By the end of this year, both blast furnaces at Port Talbot steelworks are expected to shut down, and an electric furnace installed. Considerations around the United Kingdom’s (UK) path to Net Zero have informed this decision, as has the fact that Tata Steel – the Indian multinational which owns the Port Talbot plant – is running at a loss in South Wales. This decision will have several implications for Britain, not least the local economy of Port Talbot, but also the UK’s productivity overall and international position. What are these implications? The Council on Geostrategy asks seven experts in today’s Big Ask.
Julia Attwood, BloombergNEF
From a climate perspective alone, closing the Port Talbot blast furnaces is a good thing. Producing virgin steel from coal-fired blast furnaces emits roughly 2.2 metric tons of carbon dioxide (CO2) per ton of steel. With a capacity of five million tons of steel, this amounts to up to 11 million tons of CO2 per year, almost 3% of the UK’s total emissions.
As the global steel industry decarbonises, the majority of production will eventually switch to electric furnaces. An electric arc furnace (EAF) producing recycled steel emits 0.3 tons of CO2 per ton of steel, depending on the electricity source, cutting emissions by more than 85%. Any blast furnaces which are left will need to be fitted with carbon capture systems and store their CO2. This is an expensive option which could raise the cost of steel by 40 to 50%.
Demand for green steel from the private sector is increasing and governments are upping the pressure to decarbonise in the form of carbon prices and the European Union’s carbon border tariff. In response, steelmakers in Europe, the People’s Republic of China and the Americas are announcing green steel projects, mostly focused on hydrogen and scrap-based production with electric furnaces. This low-emissions steel can carry a premium, but is currently in short supply.
Lowering emissions can also come with cost savings. With an effective carbon price, producing steel with an EAF could be 24% cheaper than a blast furnace in the long-run. Without carbon prices, costs could be roughly 4% higher, but there would be a greater ability to respond to demand signals. Blast furnaces must be run almost constantly, whereas electric furnaces can ramp up and down.
By maintaining high-emitting blast furnaces, the UK risks not only falling behind on its climate commitments, but also on the opportunities in a growing green steel market.
Anoosh Chakelian, New Statesman
The implications of closing the two blast furnaces at Port Talbot steelworks for the local and wider South Wales economy are profound. While 2,800 jobs will be lost according to the plans, this figure does not account for the contractors and companies which rely hugely on the steelworks for business and the surrounding service industry.
When I visited recently, I was told workers would do the big family shop at the nearby Tesco Superstore in town on payday, and that even just the announcement of hollowing out the workforce was already affecting some local businesses – including a food van whose proprietor had noticed her regulars were no longer spending in order to save money in the face of uncertainty. In fact, one long-time worker at the steel plant whose job would be lost calculated that the wider job losses could add up to 10,000. This will pile pressure on public services – mental health, housing, social and domestic violence services are likely to see increased demand.
Beyond the local implications, Britain would become the only major economy not to produce its own steel – a potential problem both in terms of economic and national security, but also for the drive towards Net Zero. If greening industry results both in haemorrhaging jobs and sovereign manufacturing capability then public buy-in for the green transition will be harder to court.
Caitlin Prowle, GMB Union
The closure of blast furnaces, and the 2,800 jobs that will be lost, will have devastating consequences not only for a town that has had steel-making at its heart for generations, but also for the future of steel and its place in our economy.
If blast furnaces close at both Port Talbot and Scunthorpe, the UK will be left as the only economy in the G20 without the capability to make virgin steel. This means that for infrastructure projects including our defence and transport manufacturing supply chains, steel, often of a lower quality, will have to be imported from abroad. For a country that was once a world leader in steel, recording steel surpluses of hundreds of millions, we will have fallen so far.
Unions and workers agree that we need to transition to cleaner, greener steel, but Tata’s plan, supported by the current government, reeks of hypocrisy. The steel imported from India to the UK during the years-long transition to EAF will have a higher carbon content than steel currently made in Port Talbot, and that is before adding the emissions that will come from shipping that steel halfway across the world.
There is still time for Tata Steel to change their plans, keep a blast furnace open and save thousands of jobs in line with the costed, sensible multi-union plan.
Steel in the UK does not need to be a dying industry. It could and should be thriving and growing, providing jobs for communities like Port Talbot for generations to come. It will need investment and political will to survive, but above all an acknowledgement and understanding that we continue to need the UK making steel.
Ben Ramanauskas, Oxford University
If the steelworks at Port Talbot were to stop completely then the economic impact on the local area would be devastating due to the number of jobs lost. This would not just include jobs at the steelworks, but also the many other jobs which are supported by the works in the town. Moreover, given that jobs in advanced manufacturing do tend to be more productive than jobs in many other sectors, this could exacerbate the UK’s already sluggish productivity growth.
There would no doubt be wider economic implications. These jobs would be lost not as a result of the workers, company, or industry being unproductive, but rather due to high energy costs and unfair competition from abroad. This would lead to anger and disillusionment with both environmental causes and international trade. Given that the push towards Net Zero does have the potential to create jobs and boost growth, and the fact that international trade supports countless jobs and is a key driver of economic growth, anything which undermines them should be avoided.
Mann Virdee, Council on Geostrategy
The UK was once the world’s largest producer of steel. The towers and chimneys of steelworks are central to Britain’s industrial heritage and to the identities of towns such as Scunthorpe and Port Talbot. These towns have employed generations of local workers, and the closure of blast furnaces there is estimated to cost some 5,000 jobs.
Although the UK will be the first major economy without the capability to make new steel from iron ore, this may not be the blow it is reported to be.
Britain will instead rely on recycled steel, which is significantly more energy efficient and has a far lower carbon footprint. Production of steel through recycling requires about 10 times less energy than is required to produce steel from iron ore. EAFs are currently estimated to be able to produce about 90% of the grades of steel a blast furnace can. Scientists are working on ways to improve the quality of recycled steel, and the addition of an iron source, such as direct reduced iron, should allow the UK to produce the highest qualities of steel for demanding applications.
EAFs may increase the UK’s resilience by ensuring that Britain is not so reliant on imports of iron ore and coal. The UK has an abundance of scrap metal, much of which is exported currently. This could instead be used in the domestic steel sector through recycling. Indeed, about 90% of the raw materials required to make virgin steel in the blast furnaces at Port Talbot are imported – from countries such as Japan, Brazil, and Australia.
Rian Whitton, Bismarck Analysis
Britain is pursuing two opposing strategies. On the one hand, it seeks to project power far beyond its capacity. Belatedly, it is seeking to rearm, reversing a decade-long deterioration in military equipment and capability. At the same time, it is pursuing a combination of unilateral openness to foreign ownership twinned with a radical reduction in energy consumption, which directly hurts its industrial base.
Indian-owned Tata and Chinese-owned ‘British Steel’ are replacing blast furnaces with EAFs. While most steel qualities can theoretically be made in EAFs, they require significant quality control and post-processing. Today, and for the foreseeable future, higher-strength, low-alloy steel used for cars, trucks, surface vessels, and submarines is overwhelmingly produced with fresh pig iron via blast furnaces. They also require cheap electricity to operate effectively.
Britain already has the highest industrial electricity prices in the developed world, making heavy industry increasingly unviable. Electricity production is constrained by shrinking dispatchable power capacity and a more significant share of intermittent wind power, which is unsuitable for a 24-hour factory operation. With our main steel industry stakeholders being foreign, how long can we expect them to maintain uncompetitive EAFs? British steel production is on the way out.
James Woudhuysen, London South Bank University
Why is deindustrialisation, which many lamented under Margaret Thatcher, now eagerly sought by governments in Europe?
The Port Talbot debacle represents neither government ‘madness’, nor that tired trope of ‘virtue signalling’ – though Tata Steel and His Majesty’s (HM) Government do want to impress their globalist peers in international institutions. What the debacle reveals is that conviction politics, for which Thatcher was famous, is back with a vengeance. While so much of British politics is a boring grey fudge, real zealotry flourishes in the cause of Net Zero.
Tata has said that it will ‘look into’ gas- and hydrogen-based direct reduction of iron at Port Talbot. Without that, though, HM Government appears content for Asia to make virgin steel. In this way, European countries export carbon generation eastward, just as they do with their rubbish. Both kinds of detritus remain intact, but green zeal triumphs.
Port Talbot confirms that the British state’s embrace of Net Zero has become an irreligious jihad – a holy war which will allow thousands of redundancies, but no opposition. Thatcher was famous for saying ‘There Is No Alternative’. Since the United Nations has declared the Earth is burning, it follows that there can be no alternative to all moves to lower carbon emissions.
Ending the excessive release of CO2 ‘by any means necessary’ – an old slogan of the Left – has already damaged European economies, including that of Wales. Next, official conviction will come for democracy itself.
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