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Abstract

The aim of this study is to assess decarbonization pathways for the German steel industry and
to analyze the effect of relocation of industrial production. Green leakage is the migration of
industry from one country to another due to more advantageous location factors, including
more favorable renewable energy costs, to serve emerging markets for green products. Importantly, green leakage, unlike carbon leakage, has a low risk of interfering with efforts to
reduce emissions. One key factor incentivising green leakage is the Renewables Pull. The
Renewables Pull describes the incentive to relocate production due to different costs for green
energy sources between two countries. The Green Leakage risk for the German steel industry
is analyzed by quantifying the Renewables Pull and investigating other preventing and promoting factors through semi-structured interviews. The result is that there is a risk of Green
Leakage in the German steel industry due to the Renewables Pull. The main reason is that the
steel industry is electrified in the course of decarbonization, which leads to a high demand for
green electricity. Inexpensive green electricity thus becomes a locational advantage for steel
production. However, the Renewables Pull is not the only factor considered. Other inhibiting
factors such as rising transport costs due to increasing distances between producer and customer, a higher willingness to pay in the country of origin or government subsidies to prevent
migration can compensate for the Renewables Pull.