Reports: UK Government mulling carbon border tax to bolster steel bailout package

Pictured: Port Talbot steel works, Wales

National news outlets began reporting on Monday (23 January) that Chancellor Jeremy Hunt is preparing to unveil the funding package in full this week. Last week, he and Business Secretary Grant Shapps received a letter from unions Unite, GMB and Community, asking for an urgent meeting regarding additional support for the UK’s steelmaking sector.

The letter detailed how “crippling energy costs, carbon taxes, lost markets, lower demand, and open market access for imported steel” have compounded to leave the sector “a whisker away from collapse”. Liberty Steel this month announced plants in West Bromwich, Newport and Tredegar would be made idle as part of a restructuring of its business, partly due to high energy costs.

It would appear that more funding for the sector is on the way from the Department for Business, Energy and Industrial Strategy (BEIS). The BBC was told last week of a potential funding package of £300m for British Steel. It has subsequently been tipped off about a package of the same size for Tata Steel.

Then, on Tuesday (24 January), Mirror owner Reach Plc received news that British Steel had already received details of its deal.

Along with the Financial Times, the BBC and Reach are reporting that both funding packages will primarily be intended to avert job losses through facility closures or downsizing, but that they will come with green ‘strings’. The Government is reportedly set to confirm that the funding is conditional, requiring the two firms to transition away from blast furnaces fuelled by coal and install alternatives like electric arc furnaces for the production of primary steel.

An official announcement on the deals was expected in the earlier half of this week, but delays seem to be attributable – at least, in part – to the Chancellor’s reported consideration of a carbon border tax on steel imports. Such an intervention would prevent imported steel with a higher carbon footprint from undercutting British-made steel produced using less emissions-intensive processes. It could also raise funding to be funnelled back into the steel sector.

Late last year, the EU reached an agreement on the world’s first carbon border adjustment mechanism (CBAM). It was agreed that it will initially apply to imports including iron and steel, cement, aluminium, fertilisers and electricity as well as hydrogen, setting carbon pricing consistent with the bloc’s internal requirements.

The Financial Times is reporting that Hunt is primed to launch a consultation onto a CBAM for the UK covering steel. Consultations on a CBAM did run in Summer 2022 but further progress was not made amid two consecutive changes in Prime Minister in the second half of the year.

Influential business coalition the Aldersgate Group, whose members include Cemex and Johnson Matthey, has publicly supported a swift CBAM introduction.

edie will update this article when the Government provides more information.

A BEIS spokesperson was not able to confirm or deny the reports of funding or the CBAM consultation to edie. The spokesperson said: “The Government recognises the vital role that steel plays within the UK economy, supporting local jobs and economic growth and is committed to securing a sustainable and competitive future for the UK steel sector.

“The Business Secretary considers the success of the steel sector a priority and continues to work closely with industry to achieve this.”

A hard-to-abate sector

Around 2% of the UK’s total emissions or 14% of its industrial emissions are attributable to iron and steel production.

British Steel has previously pressed for up to £1bn of Government support to adopt technologies that will enable it to align with the UK’s legally binding net-zero carbon target for 2050.

Tata Steel is reportedly pricing the transition of its Port Talbot steelworks to net-zero at up to £3bn.

As such, while the Government funding is probably set to be welcome, the companies may state that it is not sufficient. There are also questions about which technologies the companies will be able to use to address their emissions and whether these have proven climate benefits.

Commenting on the news, the Climate Group’s head of industry Jen Carson said: “The steel industry is among the most polluting sectors in the world, so this decision from the UK Government is welcome, and sets a helpful international example. However, the funding must truly be an incentive to urgently drive the decarbonisation of the UK steel industry, which at the same time should create a raft of new green jobs while upskilling current ones.”

Carson oversees the Climate Group’s SteelZero initiative, which epresents businesses from all parts of the steel value chain. By signing up to SteelZero, companies commit to procuring, specifying, stocking, or producing 100% net-zero steel across all operations by 2050 at the latest.

Methane focus

In related news, a study published this week by Ember has outlined how steelmakers often fail to account for the emissions impact of the coal they use across its value chain.

The study highlights how methane leaked during the extraction of coking coal is often unaccounted for, but could increase the global warming potential of the steelmaking lifecycle by at least 27% and, in some cases, 100%.

Methane has a high global warming potential but is short-lived in the atmosphere. To that end, more than 150 nations have pledged a 30% reduction in methane emissions this decade, in a bid to make a tangible impact on the climate in the near-term.

Ember is calling on policymakers to do more to tackle methane leaks from coking coal mines in the near-term and, in the future, to do more to get steelmakers off of coal. It acknowledges that some developing and emerging nations will continue to use coal in steelmaking for decades to come, making tackling leaks all the more important.

The International Energy Agency’s (IEA) pathway to a net-zero global energy sector by 2050 includes a 25% reduction in coking coal use by 2030 and a reduction of at least 83% by 2050. Ember claims that current pledges will amount to just an 11% reduction this decade.

With this in mind, Ember’s analysis will raise fresh questions about the climate compatibility of the new coking coal mine approved for Cumbria last month by the UK Government. The UK is part of the Global Methane Pledge.