A Steel Industry Model A simulator for analyzing effects on demand for ocean shipping from regulating the carbon emissions of steel production

An international regulation of carbon dioxide emissions could affect the shipping industry directly in terms of increased fuel cost, which when passed on to customers as higher freight rates presumably would reduce demand for transportation. In addition, there would be indirect effects. A large user of shipping services, like the steel industry depending on long transportation legs for its inputs of iron ore and coal, has its own emission problems from burning of fossil fuel. Almost 10% of global emissions of carbon dioxide are attributable to this industry. It turns out that the production technology that has the largest emissions per unit of steel, namely the basic oxygen furnace, also is the most transportation intensive. Under a carbon regulation scenario one could expect a reallocation towards the electric arc technology, which rely on electricity and scrap metal with much lower transportation needs. A structural model of the markets involved is built in order to learn more about the magnitudes of transportation changes that could result from regulation of carbon emissions from the steel industry. This paper deals with the modeling of such a simulator, while Mathiesen and Mæstad (2001) and Mæstad et.al. (2000) report the results from simulations.