It really could be the last throw of the dice for Britain’s largest steelmaker, which is currently in talks with the UK Government over major financial support to help it decarbonise.
Tata Steel UK, which owns and operates Port Talbot steelworks, reportedly needs £3bn in capital expenditure, as well as support with energy costs and carbon taxes, to transition to greener methods of steelmaking and reduce its carbon emissions at the south Wales plant.
It has asked the UK Government to provide £1.5bn, though the current offer from Westminster reportedly stands at £300m – 5% of what the firm needs.
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The offer is no more than a sticking plaster, and would leave little left to invest in ageing machinery further along Port Talbot’s production line that are vital to producing high-quality steel needed for future infrastructure and buildings to the benefit of the UK economy.
Not to mention that Tata Steel – along with others in the steel industry – are looking at transitioning to green steelmaking on a scale we’ve never before seen. When you take that into account alongside their high energy and grid connection costs, it becomes a huge risk to undertake. Therefore, transitioning to greener steelmaking needs huge levels of co-investment.
This is evidenced by the fact that every other major project of steel decarbonisation, particularly in Europe, is looking at billions in government investment. German steelmaker Salzgitter secured €1bn (£866m) from the German government to support its decarbonisation efforts.
Tata Group chairman Natarajan Chandrasekaran has warned that the site would be forced to close if financial aid was not forthcoming, leaving the steelworks at risk of disappearing from Port Talbot entirely unless a plan to secure its future is put in place.
Negotiations are still ongoing between the UK Government and Tata, though there has been little sign of these talks reaching a conclusion. The plant employs around 4,000 people, with 8,000 in total across the UK in downstream businesses including at Shotton and Trostre. To lose that would be devastating for Port Talbot and the businesses that rely on it, not to mention a huge loss for the Welsh and UK economies. So the fact that the UK Government still hasn’t confirmed whether or not it will financially support Tata’s efforts to decarbonise is of concern.
The Welsh Government can provide a certain level of support to the steelworks, but the big investment needed lies with Westminster. It’s absolutely critical to both Wales and the UK’s long-term interests that we keep steel manufacturing, which is why the Westminster government needs to view this deal as not just an investment in a company, but an investment in the country. A domestic steel industry is vital for our national and energy security, reaching our net zero ambitions, and providing well-paid jobs in Wales.
“If it’s not made from steel, it’s made by steel,” said one worker at Port Talbot. Electric cars, radiators and Heinz baked beans are just some of the uses of Tata’s steel. But for the UK to reach net zero it will also be needed for renewable energy, sustainable buildings, infrastructure schemes for large-scale hydrogen production and distribution, and carbon capture, usage and storage.
Almost every aspect of a country’s decarbonisation plan needs steel which is why every G20 economy around the world has its own sovereign steelmaking capability. The CBI recently said the UK faces a “ticking clock” to grasp the green growth opportunity, with steel very much a part of that.
It seems as though Mr Sunak, whose experience extends to investment banks and hedge funds in London, has no real appetite for policies or investment deals which take action on the industrial challenge faced by the UK to create a true ‘green economy’. Politically, funding for Tata Steel would require long-term planning and a strategy, which may not be on the Conservatives’ radar with a General Election looming.
Labour’s position on the future of the steel industry and building a green economy hasn’t been absolutely clear, either. Labour has rowed back on its pledge to invest £28bn a year in green industries if it came to power as it looks to show that it can be responsible with public finances.
But there’s no getting around the fact that we need steel to achieve our climate goals, and re-industrialising our steel sector as part of net zero could provide the opportunity for serious growth and boost productivity.
Joe Biden is industrialising the US at an unprecedented rate following the Inflation Reduction Act of 2022. The act directs new federal spending toward reducing carbon emissions, domestic manufacturing, R&D and procurement of supplies domestically.
The European Commission also has its own green deal industrial plan to ensure its industries can compete with the US and China in the race towards a green industrial revolution.
Yet, the UK doesn’t seem to be engaging in this race at all. We must establish our position in the race or, at the very least, know if we are taking part or not.
Geopolitically, Russia’s invasion of Ukraine has brought the importance of energy security and self-sufficiency back into public discourse. And as relations between the US and China remain strained, does the UK want to be in a position where it is entirely dependent on other countries for our materials and industries?
The UK ending its own steelmaking capabilities would do nothing to reduce Britain’s contribution to climate change but would make us more reliant on cheaper imports and lose our economic value.
Professor Cameron Pleydell-Pearce likened the current state of Britain’s steel industry to what happened to its nuclear sector: “We invested in reactors, testing processes, certification processes, all the capabilities needed for nuclear energy and then we completely divested ourselves from it,” he said.
“We sold some of our greatest bits of IP (intellectual property) and know-how to other countries. Now, we don’t have the supply chain or source of expertise needed to deliver what is a crucial part of the green energy transition around base load for nuclear power.
“If you do that with steel, it doesn’t just impact our energy, it impacts our transport, buildings and roads.”
Now that the UK Government has done a deal with Jaguar Land Rover, which is owned by Tata, to build its flagship car battery factory in Somerset with massive subsidies and energy support, ministers must afford the same generosity to the Port Talbot steel operation. Time is of the essence for the Port Talbot plant, which is the biggest industrial polluter in Wales. One of its two fossil-fuel powered blast furnaces will reach the end of its production life in 2026.
At the same time, Tata Steel estimates that its compliance costs could be £400m per year by 2026 under a realistic worst-case scenario. With these assets coming to an end, the steel giant is at the point where tearing down the blast furnaces would be the more appealing option.
Mr Chandrasekaran spoke of Tata’s preference to replace its blast furnaces with less carbon-intensive electric arc furnaces at the company’s 166th AGM last month. This would effectively see an end to primary steel making from raw materials with steel being made from recycled steel instead, significantly reducing emissions.
The UK is in a relatively positive position in terms of its supply of recycled steel. Of the 10 million tonnes of scrap steel the UK produce we export around eight million tonnes. There is huge potential for the UK to become scrap intensive and self-sufficient in steel production. Before materials, such as iron ore and coke, can be used in the blast furnace to make molten iron, they have to be processed at the sinter plant and coke ovens on site.
This means if the blast furnaces were to be replaced by electric arc furnaces these processes would no longer be needed, meaning that the size of the plant and workforce numbers would dramatically reduce.
No official numbers have been published, but looking at similar plant configurations the workforce could look more like 1,500 under an electric arc furnace. It’s significant, but realistically it would take around five years to build an electric arc furnace and get it connected to the grid before it could begin producing steel.
Port Talbot has an ageing workforce and significant skills gap among those aged between 20 to 40. Given that the retirement age at Tata Steel UK is 55, this transition could be achievable by the time an electric arc furnace is up and running.
The possibility of using steel made in Port Talbot to grow Wales’ own renewable energy supply in floating offshore wind (FLOW) has also been discussed in the last year as a result of plans for a 4GW wind farm in the Celtic Sea. Steel made in Port Talbot, which has the only local deep-water harbour and capacity to manufacture and fabricate steel turbines, could be used to build the foundations and structures needed for the wind turbines off the Welsh coast in partnership with RWE.
If that is realised, that could create a number of new jobs, not to mention those thousands of jobs being promised as a result of Port Talbot achieving freeport status under the Celtic Freeport bid.
It is a gamble investing in the decarbonisation of British steel, but there’s an even greater risk not to make that investment.
