Modelling CO2 policies for the Japanese iron and steel industry

This paper discusses the STEAP model (STeel Environmental Assessment Program). This model has been developed for analysis of the interaction of CO2 taxes, technological change, market structure and trade effects for iron and steel. New elements compared to previous techno-economic systems optimisation with linear programming models are global interregional trade and changing market structure. The modelling approach is discussed and the model code is presented. This is followed by a discussion of results for Japan. In the case of global taxation, trade effects are negligible. In the case where only Japan and Europe introduce a tax, Japanese production will be reduced significantly and carbon leakage exceeds 50%. However, a CO2 tax of 2,500 Yen per ton of CO2 (125 Yen is equal to 1 US$) in combination with an import tariff of 2,500-5,000 Yen per ton of steel can prevent carbon leakage. Such a strategy results in a 41% CO2 reduction (50 Mt) in 2020. A strategy aiming for large monopolistic producers is less attractive because industry will aim for lower production and increased prices, while the CO2 reduction effect is similar. (C) 2002 Elsevier Science Ltd. All rights reserved.