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What is the Future for British Steel?

Pressures of decarbonisation and evolving international markets could lead to a significant slump in its competitiveness, writes Thomas Perrett

An apprentice Welder at Work at British Steel. Photo: Steve Morgan/Alamy

What is the Future for British Steel?

Pressures of decarbonisation and evolving international markets could lead to a significant slump in its competitiveness, writes Thomas Perrett

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Britain’s steel industry has become increasingly dependent on government support amid the pressures of decarbonisation and its lack of competitiveness on the global market. 

British Steel’s Chinese owner, Jingye, has entered into negotiations with the Government for a £300 million support package, with the firm recently announcing the closure of its coking ovens in Scunthorpe, which is expected to lead to the loss of 260 jobs. 

A Jingye spokesperson told BBC News that British Steel faced “significant challenges because of the economic slowdown, rising inflation and exceptionally high energy prices”.

The Government is set to hold a consultation outlining measures to help carbon-intensive steel firms cope with soaring energy costs. These will include reducing the charges that firms pay for electricity, cutting the cost of electricity generation, and increasing exemptions on the costs of renewables.

However, the crisis faced by the steel industry is the result of its failure to keep pace with the demands of international markets. According to a recent study published by the Energy and Climate Intelligence Unit, Britain has just one planned project for decarbonised steel, compared with 38 in the rest of the EU.

Export markets for carbon-intensive steel are expected to decline further, as international climate obligations and the development of electric vehicles limit the demand for fossil fuels.

The International Energy Agency has already warned that no new fossil fuel infrastructure is compatible with the 1.5°C global warming limit, and government advisory body the Climate Change Committee stated in its response to the Government’s approval of the controversial Cumbria coal mine that “coking coal use in steel-making could be displaced completely by 2035, using a combination of hydrogen direct reduction and electric arc furnace technology”. 

Indeed, the EU’s ‘Fit for 55’ Plan, which involves reducing carbon emissions by 55% by 2030, combined with its Carbon Border Adjustment Mechanism – which aims to “put a fair price on the carbon emitted during the production of carbon intensive goods that are entering the EU, and to encourage cleaner industrial production in non-EU countries” – may place strict limitations on the export opportunities for carbon-intensive steel.

According to environmental NGO Friends of the Earth, “the market for coking coal in the EU will decline significantly by the end of the decade. And if, as seems likely, the trend of current developments continues, the market will decline further by the mid-2030s”.

Green Hydrogen is No Panacea

Environmental NGOs and think tanks have called for the British steel industry to decarbonise in the face of existential threats to its future.

Non-profit organisation The Climate Group has urged the Government to capitalise on the “clear demand for responsibly produced steel in the UK”, arguing that “the UK Government can walk in the fresh footsteps of the Swedish government and become a front runner in net zero steel production”.

Methods of accomplishing this, however, have been widely disputed.

The website Carbon Brief has argued that there remains “uncertainty over how much low-carbon hydrogen will cost to make in the future and how easy it will be to successfully deploy the fuel at scale, across multiple sectors of the economy” because “the volume required to satisfy all the possible applications for low-carbon hydrogen would likely far exceed the amount available, even if production is significantly scaled up”.

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‘Green’ Hydrogen – created using electricity from renewable energy sources – is not expected to emerge as a viable energy source as of yet. According to Carbon Brief, a report by Aurora Energy Research has found that, owing in part to the high costs of transporting hydrogen, green hydrogen is likely to be “significantly more expensive than blue” in scenarios involving high levels of demand. The expansion of green hydrogen will also likely come at a “negligible extra cost” even if demand is lower, the report stated. 

Robert Howarth, Professor of Ecology and Environmental Biology at Cornell University, has also acknowledged the limitations of relying simply on green hydrogen as a solution to the decarbonisation of industries including steel. He has said that “there may be some small role in truly green hydrogen in a decarbonised future, but this is largely a marketing creation by the oil and gas industry that has been hugely over-hyped” and that “renewable electricity is a scarce resource. Direct electrification and batteries offer so much more, and much more quickly. It’s a huge distraction and waste of resources to even be talking about heating homes and passenger vehicles with hydrogen”.

Electrification has been touted by the Climate Change Committee as the solution to the problems facing British Steel. Dr David Joffe, who sits on the committee, told Carbon Brief that “in our view, you should be looking to electrify wherever you can… Where that’s prohibitively expensive, or where it’s not feasible, that’s the role that you’re looking for hydrogen”.

Yet, even the electrification of British steel is vulnerable to fluctuations in global markets, as high industrial electricity prices have meant that British steel-makers are currently paying 60% more for electricity than those in the EU.

Rethinking Growth

The majority of voices within politics and the industry have proposed replacing moribund fossil fuel technologies with alternative production methods, some of which are still in their infancy and some of which are vulnerable to volatile price shocks.

But such an approach neglects a broader reappraisal of how net zero can be accomplished, which involves re-using products rather than scrapping them and extracting new resources.

Re-using and recycling scrap steel, for instance, could cut emissions from the industry while boosting economic self-sufficiency without the need for reliance on speculative, unreliable technologies.

A 2019 report by Cambridge professor Julian Allwood found that Britain exports 80% of the 10 million tonnes of scrap steel it produces, primarily to Turkey and China. It found that the widespread use of scrap steel could cut emissions from the steel industry by 75%, creating new value for undervalued products and enabling the creation of environmentally sustainable jobs.

Indeed, think tank The Green Alliance described scrap steel as “a critical feedstock in low carbon steelmaking processes”. A 2022 report exploring methods for the decarbonisation of the steel industry, argued that “improving the processing capabilities of the scrap steel sector would have long term advantages… however, the market encourages the export of low quality scrap, rather than processing it to a higher quality for domestic use”.

The pressures of decarbonisation and the demands of evolving international markets have placed a myriad of restrictions on Britain’s steel industry, which if unaddressed could lead to a significant slump in its competitiveness. While alternatives such as the use of renewable energy in steel manufacturing and the electrification of the industry have been proposed by industrial and political commentators, simply replacing one form of technology with another will not address the widespread economic transformation necessary to achieve net zero. 

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