How UK steel can rise from the ashes: Climate levies set to raise £9bn for Treasury under scrutiny

Green Levies Impacting UK Steel Sector Under Review Following Government Intervention

The future of green taxes, which are seen as a burden on the steel industry, is being reconsidered by the government after it stepped in to rescue blast furnaces in Scunthorpe. Ministers are examining the financial levies imposed on the steel sector amid concerns that these environmental charges are hindering the competitiveness of UK steel producers. This scrutiny follows the Business Secretary’s intervention to take control of British Steel from its Chinese owners, Jingye, highlighting the delicate balance between environmental policy and safeguarding crucial industries like domestic steel production.

Government Considers Easing Green Tax Burden on Steelmakers

The Business Secretary indicated to The Mail on Sunday that climate change levies are being actively reviewed after the government’s recent move to temporarily nationalize British Steel. Jonathan Reynolds, when questioned about potential revisions to green levies, acknowledged the need to assess the financial impact. He raised concerns about the practicality of government funds being redirected within state-controlled sectors, suggesting a potential inefficiency in the current system. ‘Is it sensible to take money from one bit under state control and give it to another bit of Government? We’ll have to look at that and address that in the coming days,’ Reynolds stated.

Balancing Decarbonisation with Industrial Needs

Reynolds emphasized that while the levies serve a valid purpose – encouraging businesses to invest in ‘cleaner, more efficient technology’ – the current approach requires reassessment. He cautioned against policies that inadvertently lead to the decline of the steel industry in the pursuit of decarbonisation. ‘Decarbonisation can’t be deindustrialisation,’ he asserted, highlighting the need for a balanced strategy that supports both environmental goals and industrial strength.

Industry Competitiveness Concerns

Reynolds pointed out that the UK steel sector currently lacks the necessary ‘competitive platform’. He stressed the urgency for improvement, stating, ‘It’s got to be better. That’s the basis of the industrial strategy I’ve been working on.’ This acknowledgment underscores the government’s recognition of the challenges faced by the UK steel industry in a global market.

Industry Leaders Welcome Potential Levy Reduction

Any government action to reduce or eliminate the climate change levy would be favorably received by prominent figures within the steel industry. These levies have significantly increased financial pressures on steel firms in recent years.

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Rising Carbon Costs

Currently, companies are charged £18 for each ton of carbon dioxide emissions, a substantial increase from levels a decade prior when the levy was nearly four times lower. This escalating cost has become a major concern for energy-intensive industries like steel manufacturing.

Steel Industry Expert Criticizes “Barmy” Green Levies

Sir Andrew Cook, a respected voice in the steel sector and head of William Cook, the UK’s largest steel castings firm, described the levy as ‘barmy’. He argued that it represents ‘taxing a necessity’, thereby increasing costs for UK producers and placing them at a disadvantage compared to steelmakers in rival nations.

Call for Strategic Industry Support

Sir Andrew likened the steel industry to a ‘three-legged stool’, suggesting it is vulnerable and requires comprehensive support. He emphasized the critical role of blast furnaces in primary steel production, alongside measures to bolster UK manufacturing and combat unfair competition, particularly from China. ‘Without them, I don’t think you can ever put the industry on a long-term footing,’ he warned, stressing the need for a holistic approach to sustain the sector.

Manifesto for Steel Industry Revitalization

Carbon Capture as an Alternative to Green Taxes

To promote greener steel production, Sir Andrew advocated for investment in carbon capture technology, which is still in the developmental stage, as a more effective alternative to green taxes.

UK as a Carbon Capture Test Bed

He proposed, ‘If Britain wants to lead in some green move, let’s apply carbon capture to these blast furnaces. It would be a perfect test bed.’ This suggests a potential pathway for the UK to spearhead green innovation in steelmaking while maintaining production capacity.

Historical Factors Contributing to Steel Crisis

Sir Andrew believes that the roots of the current challenges in the steel industry trace back to decisions made by previous governments. He criticized the policies of George Osborne and David Cameron, particularly their engagement with China, stating, ‘It goes right back to George Osborne and David Cameron feting President Xi. It was staring anyone in the face who chose to look, that China was bent on securing the domination of world trade.’ He further criticized the Boris Johnson government’s approval of Jingye’s acquisition of British Steel in 2019, calling them ‘reckless decisions made oblivious to reality’.

Challenges of Blast Furnaces and Electric Arc Furnaces

Blast furnaces, essential for producing virgin steel, rely on coking coal as fuel. Electric arc furnaces, while a greener alternative, are highly susceptible to fluctuations in power prices, which are a major concern in the UK.

High UK Energy Costs

Government figures from 2023 indicate that electricity prices for large UK industrial firms are significantly higher, by 63 percent, compared to those in the EU. This energy cost disparity puts UK steelmakers at a considerable disadvantage.

Potential Profitability with Fair Market Conditions

‘If dumped steel is excluded from UK markets, the industry is potentially profitable. Some reduction in energy prices, which are controlled by Government, would be very helpful too,’ Sir Andrew commented. He also referenced ArcelorMittal’s Lakshmi Mittal, suggesting, ‘But you can make money from making steel. Mittal certainly knows how,’ indicating that profitability is achievable with the right market conditions and government support.

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Strategic Procurement Policies Advocated

‘Do not regard spending British taxpayers’ money on UK steel products as a subsidy. It is simply a wise and fair purchasing policy, for the benefit of the taxpayer and the nation’s wider economy,’ Sir Andrew asserted. This highlights the potential economic benefits of prioritizing domestically produced steel in government procurement projects.

Leveling the Competitive Playing Field

Reynolds echoed these concerns, stating, ‘That is a significant reason why a lot of British industry feels they are in a less competitive situation and something we’re really sensitive to.’ This indicates a government awareness of the need to address factors that disadvantage UK industries.

Investment in Electric Arc Furnace Technology

In addition to plans for electric arc furnaces in Scunthorpe, the government has committed £500 million towards one of the world’s largest electric arc furnaces being constructed at Port Talbot, South Wales. This investment signals a move towards modernizing steel production methods in the UK.

Calls for Further Investment in Electric Arc Furnaces

Lord Houchen, Conservative mayor of Tees Valley, supports the development of another electric arc furnace at the former Redcar works in the North-East. The Redcar site offers advantages, including existing electricity infrastructure and planning permissions, making it a potentially viable location for new steelmaking capacity.

Steel Industry: Not a Sunset Sector

Reynolds challenged the notion of steel as a declining industry. He asserted, ‘It’s not coal mining; it’s got this incredible demand and centrality to the economy.’ He highlighted the continued importance of steel in modern economies and its strategic relevance.

UK Steel Sector Size Discrepancy

‘Across most G7/G20 countries, the size of their steel sector domestically is broadly comparable to the size of their economies,’ Reynolds noted. ‘The only outlier is the UK,’ highlighting the relatively undersized UK steel industry compared to its economic peers, suggesting potential for growth and expansion.

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