Technical versus Environmental Efficiency in Steel Production: A Global Perspective

Giacomo Benini (), Erik Enstad (), Amare Alemaye Mersha () and Luca Rossini
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Giacomo Benini: Dept. of Business and Management Science, Norwegian School of Economics, Postal: NHH , Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway, https://www.nhh.no/en/employees/faculty/giacomo-benini/
Erik Enstad: Dept. of Business and Management Science, Norwegian School of Economics, Postal: NHH , Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway, https://www.nhh.no/en/employees/faculty/erik-enstad/
Amare Alemaye Mersha: Dept. of Economics, University of Milan, Postal: University of Milan, Department of Economics, Management and Quantitative Methods, Via Conservatorio 7, , 20122, Milan, Italy, https://sites.google.com/view/amare-alemaye-mersha

No 2025/23, Discussion Papers from Norwegian School of Economics, Department of Business and Management Science

Abstract: This study provides the first global, plant-level assessment of both technical and environmental efficiency in steel production using a novel micro-dataset covering 147 steel mills across 50 countries from 2019 to 2023. Applying a Stochastic Directional Distance Function, we estimate each plant’s distance to the production frontier and compute the shadow price of CO2e emissions. Our results reveal a robust negative correlation between inefficiency and marginal abatement cost: technically efficient electric arc furnace (EAF) mini-mills — particularly prevalent in North America — display low inefficiency scores (∼0.2) and face high marginal abatement costs (up to 13.4 USD/ton). Conversely, integrated plants in developing countries often operate inefficiently (scores up to ∼0.8) but can abate emissions at very low cost (∼0.4 USD/ton), with Europe positioned between these two extremes. Estimated shadow prices are consistently lower than prevailing carbon market rates, highlighting a systemic under-valuation of emissions in the absence of regulatory pressure. This underpricing, in turn, reflects the highly uneven technological and economic conditions across steel plants worldwide, reinforcing the need for climate policies that account for both efficiency levels and plant configurations, and that tailor interventions to the specific costs and capacities of decarbonization.

Keywords: Environmental Efficiency; Shadow Price of Emissions; Steel Industry; Stochastic Directional Distance Function; Technical Efficiency (search for similar items in EconPapers)
JEL-codes: Q50 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2025-08-03
New Economics Papers: this item is included in nep-eff, nep-env and nep-res
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