26 August 2022

Towards a green future for British steel

By Roz Bulleid & Wilf Lytton

With inflation at record levels, an energy bills crisis looming this winter and the Conservative party struggling in the polls, the next Prime Minister will have their hands full. 

A plan to decarbonise the steel industry might not appear to be anywhere near the top of that list at first glance. But the news that Tata Steel has threatened to close its plants unless the government provides £1.5 billion for a transition to clean steel production will be an economic headache for the new occupant of Number 10.

A thriving UK steel industry is needed to make the wind turbines, electric vehicles and railways that will drive a net zero economy. But unless the carbon intensive parts of the steel sector – which include Tata – can clean up their act, they won’t be able to make the most of these opportunities. 

Steel buyers and major trading partners such as the US are starting to put in place requirements that will limit markets for steel produced in traditional, carbon-intensive blast furnaces. To stay ahead of these developments, the UK industry needs to get on a path to a lower carbon future. That’s before we even consider the need for the UK to up its game on the patchy delivery of its net zero target, ensuring the decarbonisation of other sectors is on as firm a footing as cleaning up the power sector. 

Both candidates for Tory leader have committed themselves to carrying on with the levelling up agenda championed by Boris Johnson. But analysis by Bloomberg revealed that steelmaking regions in the UK have not experienced any tangible form of levelling up since 2019. In fact, some have experienced a decline, despite the government’s promise to reduce regional inequalities and stimulate growth outside the south east and London.

The Government is clearly aware of the challenges facing Britain’s steelmakers, as evidenced by recent efforts to reduce its electricity costs amid the global energy crisis, and implement trade protections. However, these are sticking plasters. The best way to protect and support the steel industry long term is by preparing it now for a low carbon future.

Bright Blue and Green Alliance have worked in partnership on the policies required to create a sustainable future for UK steelmaking and, and last month, we have each published reports that propose routes to a fast and secure transition for the industry.

One obvious win that both our studies have identified is the need to make better use of the nine million tonnes of scrap steel the UK sends abroad each year. This is more than the entire volume of steel we make annually. Exporting it overseas, only for it to be processed and sold back to us at a higher price, is squandering an opportunity to recycle it here and use it as a valuable industrial input. More recycling of steel would also reduce the supply chain risks that have come to the fore since the pandemic and start of the war in Ukraine by reducing imports of iron ore and coal.

Options we propose to address this include removing the VAT on domestic scrap steel sales to match other markets, encouraging investment in the machinery to improve UK sorting and upgrade of scrap and ending the export of poorly sorted low quality scrap to other markets. 

Another major barrier to investment in the steel sector generally, and particularly in cleaner technology, is the historically high UK electricity price compared to European competitor countries. This can be addressed in a number of ways but a radical option would be to adapt the French solution and establish a low carbon electricity pool that provides long-term access to lower priced power from some renewable energy developments to sectors that can show this would transform their decarbonisation.

We should also be harnessing the low carbon transitions of the energy and construction sectors, as they are both major steel users, to expand the immediate market for clean steel. For example, introducing mandatory carbon footprint criteria for steel used in billpayer-backed energy projects, along with more stringent procurement policies for steel bought by the government and the private sector, can create guaranteed markets for clean steel in a similar way to the Renewables Obligation was used to expand the nascent low carbon electricity market. These kinds of net zero-aligned procurement strategies would give steelmakers confidence to invest in new technologies thereby reducing the need for broader taxpayer subsidies to overcome the cost barriers to clean steel production.

When the new leader enters Number 10, supporting the steel industry to urgently decarbonise needs to be a priority. 

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Roz Bulleid is Deputy policy director at Green Alliance. Wilf Lytton is an Associate Fellow at Bright Blue.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.