Green policies are not responsible for the Tata steel crisis

By Karl Mathiesen

This article was published by The Guardian

 

Analysis of the figures show Port Talbot may actually have been profiting from efforts to reduce carbon emissions

 

 

There was a slew of comment over the weekend regarding the role that Britain’s carbon reduction efforts played in Tata Steel’s decision to sell off its UK operations.

A Daily Mail editorial called “the crippling green taxes imposed by Ed Miliband’s Climate Change Act in 2008” a “monstrous handicap” that had driven the steelworks and its 5,000 workers over the precipice.

The Spectator’s editorial said “taxes and levies designed to help Britain meet its self-imposed and unilateral carbon-reduction targets, have worsened Tata’s problems in Britain”. These sentiments were repeated by a who’s who of the British climate sceptic commentariat: Dominic Lawson, Christopher Booker andMatt Ridley all sharpened their quills.

In Tata Steel’s press release last week, the company blamed “global oversupply of steel, significant increase in third country exports into Europe, high manufacturing costs, continued weakness in domestic market demand in steel and a volatile currency” for its intention to sell off the Port Talbot steel works. Part of steel’s manufacturing costs is, of course, electricity. Which is how we come to be talking about climate policies.

There is no doubt that the Port Talbot steelworks is a big energy user. According to reports, it uses as much electricity as nearby Swansea and each year the power bill runs to £60m. But in Simon Evans’ excellent Carbon Brief article, he finds electricity to be between 6 and 8% of the plant’s total production costs. Of this, perhaps 2-3% is due to green policy costs. But because the UK compensates energy-intensive industries for about two-thirds of the impact of these levies, the real cost of green levies at Port Talbot is about 1% of production costs.

According to the Guardian’s own analysis, if £60m is 8% of production costs, the total costs are £750m – thus Tata pays about £7.5m a year towards the UK’s climate change efforts. This is roughly the same amount the plant reportedly loses every week.

Little impact does not equate to no impact, and it is true that the UK pays more for its electricity than any other European country. (Although figures from the Department of Energy and Climate Change show the Sun’s Trevor Kavanagh was incorrect when he claimed Britain’s “punitive carbon tax” makes “the energy to produce our steel twice as costly as Germany’s”).

The UK operates a carbon floor price, which it recently doubled and has now frozen until 2020, which does affect the competitiveness of UK industry with its continental competitors. But research from the UK government Committee on Climate Change (CCC) found that this was compensated to a large degree and thus was a small factor in the struggles of the steel industry.

 

Industrial electricity prices in the EU for extra large consumers. Source: Decc

 

The UK Energy Research Centre’s director, Jim Watson, said: “arguments that have been made that ‘green taxes’ are responsible for the current problems of UK steel are exaggerated in my view”.

As to why UK prices are generally higher, Watson explained that past investments and costs of operation were important factors and the UK’s highly privatised energy market was also key.

“The UK still has one of the most liberalised energy markets in the EU. Some other member states such as France, for example, have a very different structure – in France’s case with a dominant state-owned electricity company, which can more easily subsidise prices directly or indirectly,” he said.

Yan Qin, an analyst with Thomson Reuters, said the impact of higher electricity costs on the steel industry was not a crucial factor when compared to the global challenges facing the industry.

“The worsening global market conditions and Chinese dumping surplus steel at record low prices are the main reasons behind the closures in the UK,” said Qin.

The criticism of green levies during the weekend was often couched alongside concerns of Europe’s perceived role in undermining British steel. In a column for the Telegraph, leading “leave” advocate Boris Johnson said: “The UK’s various climate change policies – largely generated by Ed Miliband – have been highly damaging for British manufacturing”.

But Gummer, chair of the CCC, cited research and said that more broadly: “There’s no evidence at all that there’s been offshoring of industry from Britain because of our green policies. For most industries, the energy element is extremely small and the amount of extra cost from the green levies is so small as not to be in any way crucial.”

Emil Dimantchev, also a climate policy analyst with Thomson Reuters, said membership of the EU emissions trading scheme (ETS) had delivered Tata Steel’s European operations a £780m windfall through the over-allocation of carbon credits between 2008 and 2014. In estimates that Dimantchev considers conservative, the Port Talbot works alone received more than £239m over that period.

 

 

“The point here is that the EU ETS has been a source of profit for Tata, which is noteworthy given that most discussions on climate policies tend to consider them only as a cost to industry,” said Dimantchev.

It’s not clear whether the £60m costs of running Port Talbot factor in these windfalls or not. Tata Steel did not respond immediately to the Guardian’s request for clarification.

If not, and the costs of green policies had been £7.5m every year since 2008 – which is unlikely as the penalties for carbon emissions have been increasing – it would appear that Port Talbot has actually been profiting from green policies.

 

 

 

About tomburke

Tom Burke is the Chairman of E3G, Third Generation Environmentalism, and an Environmental Policy Adviser (part time) to Rio Tinto plc. He is a Visiting Professor at both Imperial and University Colleges, London. He is a member of the External Review Committee of Shell and the Sustainable Sourcing Advisory Board of Unilever and a Trustee of the Black-E Community Arts Project, Liverpool.

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