In the hazy gloom of a cavernous building in Tata Steel’s sprawling Port Talbot complex in south Wales, molten iron gushes from one of the site’s two blast furnaces.
The scene that has been at the heart of the steelmaking process here for decades is now under threat as the industry tries to cut carbon emissions. Dean Cartwright, operations manager for coke, sinter and iron, who has been at the plant for 24 years, said locals still wanted to work for the area’s largest employer but were increasingly aware he faced a serious challenge.
“There is a lot of talk about decarbonization. People automatically think I’ll still have a job,” Cartwright said.
Tata is considering the hugely costly conversion of Port Talbot – the UK’s largest steelworks – to a greener way of making steel, a transformation the company said would require government support.
You are not alone. Tata Steel UK, a subsidiary of the Indian conglomerate that owns Port Talbot, and China’s Jingye, owner of British Steel, the UK’s second largest producer in Scunthorpe in Lincolnshire, are both in talks with the government for financial support. They have warned that without taxpayer help they could be forced to shut down their operations, leaving the UK as the only major economy without primary or virgin steel production.
The companies, which together operate Britain’s last four blast furnaces, aim to help defray the huge costs of switching from traditional, energy-intensive steelmaking to greener alternatives to reduce their carbon emissions. Analysts have estimated that just decarbonising Port Talbot would cost around £2bn. Jingye has also asked for short-term help to help his company through the recent surge in energy and carbon prices.
More than 4,000 jobs are at stake in Port Talbot and another 4,000 at British Steel, most of them in Scunthorpe, with thousands more at risk in the supply chain.
Industry leaders have warned of wider implications if steel mills close: without low-carbon domestic steel, the UK would not have its own source of a basic material needed to reduce emissions in other sectors such as construction.
Port Talbot produces 3.6 million tonnes of steel annually, serving key sectors including the automotive and construction industries. Industry accounts for just 0.1 per cent of Britain’s total economic output, but provides high quality manufacturing jobs with wages above the national average.
“It’s not just about decarbonising steel,” said Rajesh Nair, chief operating officer at Tata Steel UK, who declined to comment on the talks with the government. “It’s a story that should be on the table as a country and as an economy: How do we want to move the economy forward in the future? Decarbonize other industries. . . You need to decarbonize the steel industry,” he added.
The steel sector is Britain’s biggest industrial emitter of carbon dioxide and the Climate Change Committee, the government’s independent advisory group, has said emissions need to be “close to zero” by 2035 if the government is to deliver on its net-zero pledge by then to be reached in 2050.
Alongside state aid, leaders are urging political certainty during the transition, as well as clarity on future supply of affordable green electricity and green hydrogen before investing. Union officials point to the significant support pledged by other European governments such as Germany and France.
Gareth Stace, Director General of UK Steel trade body said: “Cheap electricity for steel sites, reform of our carbon pricing system. . . and targeted promotion of capital investments in the new forms of steel production” were among the political interventions needed to put the industry on a sustainable footing.
But ministers face a difficult choice, said Chris McDonald of the Materials Processing Institute, an industry research group. “If they say no and shut down the blast furnaces, Britain will be the only modern economy without its own steelmaking industry.”
“If they say yes, will the money be used to prop up those blast furnaces when the money should be spent on a green transition? The option of letting the steel industry hit the wall is not an option,” he added.
Critics of direct intervention point out that Tata Steel UK had a pre-tax profit of £82m in the 12 months to the end of March. But industry analysts said the gain was the company’s first in 13 years and was driven by record global steel prices, which have since fallen.
Tata Steel CEO TV Narendran warned that time is running out to make the company sustainable amid high energy prices. Helping Port Talbot transition to alternative technologies and remain viable would require “significant investment and political support from the government,” he said. An agreement on support has become more urgent as Tata Steel UK faces “significant challenges from high energy costs”, he added.
British Steel declined to comment but confirmed it was in talks with the government to “address the global challenges we are currently facing”. The company met twice last month with Jacob Rees-Mogg, the former business secretary who has since been replaced by Grant Shapps.
In a statement, the Government said it “recognises the crucial role that the steel industry plays in all aspects of the UK economy”, adding that its support for the sector’s low-carbon transition will mean access to more than £1bn of low-carbon infrastructure as well as research and development.
Although Tata has invested in energy efficiency measures in Port Talbot, neither the Indian group nor Jingye have publicly committed to a specific decarbonization path. Options range from capturing and storing emissions from existing operations, to increasing the use of electric arc furnaces to melt down scrap steel, to using hydrogen or natural gas instead of coking coal to extract iron from iron ore.
However, all methods have challenges. Steel produced in electric arc furnaces, which is used by some of the UK’s smaller manufacturers including Celsa and Liberty Steel, cannot be used for some important applications. Job losses would be inevitable, especially since plants such as coke ovens would disappear.
Experts said the route that would allow for a more gradual transition would be to use natural gas or hydrogen instead of coke – to make so-called direct reduced iron. DRI is compatible with both blast furnaces and electric arc furnaces.
If the UK is to reach its net-zero target, both companies need to be able to take a decision soon to protect thousands of high-skilled jobs for the next generation of steelworkers. “Once you’re in, it’s a fantastic place to work,” Cartwright said.
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https://www.ft.com/content/9ab6827e-82a5-4262-9d15-9d971baf40cb UK steel industry warns it needs state aid to survive green transition