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Ross Clark: Perverse climate levies are threatening Britain’s steel industry

Ross Clark, Daily Express

The Government faces its first real test of just how committed it is to “levelling up” the country. The future of Liberty Steel – with 12 UK plants and 3,000 workers – hangs in the balance.

Eighteen months ago, the Tories were re-elected thanks to what would have been unthinkable in Mrs Thatcher’s day: winning a substantial number of seats in Britain’s forgotten industrial heartlands.

Now, the Government faces its first real test of just how committed it is to “levelling up” the country. The future of Liberty Steel – with 12 UK plants and 3,000 workers – hangs in the balance. The Government must now choose: will it step in to save the business or will it stand by and let another large chunk of British industry go to the wall?

If you think you have heard about steel plants in trouble before, you could be forgiven for a sense of déjà vu.

The UK steel industry has been through repeated crises over the past four decades.

Some of the same plants under threat now were nearly closed five years ago, when Sanjeev Gupta’s Liberty group took them over from Tata Steel.

The Government shouldn’t always step in to save troubled industries. Few would want a return to the 1970s when governments of both colours would prop up or nationalise hopelessly inefficient factories brought low by poor managers and militant unions.

It’s not sensible for the UK steel industry to try to compete with every mass producer of steel in the world – without wages at South Asian levels.

Yet Britain can be very competitive when it comes to producing higher-value, speciality steels. The trouble is that two of the main customers – the oil and aerospace industries – have been badly hit by the Covid crisis, leaving a huge hole in producers’ order books.

Good, efficient plants modernised to minimise pollution, are at risk thanks to short-term market movements.

The other problem is that for years the UK steel industry – along with other energy-intensive industries – has fallen foul of climate policies which, while well-intentioned, have had deeply perverse results.

The EU’s emissions trading scheme, for example, could not have been better designed to export jobs to Asia.

Steel producers were handed some allowances to emit carbon, and forced to buy extra ones if they wanted to expand. They were also allowed to sell unused allowances.

As a result, steel producers had an incentive to close down European operations, flog off the allowances for a profit and shift production to Asia.

But that wasn’t all. As well as being forced to adopt the EU’s carbon trading system, the UK introduced its own, placing yet higher burdens on producers.

In 2018, UK steel makers paid £65 per MWh of electricity, half as much again as in Germany and twice as much as in France. It helped cut UK carbon emissions as heavy industries left our shores – but globally achieved nothing as overseas firms ramped up their emissions to make steel to export to us.

The Cumbrian coal mine is another example of how Government policy fails to support our steel industry. Quite rightly, Britain is phasing out coal-fired power stations, yet none of Cumbria’s coal is for that purpose. It is coking coal for the steel industry – which will otherwise have to be imported at higher cost.

Government ministers seem to think this doesn’t matter because steelworks could all do what Liberty Steel has done and produce steel using electric arc furnaces rather than blast furnaces. Yet the former can only be used for turning scrap metal into new metal, not for the whole process of making steel from iron ore.

While we should – and always have – recycled scrap metal, an expanding global economy cannot feed itself on recycled steel alone – not, for example, with wind turbines going up at the speed they are.

While we might be able to make steel without coal in future, it is not commercially possible at present. Yet the Government has given in to environmental activists who fail to understand this vital point.

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