1. In the short term it makes steel more expensive. But because steel is essential, we still use it, it just costs a little more. If you're building a clean energy power plant, or making a generator for a hospital, some of the tax revenues could go to you, to make those things still affordable.

2. In the longer term, there are now huge financial incentives to either reduce the carbon consumption of steel production, or to replace steel with something which uses less carbon. Which is what you want.

Your implicit assumption is that companies are willing to pay more for steel. An increase of just a single digit percent more to the price of steel is enough to be completely uncompetitive with overseas steel production, which would inevitably lead to the closing of all local manufacturing capacity of steel.

Steel production is also a commodity critical to national security. Losing access to foreign steel due to war or other concerns would literally bring the country to its knees for the duration of the encounter.

Shifting all local manufacturing capability overseas to where there is less regulation sounds good, until it doesn't... as we saw during the pandemic. The world would have looked a lot different today if Chinese manufacturing had closed or decreased for more than a few weeks (roughly Jan-Feb, much of which coincided with the usual Chinese New Year shutdown that is typically planned for).

2. Replace steel? I see how this rationale works, we strive to replace X for something that generates less carbon, this ought to work to some extent until nothing more carbon neutral exist.