Opposition Day debate: protecting steel in the UK

Brigid Francis-Devine; Ilze Jozepa

An Opposition Day debate in the name of the Leader of the Opposition is scheduled for 23 January 2024 on the following topic:

Protecting steel in the UK

The full text of the motion as printed in the Order Paper is as follows:

“That this House recognises the need to decarbonise steel production; appreciates the pride that local communities have in their historic steelworks; regrets that the Government has pushed through plans for decarbonising steel in the UK which will result in thousands of steelworkers losing their jobs and risk leaving the UK as the first developed country in the world without the capacity to produce primary steel; further regrets that the Government has failed to produce an industrial strategy which could have included a plan for the whole steel sector; believes that primary steel is a sovereign capability and is therefore concerned about the impact that the Government’s plans could have on national security; also believes that steel production can have a bright future in the UK; therefore calls on the Government to work with industry and workers to achieve a transition that secures jobs and primary steelmaking for decades to come; and further calls on the Secretary of State for Business and Trade to report to Parliament by 27 February 2024 with an assessment of the impact on the UK of the loss of primary steel production capabilities.”

Tata Steel announces redundancies

On 18 January 2024 Tata Steel UK announced it will cut 2,800 jobs across the UK as part of its transition to a greener production of steel. Most jobs will disappear in Tata’s Port Talbot plant in South Wales.

Tata Steel is readying to close its two blast furnaces at the Port Talbot plant by the end of 2024. The company will replace them with one electric arc furnace, which produces less CO2 but is less labour-intensive to operate. The Financial Times reports the decision was made after the company rejected union proposals for a more gradual transition to decarbonisation, which included keeping one blast furnace in operation till 2032.

The announcement is part of Tata Steel’s four-year plan to restructure lossmaking operations and make its steel production in the UK less carbon intensive. According to the Government, Port Talbot plant is currently the UK’s largest single industrial carbon emitter.

Green steel

Greenhouse gas emissions from the iron and steel industry make up 14% of industrial emissions in the UK, which is around 2% of the total UK emissions. Decarbonisation of the steel industry is needed if the UK is to meet its target of net zero Green House Gas (GHG) emissions by 2050.

Green steel refers to steel which is produced with low (near-zero) CO2 emissions. Conventional steelmaking involves producing primary virgin steel from iron ore using a blast furnace.

Steel can also be produced using an electric arc furnace (EAF) that uses electricity to melt and recycle scrap steel. Up to 100% scrap steel can be used in an EAF. CO2 emissions from an EAF depend primarily on the carbon intensity of the electricity used but can be over 80% lower than the conventional process.

The UK has two sites which are using conventional blast furnace technology, in Scunthorpe and Port Talbot. Together they produce 5.9 million tonnes of steel per year (82% of UK steel production). UK imports most of its virgin steel.

For further information see Parliamentary Office of Science and Technology, Green Steel, 23 May 2022

Employment in the UK steel industry

33,500 employees worked in the steel industry in Great Britain in 2022. This is 5,000 less than in 2021 and amounts to 0.1% of employees. Employment is unevenly distributed across the country, as the following chart shows. A half of all steel industry employees (16,600, 50.4%) work in Yorkshire and Humberside, and Wales.

Tata Steel employs 8,000 people across the UK.

Source: ONS, Business Register and Employment Survey 2022, via NOMIS database

Government support to the steel industry

In December 2023, the Government finalised a plan to provide Tata Steel with a grant of £500 million exclusively for decarbonisation of its steel production at Port Talbot. This grant is part of a larger potential capital investment by Tata Steel totalling £1.25 billion. The grant proposal is currently being evaluated by the Subsidy Advice Unit (SAU) of the Competition and Markets Authority. The SAU is planning to publish a report on the grant’s compliance with the subsidy control requirements on 6 February 2024.

The Government is also in negotiations with British Steel about a £300 million support package for the decarbonisation of its steel plant in Scunthorpe, writes the BBC.

In 2020 the Government provided a loan of £30 million to Celsa Steel UK. The loan has now been repaid in full.

In addition to the above direct support, the Government says it has:

provided the steel sector with £730 million in energy costs relief since 2013;
announced the British Industry Supercharger, a set of measures to bring energy costs incurred by energy-intensive industries including steel “in line with the world’s major economies”;
invited the industry to bid for various funds to support energy efficiency and decarbonisation;
updated the Steel Procurement Policy Note to create a level playing field for UK steel producers through government procurement;
implemented a trade remedies framework to protect domestic steel industry from a surge in imports;

Sources: Commons debate on 30 November 2023, cc1051-1052, and PQ 191236 [Iron and Steel: Manufacturing Industries] 29 June 2023

EU support for decarbonisation of the steel industry

European governments are providing significant financial support to steel producers for various decarbonisation projects.

For example, in 2022/23 the German Government provided €2.6 billion in state aid to Stahl-Holding-Saar. It also gave ThyssenKrupp Steel Europe a €550 million grant for a decarbonisation project alongside a conditional payment mechanism reaching up to €1.45 billion. Germany also supported projects of steel production using hydrogen, for example by a €1 billion direct grant to Salzgitter Flachstahl.

The French Government awarded a direct grant of €850 million to ArcelorMittal plant in Dunkerque to partially decarbonise steel production. The Spanish Government awarded a €460 million grant for a partial decarbonisation of the ArcelorMittal plant in Gijón and pledged €550 million of rescue funding to Celsa Spain.

Steelonthenet.com, a UK-based steel industry news and data website run by a consultancy company, provides a list of further examples of state aid to steel producers from across Europe.

These grants are bound by EU state aid rules and generally require an approval of the European Commission. The Commission’s State aid database contains details of most state aid measures supporting EU steel industry.