Tata Steel crisis: Four green solutions for the struggling steel industry

As the Tata Steel crisis rumbles on, commentators are pointing fingers at energy prices and green policies as key reasons behind Tata's decision to exit the UK. Are they right, or could a reformed green policy landscape and enhanced focus on sustainability actually end up convincing energy-intensive manufacturers to stay put?

Business Secretary Sajid Javid is meeting with the Tata Steel owners in Mumbai today (6 April) to appeal for more time to save the Port Talbot site and the 40,000 jobs that are at risk.

While Tata Steel’s chairman Cyrus Mistry laments UK electricity costs and a bloated steel market swarming with cheap Chinese imports as reasons to put UK facilities up for sale, a host of organisations from across the public and private sectors have urged the Government to unshackle the steel industry by abolishing a number of green policies. But this may not create the desired outcome.

With the BBC reporting that global steel prices have fallen by 40% over the last five years, the Government has shown reluctance in turning to the cheap alternatives of Chinese steel and is instead determined to return a bastion of the industrial revolution to its former glory and strength.

In order to do so, many are now calling on the Government to incentivise heavy industry, maligning UK electricity costs and casting envious glances towards the German manufacturing industry. While Department for Energy and Climate Change (DECC) figures reveal that the UK is second only to Cyprus in terms of electricity prices per MWh in Europe, it also reveals a rather narrow gap between German and UK costs.

With Britain’s manufacturing industry is in desperate need of a second Industrial Revolution, edie has elaborated on the potential remedies which could alleviate pressure, save jobs and aid with the steel industry’s transition into a low-carbon economy.

Exempt heavy industry from renewable energy costs

The UK’s electricity and energy costs in relation to Germany’s and other EU countries fails to take into account the compensation received by energy intensive industries, which has seen the Department for Business, Innovation & Skills (BIS) pay £160m – including £60m to the steel industry – to cover energy costs since 2013.

The Government has since opened a consultation into energy cost reliefs, which could save energy intensive industries £390m a year, but as an in-depth look at the energy make-up of the steel industry from the Carbon Brief reveals, only 6% of costs for steel work facilities, such as Tata’s Port Talbot site, come from energy consumption.

Seperate Guardian analysis also reveals that Tata Steel pays around £7.5m a year towards the UK’s climate change efforts through green policy and energy costs – roughly what the company is currently losing each week.

With the UK’s steel industry being choked of demand by low-cost imports, an attempt to galvanise the manufacturing industry – worth £52bn to the UK economy – by scapegoating energy and electricity prices could therefore have an effect akin to saving a sinking ship by chucking buckets of water overboard.

Scrap the carbon price floor

So how can the steel industry rise from its own ashes? Javid has already held talks with metals group Liberty House in an attempt to find a buyer. As the leading candidate to purchase the facilities from Tata Steel, Liberty House has said it wants to incentivise low-carbon technologies in order to strengthen the resilience of the sector.

Founder Sanjeev Gupta is reportedly looking to electrify the facility through its furnace-based operations. While this approach would drastically cut carbon emissions, and reduce expensive compliance with EU emissions trading scheme costs – which provide allowances for current carbon emissions – the longevity and financial costs associated with the approach could be amplified through the UK’s carbon price floor.

Introduced in 2013, the carbon price floor was designed to set a minimum price, related to emissions from fossil fuels, which would rise annually and encourage manufacturers to switch to greener fuels. The floor rose from £9.54 to £18.08 last year and, although the Government has agreed to freeze the price up until at least 2020, it is still a far cry from the European valuation of £4 per tonne of carbon.

Scottish Conservative Ian Duncan has this week called for the carbon floor to be scrapped, a sentiment that has been echoed by EEF, the manufacturers organisation. Speaking exclusively with edie ahead of her appearance at next month’s edie Live conference, EEF’s head of climate, energy and environment policy Claire Jakobsson said that removing the floor would create a ‘level playing field’ for the industry.

“Sparking a change in this is a slow process and if the pricing was removed it would relinquish a whole layer of exposure and pressure on the industry,” Jakobsson said. “But the treasury gets around £1bn from the initiative and this would have to be made up elsewhere if it were scrapped.”

Ignite a resource revolution

One month before of the historic Paris climate talks, a 130-page report was released calling on governments and big businesses to revamp energy efficiency policies and embed a sustainability mind-set.

The Industrial Evolution: Making British Manufacturing Sustainable report outlined 24 recommendations to drive this change. Among the outlines, provision of low-interest loans (repaid through subsequent savings from efficiency gains), tax credits and carbon reduction schemes; encouraging resilience investment, and decreasing the knowledge gap in energy and resource efficiency proved to be the most achievable.

The report called for the establishment of an Office for Resource Management within BIS; and under ‘system redesign’, it reiterated the need for new standards for remanufactured products, and the utilisation of private-sector procurement to provide a market for such products.

Aside from green policy changes, there could be more innovative, sustainably-focussed ways to rejuvenate the steel sector. Speaking on BBC Radio 4’s Today programme, Liberty House’s Gupta claimed that replacing furnaces to arch-based ones would enable the facility to recycle scrap steel instead of importing raw materials.

“The main problem we see is the blast furnace, because they are importing all their own materials,” Gupta said. “It will take years to make this transition from blast furnaces to arc furnaces, but there has to be a long-term plan.”

Move towards Zero-emissions production

Another potentially innovative green solution for the industry to consider could be found in Sweden, where energy company Vattenfall has just teamed up with manufacturers SSAB and LKAB to create a steel production process that emits water rather than carbon dioxide.

By combining fossil-free electricity with coke plants and blast furnaces, Vattenfall believes it can produce steel that only emits water as a result. The project, set to be developed over the next 25 years, will require major contributions from the state, research institutions and universities.

“It is very pleasing to take part in an initiative to secure the future of one of Sweden’s important branches of industry by using carbon-dioxide-free electricity to replace fossil fuel in steel production,” Vattenfall’s president Magnus Hall said.

“This is the start of a highly interesting, climate-friendly development project that benefits our partners, Vattenfall and not least the climate.”

Matt Mace

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