Written evidence submitted by Green Alliance (LS0003)
This response has been submitted by Roz Bulleid on behalf of Green Alliance.
About Green Alliance
Green Alliance is an independent think tank and charity focused on ambitious leadership for the environment. Since 1979, we have been working with the most influential leaders in business, NGOs and politics to accelerate political action and create transformative policy for a green and prosperous UK.
Futureproofing UK industry for a net zero economy
Promoting a resilient and competitive UK economy requires investment in the solutions that will be in demand in a net zero future. This means avoiding propping up polluting activities that damage the environment and will not be viable over the longer term and promoting the transition towards low carbon activities. Realising this transition across key sectors of UK industry requires concerted action to stimulate business investment.
The Industrial Decarbonisation Strategy published earlier this year showed the government plans to reduce industrial emissions to around the levels in 2035 recommended by the Climate Change Committee (CCC) in its sixth carbon budget advice. It also sets out an encouragingly broad range of approaches to support industrial decarbonisation including a degree of subsidy to support the transition to new technologies, improvements to carbon pricing, and creating a market for low carbon goods that enables companies to invest with confidence. However no new money was provided alongside the strategy and the timelines set out in the roadmap weren’t binding. There is also little sign that the much needed market measures will be delivered at speed.
Preparing the UK steel industry for a net zero future
Maintaining a domestic steel industry is strategically important to the UK. It provides employment for 32,000 people in Great Britain, many in lower income areas where steelmaking has also played a significant cultural role. Today, however, not only is the industry in decline and struggling to survive, but it’s evident that it needs to realign its operations to be compatible with a net zero emissions future. The CCC’s advice on this front is that the sector must reach near zero emissions by 2035.
In particular, primary, ore-based, steelmaking is one of the largest industrial emitters, with the UK’s two remaining blast furnace-centred plants making up around 15% of industrial emissions.
Steel recycling in electric arc furnaces (EAFs), as carried out by Liberty, already has much lower emissions than primary, steelmaking. There is also significant capacity to expand recycling of UK scrap. This part of the sector nonetheless struggles to be profitable and will still require significant investment in decarbonisation to replace the use of natural gas in some processes.
The steel industry globally is beginning to trial several possible approaches to decarbonising primary steel production. One of the most promising is to use hydrogen instead of coal to strip the oxygen from the ore. This ‘direct reduced iron (DRI)’ process produces steam and no carbon dioxide. The precursor iron produced, known as sponge iron, is then made into steel in an EAF. Because it can process both scrap metal and iron ore, and allows for batch production rather than providing a continuous output, this approach offers considerable flexibility.
Government has taken some welcome steps to support steel sector decarbonisation, by establishing the Clean Steel Fund and wider industrial decarbonisation support including the Industrial Energy Transformation Fund and Industrial Strategy Challenge Fund’s support for clusters. It is also developing strategies to support hydrogen production and progressing wider industrial measures through the sector decarbonisation strategy mentioned above. But much more needs to be done: the steel industry urgently needs a comprehensive, coherent policy framework, backed by Government support, if it is to adapt and survive. This would help move the industry past short-term bailouts and ensure it realigns to meet climate targets.
To help achieve the transition towards clean steel in the UK, the Government needs to launch:
This should be developed with industry and other stakeholders and set out the government's commitment to achieve near zero emissions steel production by 2035. There must also be a firm delivery timeline for achieving this goal and a range of supporting policies to help the industry transition towards net zero.
Creating a supportive policy environment should include rapidly advancing plans to promote markets for clean steel, including through standards for relevant steel-containing products and public procurement requirements for large infrastructure projects. Government should also give serious consideration to introducing border carbon adjustments to enable a realistic carbon price for steelmaking while ensuring a level playing field between imported, polluting products, and cleaner, domestically produced steel. Industry also needs certainty on the likely subsidies that will be offered for hydrogen production and carbon capture and storage, but these business models need careful design to ensure that they don’t incentivise inefficient routes or carbon capture over other upfront and more efficient methods of reducing emissions.
Policy is also needed to boost the resource efficiency of steel use in the UK, exploring ways to use less steel, promoting reuse in sectors such as construction and ensuring high quality collection and recycling of scrap metal, maximising the use of scrap steel through the UK’s electric arc furnaces rather than exporting it as waste only to re-import the high value products other countries turn it into. The UK is in a strong global position for the availability of scrap steel and these actions alone could deliver a significant reduction in UK steel emissions, and ensure that the UK is able to maximise its export of high value products, where it is best placed to compete globally.
We believe that hydrogen holds real promise for steelmaking in its own right and as a means of supporting and strengthening the UK’s steel recycling capacity.
Trials of hydrogen based steel production in other countries are well underway, including in Germany, Sweden and China. Without action, the UK will not be able to make an informed decision on the best route to steel decarbonisation and risks being left behind. cting now would give the UK the opportunity to become a global leader in this developing technology.
The Government should lead UK action on hydrogen-based steelmaking by kickstarting a pilot. This could test production, create initial capability, develop world-leading expertise, and generate a market for emerging low-carbon hydrogen supply. The pilot should be in a strategically important location in the UK and could then be ramped up. This can also help anchor and drive growth in the UK’s burgeoning hydrogen industry at a critical time, creating new, reliable markets and lowering costs.
Such a trial could be delivered either through a competitive tender with private funding backed by initial funds from the government or backed entirely by the government. A new at-scale DRI plant could cost around £500 million, but an initial, small-scale, proof-of-concept pilot would cost vastly less than this.
Promoting the transition to a near zero carbon and resource efficient steel industry will see social, economic and cultural benefits across the UK:
● Innovation and jobs: Low carbon steel will revive UK industry, and protect and create jobs. Investing in low carbon manufacture and use of steel can help revive the UK’s strategically important steel industry and protect and upskill existing jobs in steelmaking areas. A more circular economy is also expected to result in higher employment.
● Showing climate leadership: Clean steel can help the UK reach its emissions reduction targets: The UK can kick start its climate change ambitions by investing in hydrogen steelmaking, alongside reducing demand for steel where possible and maximising reuse and recycling. This can also help anchor and drive growth in the UK’s burgeoning hydrogen industry at a critical time, creating new markets and lowering cost, and providing a model of industrial decarbonisation that can be adapted for other sectors and shared internationally.
● Help level up Britain: Clean steel can level up left-behind areas. Investing in the infrastructure to make low carbon steel can help level up regions in need of investment, such as Port Talbot and Scunthorpe.
May 2021