Environmental regulation, the cost of energy, ageing equipment, high business rates, Brexit and Covid-19 are just some challenges facing what remains of the steel industry in the UK. The industry, including the Port Talbot steelworks in Wales, still supports thousands of skilled workers and provides a crucial economic, social and cultural contribution. However, the industry must decarbonise if it is to be sustainable in a Net Zero economy. What technological solutions could be used to reduce emissions from the steel making process – a product still critical to manufacturing and infrastructure development in the UK and beyond? Can competitive decarbonisation provide an opportunity to secure the jobs and the economic contribution of the sector? In particular, will an evolving market demand for ‘green steel’ be a route to securing the long term future of the industry, and a lifeline for key regional sites, such as Port Talbot?
The current economic contribution of steel manufacturing in Wales
The steel sector in Wales as a whole employed around 8,000 (largely full time) people in 2019, with an additional estimated 2,000 jobs in sectors such as metal casting, other products of first processing of steel, and manufacture of tubes and structures of steel. The sector in Wales is dominated by Tata Steel operations which are focused on the integrated steel mill at Port Talbot where around 4,100 people are employed. The mill also supports a number of ancillary Tata operations within the Welsh economy.
As well as recognising the number of people employed in the steel sector, it is important to note that they are generally high value, well paid jobs that contribute significantly to the Welsh and UK economy. It is estimated that each full time job in the iron and steel production sector supported 1.8 jobs in other parts of Wales and each £1m of iron and steel output supported a further £0.5m of output elsewhere in the regional economy. Welsh steel products accounted for £4bn of Welsh exports and are also important components of other products manufactured in the UK and exported to the EU and elsewhere. So the economic contribution is clear, but it comes with a carbon cost.
The environmental cost of steel making
The Port Talbot mill is the largest point producer of carbon emissions in Wales and one of the largest producers of territorial CO2 emissions in the UK. The environmental cost of a ‘good year’ in production terms is over 6m tonnes of CO2. Compared to other parts of the UK, industrial production in Wales as a whole is intensive in CO2 emissions, well in excess of CO2 equivalent emissions per capita for England and Scotland. In the current regulatory set up, the companies and nations that produce steel are responsible for the associated emissions, rather than those who buy and utilise the product. Putting the near term challenges aside, if steelmaking in Wales is to continue to deliver the economic and social benefits it does, a long term decarbonisation strategy is needed to bring the industry in line with the UK’s wider Net Zero ambition.
How to decarbonise steel making
Two technological options may be available in considering a decarbonised future for the Welsh industry with Port Talbot at the core. One of these involves decarbonising primary steel producing, using a hydrogen fuel source, rather than coal, and/or the deployment of Carbon Capture and Storage (CCS) to reduce the emissions intensity of current processes. Crucially, this would enable Welsh plants to continue to service markets demanding high quality primary steel. Although the market remains highly competitive, this option would see plants continue to bring value added activity and employment to the Welsh economy largely in line with current levels (although required productivity gains would most likely lead to some reduction in employment). On the other hand, it would require significant levels of new investment to adapt production methods and impact operating costs on an ongoing basis. This is challenging: privately owned plants like those in Wales need to be commercially viable in servicing international markets, and the additional costs involved in decarbonising primary production could make an already struggling plant even less competitive or at worst unfeasible.
A second option, which would shift from primary production of high quality steel to producing secondary (or recycled) steel using electric arc furnaces is another route to regional production of ‘low carbon’ steel. However, this relies on a secure supply of scrap steel, and, if it is to be genuinely ‘green’, reliable sources of renewable electricity. Moreover, largely due to the lower quality of steel produced, this option would likely see falling output and therefore a reduction in overall economic activity and employment compared with current steelmaking operations in Wales.
Supporting low carbon steel production in the UK
The situation in Wales is a clear illustration of both the near term and long term challenge of supporting heavy industry in the UK and developing an industrial strategy that aligns with mid-century climate targets. As the UK Government sets out its plans to meet Net Zero in the coming months, particularly as our demand for a range of manufactured outputs remains intractable, having a plan for industrial processes like steel making will be essential.
A key question is whether strategic public investment could be used to support the transition towards low carbon steel making in the UK, particularly in the near term, when the sector faces some critical challenges? Such action could ensure that the UK meets climate targets without closing plants in the UK, forcing a further reliance on steel imports from countries with less stringent climate targets and regulation. It is clear that the ‘offshoring’ of emissions, investment and jobs implied by the latter would not be a good outcome for global climate and sustainability ambitions.
Acting now to secure the future of plants in the UK is likely to be key in ensuring their continued economic contribution and could be a strategic move that leads to long term benefits. As well as showing leadership at a global scale, decarbonising steelmaking in the UK could see the UK being a first mover in what could be a growing global market for low carbon steel. As nations, regions, cities and companies declare ambitions to meet Net Zero and the focus on the embodied carbon increases, the UK could lead the way in producing ‘green steel’. Such a move could be important as a range of ‘green markets’ emerge: for example, UK production of green steel could be used at home and abroad to service growing renewables manufacturing requirements and the production of electric vehicles, not least as demand in the UK for both continues to rise.
In short, the emissions intensive industries of the UK sit at a crossroads. Decisions made in the next year, in the run up to the COP 26 Conference in Glasgow, could be key to securing regional and national economic activity, developing a clear strategy for reducing emissions at home and showing global climate leadership at a critical time. Bold governance will be needed to ensure we take the right turn.
This blog is based on a recently published policy brief authored by Professor Max Munday, Director of Welsh Economy Research Unit at the Cardiff Business School and Professor Karen Turner, Director of the Centre for Energy Policy at the University of Strathclyde. The brief is available here.