parts of the country, especially those that only fire up during periods of peak demand. Already, utilities, power generators and investors are rethinking the need for conventional power plants, as batteries become cheaper and more viable.

Plummeting costs for lithium-ion batteries, which have become ubiquitous in smartphones and laptops and are increasingly in high demand for electric vehicles, have made utility-sized battery projects more economical. Lithium-ion battery packs, which cost more than $1,200 per kilowatt-hour in 2010, have fallen to around $132 this year, according to data from BloombergNEF.

California is driving much of the U.S. battery market’s expansion. It is racing to secure power to make up for the impending closure of several gas-fired power plants as well as a nuclear facility that provides nearly 10% of the electricity generated in the state. A California law passed in 2018 requires the state to decarbonize its power grid by 2045.

At least eight other states so far have storage mandates or targets, including New York, Virginia and Nevada, according to the U.S. Energy Storage Association. Goldman Sachs expects the U.S. market for stationary batteries to grow from about $1 billion in 2020 to $13 billion to $14 billion by 2030.

Storage developer Key Capture Energy now has 370 megawatts of battery projects in operation or under construction, up from 54 megawatts this time last year. The company is working on projects in New York, New England, Texas and elsewhere, including a 20-megawatt installation on the site of a Maryland coal plant that is set to retire in the coming years.

Jeff Bishop, Key Capture’s co-founder and chief executive, said declining costs have enabled the company to expand to Oklahoma, Michigan and other states where it has historically been economically challenging to build batteries.

“Five years ago, most energy storage developers were small shops like us that had a couple of people and PowerPoints and dreams,” Mr. Bishop said. “Now, it’s companies with real money behind them and billions of dollars for growth.”

Some states that lack storage mandates have had a boom in battery installations anyway, including Arizona and Texas, where batteries are being built alongside large renewable energy projects, but also as stand-alone projects that aim to take advantage of fluctuations in power prices.

The major Texas grid operator had 225 megawatts of utility scale battery storage operating at the end of 2020. Now one company, a subsidiary of Italy’s Enel, has 551 megawatts under construction in Texas. This month, it connected a 55 megawatt site to the grid southeast of Dallas.

Enel’s battery development plans include adding 1.4 gigawatts of storage to the U.S. grid between 2022 and 2024—accounting for more than half of its global plans. Much of it is in Texas or in PJM Interconnection, an electricity market serving 13 states from Virginia to Illinois.

“The U.S. is central in our development strategy,” said Alberto De Paoli, Enel’s chief financial officer. “We are almost doubling the level of investments in the United States versus what we had previously planned.”

The Biden administration’s support of renewables and the expected extension of existing renewables tax credits, have helped drive that decision, Mr. De Paoli said.

Higher raw materials prices are expected to stall further near-term declines in battery costs. But that is unlikely to be a drag on battery demand, and cost inflation could be more than offset by potential new tax incentives, said Steve Piper, director of energy research at S&P Global Market Intelligence.

U.S. lawmakers are considering what would be the first investment tax credit for stand-alone storage projects as part of the Biden administration’s proposed Build Back Better spending plan. Congress has delayed that debate until next year, and the bill as currently written is imperiled, though energy tax credits haven’t been the controversial parts of the legislation. Right now, many battery projects are paired with solar farms to qualify for solar’s current 26% credit. Developers can roll battery costs into project costs for the credit.

John Carrington, chief executive at energy-storage firm Stem Inc., said a stand-alone credit could spur projects in more states and cause some renewables owners to consider adding batteries to existing projects.

“There’s a retrofit piece that is remarkable, because now you can go put storage into every location they have solar,” Mr. Carrington said.

Batteries can interact with the grid in a more dynamic way than wind or solar by releasing electricity when it is most needed.

“Developers and asset owners are learning how to economically use their battery to dispatch it into the market and make money,” said Vanessa Witte, senior energy storage analyst with Wood Mackenzie. “There’s a lot of different opportunities for batteries, where solar and wind have more set revenue opportunities.”

Like other lithium-ion batteries, the utility-scale battery projects can pose safety risks. Several have caught fire, including one using Tesla Inc. battery packs in Australia in July.

Large projects by utilities and developers dominate the storage market, with about 89% of installations this year, according to the latest market report from Wood Mackenzie and the U.S. Energy Storage Association. But the U.S. residential market for battery storage is on the upswing too, projected to surpass $1 billion next year as more homeowners pair storage with home solar installations.

“I think there’s also increasingly significant attention now for residential customers on the question of reliability and resilience, particularly in places that are experiencing things like public-safety power shut-offs or wildfires, hurricanes or other disruptions,” said Jason Burwen, interim chief executive of the U.S. Energy Storage Association.

Many customers in California and Hawaii can get incentives to add batteries to their homes, and those are the top states for residential storage. But storm-prone Florida is No. 3 for installations. “That’s not a fluke,” Mr. Burwen said.

https://www.wsj.com/articles/battery-storage-soars-on-u-s-electric-grid-11640082783?mod=hp_lead_pos11&utm_source=Daily%20on%20Energy%20122121_12/21/2021&utm_medium=email&utm_campaign=WEX_Daily%20on%20Energy&rid=209501&env=44366b7171d1d77be468727bc6de1f7bf5cea5b0aeed11c010f65be26f683635&stream=top

Battery Pack Prices Fall to an Average of $132/kWh, But Rising Commodity Prices Start to Bite

BloombergNEF’s annual battery price survey finds prices fell 6% from 2020 to 2021

Hong Kong and London, November 30, 2021 – Lithium-ion battery pack prices, which were above $1,200 per kilowatt-hour in 2010, have fallen 89% in real terms to $132/kWh in 2021[1]. This is a 6% drop from $140/kWh in 2020. Continuing cost reductions bode well for the future of electric vehicles, which rely on lithium-ion technology. However, the impact of rising commodity prices and increased costs for key materials such as electrolytes has put pressure on the industry in the second half of the year.

These prices are an average across multiple battery end-uses, including different types of electric vehicles, buses and stationary storage projects. For battery electric vehicle (BEV) packs in particular, prices were $118/kWh on a volume-weighted average basis in 2021. At the cell level, average BEV prices were just $97/kWh. This indicates that on average, cells account for 82% of the total pack price. Over the past two years, the cell-to-pack cost ratio has diverged from the traditional 70:30 split, a result of changes to pack design, such as the introduction of cell-to-pack designs.

On a regional basis, battery pack prices were cheapest in China, at $111/kWh. Packs in the U.S. and Europe cost 40% and 60% higher, respectively. This reflects the relative immaturity of these markets, the diverse range of applications and, for the higher end of the range, low volume and bespoke orders.

Prices continued to fall in 2021 as the adoption of the low-cost cathode chemistry known as lithium iron phosphate (LFP) increased, and as the use of expensive cobalt in nickel-base cathodes continued to slide. On average, LFP cells were almost 30% cheaper than NMC cells in 2021. However, even low-cost chemistries like LFP, which is particularly exposed to lithium carbonate prices, have felt the bite of rising costs throughout the supply chain. Since September, Chinese producers have raised LFP prices by between 10-20%.

Based on historical trends, BNEF’s 2021 Battery Price Survey, which was launched in time for the virtual BNEF Summit Shanghai, predicts that by 2024 average pack prices should be below $100/kWh. It is at around this price point that automakers should be able to produce and sell mass-market EVs at the same price (and with the same margin) as comparable internal combustion vehicles in some markets. This assumes no subsidies are available, but actual pricing strategies will vary by automaker and geography.

However, higher raw material prices mean that in the near-term, average pack prices could rise to $135/kWh in 2022 in nominal terms. In the absence of other improvements that can mitigate this impact, this could mean that the point at which prices fall below $100/kWh could be pushed back by two years. This would impact EV affordability or manufacturers’ margins and could hurt the economics of energy storage projects.

James Frith, BNEF’s head of energy storage research and lead author of the report, said: “Although battery prices fell overall across 2021, in the second half of the year prices have been rising. We estimate that on average the price of an NMC (811) cell is $10/kWh higher in the fourth quarter than it was in the first three months of the year, with prices now closing in on $110/kWh. This creates a tough environment for automakers, particularly those in Europe, which have to increase EV sales in order to meet average fleet emissions standards. These automakers may now have to make a choice between reducing their margins or passing costs on, at the risk of putting consumers off purchasing an EV.”

Kwasi Ampofo, head of metals and mining at BloombergNEF said: “Prices for lithium have risen substantially this year as a result of constraints within global supply chains, rising demand in China and Europe and the recent production curbs in China. Although we expect demand to keep growing in 2022, other factors such as global supply-chain constraints and China’s production curbs should have been resolved by 1Q 2022. This will help to ease lithium prices.”

The path to achieving $100/kWh is clear, although the timing now looks more uncertain. In 2021, a wave of automakers released battery technology roadmaps outlining how prices can be reduced below $100/kWh. Companies like Renault and Ford have publicly announced targets of $80/kWh by 2030.

Continued investment in R&D alongside capacity expansion across the supply chain will help to improve battery technology and reduce costs over the next decade. BloombergNEF expects next-generation technologies, such as silicon and lithium metal anodes, solid-state electrolytes and new cathode material and cell manufacturing processes, to play an important role in enabling these price reductions.

[1] All prices are in real 2021 $, unless stated as nominal.

https://about.bnef.com/blog/battery-pack-prices-fall-to-an-average-of-132-kwh-but-rising-commodity-prices-start-to-bite/?utm_source=Daily%20on%20Energy%20113021_11/30/2021&utm_medium=email&utm_campaign=WEX_Daily%20on%20Energy&rid=24913499&env=4c48fcdbb12eee6826c7817244fc1960521df71996adb905afbfc4e36d0f936d#_ftn1

Utah economists: Carbon fee and dividend policy would be a win for climate and Utah’s economy

Carbon fee would be economically efficient, improve health and help the poor.

Salt Lake Tribune, Nov. 24, 2021

Temperatures in Utah have risen 2.7° F since 1900, risking longer and more severe droughts. Presently, Utah is in a state of emergency due to drought, with nearly 90% of the state in extreme or exceptional drought.

The economic toll of rapid changes to the climate risks Utah’s way of life. For example, Utah’s farming, ranching and outdoor recreation industries may face uncertainty with water scarcity and restrictions, unexpected extreme variations in seasonal temperatures/precipitation and wildfires. However, through smart economic policy, there is opportunity. We can significantly reduce our reliance on fossil fuels to help manage economic risk from climate change, while bolstering a strong economy.

In 2019, the “largest public statement of economists in history,” signed by all living chairs of the Federal Reserve, 28 Nobel Laureates and more than 3,500 other economists, was published in The Wall Street Journal. The statement advocates for a policy wherein a fee is put on carbon pollution and all funds raised are returned directly to households in the form of “carbon dividends.”

This carbon fee and dividend solution is favored as it offers a cost-effective lever to reduce carbon emissions efficiently and at a scale necessary to have meaningful impact. By providing a financial incentive to all consumers and producers, it “will send a powerful price signal that harnesses the invisible hand of the marketplace to steer economic actors towards a low-carbon future.” It will increase both GDP and job opportunities, and provide a financial benefit to the most vulnerable in our society.

A critical component of an effective carbon fee and dividend proposal is a border carbon adjustment on imports and exports. This will “enhance the competitiveness of American firms that are more energy-efficient than their global competitors” and “create an incentive for other nations to adopt similar carbon pricing.”

Because this policy intends to give consumers and producers the flexibility to reduce emissions in the way that is best for them, reductions are achieved at least-cost, and this is better for the economy. A climate report from the International Monetary Fund shows that a strong carbon fee and dividend policy will increase GDP somewhat in the near-term, and may improve it dramatically in future decades as climate-related damages to the economy are avoided. Further, the report indicates this type of market-based policy will have a “net positive effect” on employment.

As carbon and other pollutants are reduced and climate risk stabilized, the policy is likely to improve our health and could save tens of thousands of lives each year.

Finally, this approach provides a financial benefit to the poor. Simply by charging a fee for pollution and returning all funds to the American people, “The majority of American families, including the most vulnerable, will benefit financially by receiving more in ‘carbon dividends’ than they pay in increased energy prices.”

We agree: A national carbon fee and dividend policy is a clear win-win for Utah and America. Implementing this policy can stabilize climate risk, improve the economy, increase job opportunities, preserve our agriculture and outdoor recreation industries, improve our health and help the most vulnerable.

Brigham Frandsen, Ph.D., associate professor, Brigham Young University; Benjamin Iverson, Ph.D., associate professor, Brigham Young University; Joseph Price, Ph.D., professor of economics, Brigham Young University; Mark Showalter, Ph.D., professor of economics, Brigham Young University; David Berri, Ph.D., economics, professor of economics, Southern Utah University; David Tufte, Ph.D., professor of economics, Southern Utah University; Günseli Berik, Ph.D., professor, Economics Department, University of Utah; Haimanti Bhattacharya, Ph.D., associate professor, University of Utah; Gail Blattenberger, Ph.D., associate professor emerita, Department of Economics, University of Utah; Subhasish Dugar, Ph.D., associate professor, University of Utah; Korkut Erturk, Ph.D., professor of economics, University of Utah; Peter Philips, Ph.D., professor of economics, University of Utah; Codrina Rada, Ph.D., associate professor, University of Utah; Elizabeth Tashjan, Ph.D., professor of finance, University of Utah; Arthur Caplan, Ph.D., economics, professor, Utah State University; James Feigenbaum, Ph.D., professor of economics, Utah State University; Paul Jakus, Ph.D., professor emeritus, Department of Applied Economics, Utah State University; Matt Gnagey, Ph.D., associate professor, Weber State University; Alvaro La Parra Perez, Ph.D., economics, associate professor, Weber State University; Doris Geide-Stevenson, Ph.D., economics, professor, Weber State University; Jeff Steagall, Ph.D., economics, professor, Weber State University; James “Cid” Seidelman, Ph.D., distinguished service professor of economics, Westminster College

https://www.sltrib.com/opinion/commentary/2021/11/24/utah-economists-carbon/

Steel is back. Why a new U.S.-EU trade arrangement about steel is surprisingly important

By Robinson Meyer, The Atlantic, Nov. 3, 2021

If pith-helmeted archaeologists were to name our era like they name those of our ancestors—the Stone Age, the Bronze Age, etc.—they might very well dub ours the Steel Age. Steel is ubiquitous: It’s in cars, appliances, buildings, roads, infrastructure, and weapons, an essential input into virtually every large manufactured product. “As you go through your day, you pass steel every few feet,” Todd Tucker, the director of governance studies at the Roosevelt Institute, a progressive think tank, told me. “It’s sort of what chips are for the tech sector.”

Steel is also a major part of one of the world’s toughest climate problems. Although technologies now exist to generate electricity, or move people from place to place, without emitting climate pollution, many problems with heavy industry remain unsolved. Iron and steel production alone were responsible for more than 7 percent of annual greenhouse-gas emissions worldwide in 2016.

Yet in a momentous week for climate-change policy—in which Biden threw down a new framework for $555 billion of climate spending, the Supreme Court accepted a case that could severely restrict the Environmental Protection Agency, and the annual United Nations climate conference commenced in Glasgow, Scotland—it remains striking that one of the most significant news items, so far, concerned steel.

On Sunday, at a meeting of the Group of 20 countries, Biden announced that the U.S. and the EU were each dropping their steel and aluminum tariffs immediately, and had agreed to what they called “the world’s first carbon-based sectoral arrangement.”

This new arrangement—which will be negotiated in full over the next two to three years—will lead both countries to prefer trade in lower-carbon steel and perhaps, eventually, to close their borders to so-called dirty steel. The U.S. and EU will also agree to a shared methodology for counting the carbon emissions “embodied” in steel. And because the tariffs have been lowered, the arrangement should help lower prices for American consumers.

The arrangement represents a tacit recognition from Europe that American steel has lower emissions than steel from elsewhere in the world. Most American steel producers now use electric-arc furnaces, which allow for scrap metal to be recycled into new material, skipping carbon-intensive steps of the refining process, Tucker said.

This advantage led to perhaps the most important part of the deal: It has the full support of the American steel industry and its union. The Biden administration and Europe found a way to spin what I’ve called “the green vortex” faster, creating new coalitions that advance their shared economic, geopolitical, and environmental goals. The deal shows that, at least in this one sector, America and Europe can work together despite their—how to put it?—distinct approaches to climate politics.

For more than a decade, the EU has operated the world’s most robust carbon-trading market, in which companies bid on the right to emit climate pollution. Since 2017, the price of pollution has doubled, then doubled again, then doubled yet again. European manufacturers—including ArcelorMittal, one of its largest steelmakers—began to beg the EU to level the playing field against foreign competition, and over the summer, the EU moved forward with long-standing plans for a carbon border tax on cement, fertilizer, electricity, iron, steel, and aluminum.

This presented a major problem for the United States. Our approach to climate policy has been driven far more by standards and subsidies than by textbook carbon taxes; the nationwide patchwork of state laws and local electrical grids would have made it nearly impossible to calculate a fair or accurate carbon tax (assuming that EU technocrats even tried). John Kerry, Biden’s special envoy for climate, warned the EU that a carbon border tax should be used only as a “last resort.”

The conflict seemed to threaten a schism. At worst, Atlanticists worried that the EU might unify its market (or at least harmonize its border tax) with the world’s other enormous carbon market: China. As the historian Adam Tooze pointed out, China, not America, is the EU’s largest trading partner, and a Sino-European climate pact could look more attractive to Brussels than a partnership with the insular, polarized, and carbon-choked United States. The steel arrangement, if not foreclosing that possibility, at least forestalls it.

The fact that steel is so essential to every other industrial process means that the global steel market is very weird. (If a market even exists at all: “Steel has never been a free market,” Tucker told me.) Many countries nurture their steel industry for economic-security reasons, which has led to perennial overcapacity. China, which produces half the world’s steel, may overproduce tens of millions of tons a year more than are needed. (Chinese steel is responsible for 60 percent of the global steel industry’s emissions, and about 4 percent of the world’s total annual carbon pollution.) The U.S., Europe, and Japan had been “talking about” the problem of Chinese steel overcapacity for decades, Tucker said, but did not act until President Donald Trump unilaterally raised steel tariffs on all imported steel in 2018. The EU imposed its own tariffs soon after. Ironically, those tariffs gave the U.S. and EU leverage to negotiate this “green steel deal.”

Under the new arrangement, the U.S. will import about 1 million tons of steel from the EU every year, according to Roy Houseman, a lobbyist for the United Steelworkers. Any imported steel must be “melted and poured” in Europe, which means that it can’t simply be reconstituted steel from China. Although the U.S. doesn’t export much steel to Europe today, the arrangement allows for the possibility that the EU could be a customer for clean American steel in the future.

What may be most important about the deal is its agreement that the U.S. and EU will decide on a shared way to measure the carbon pollution embodied in steel. This bridges an important intellectual gap. Historically, the American and European elite have conceived of climate change as a global free-rider problem: No country could make a dent in climate change alone, they believed, so no individual country had an incentive to do anything. To resolve that dilemma, the Nobel Prize–winning economist William Nordhaus called for a global carbon tax among willing nations along with a “climate club” that levies the tax on imports and exports.

Europe has adopted many of Nordhaus’s prescriptions wholesale. The United States has not. Congress has never managed to put a price on carbon or mandate explicit carbon-pollution reductions. So, lately, a new way of thinking about climate change has gained popularity. The political scientists Michaël Aklin and Matto Mildenberger have argued that climate change is not a free-rider problem at all, but actually one of “distributive conflict.” As I summarized their view in April:

The challenge of global climate action isn’t that other people will benefit from your emissions cuts; it’s that many interests actively oppose decarbonization. The key to passing climate policy is stitching together a coalition that will support and sustain decarbonization.

In a way, the steel deal unifies these two approaches. From one side, it’s a Nordhausian climate club, through which Europe can punish recalcitrant countries for carbon-intensive manufacturing. From the other, it’s a coalitional negotiation, with pro-decarbonization leaders in one country giving a leg up to supportive leaders in another—and recruiting the steel industry all the while. The U.S.-EU arrangement also defies Nordhaus, who always focused on carbon prices, in favor of focusing on the core problem: the actual carbon emissions going into the sky.

And it sets out a pattern for how the U.S., the EU, and other democracies can collaborate on the profoundly material crises that the world faces—a notion not so distant from the hope that unpins the European Union itself. In 1952, when France, West Germany, Italy, and the Benelux countries established the European Coal and Steel Community, Robert Schumann, then the French foreign minister, said that the market’s goal was to make war between France and Germany not only unimaginable, but materially impossible. The flywheel worked, spinning up a greater and greater integration, and the Coal and Steel Community eventually evolved into the EU. In our darker and more worrying time, such hope may no longer be imaginable. But integration has prevailed, and the rupture has been delayed, at least for now.

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