Steel Industry (Carbon Floor Pricing)

Debate between Jessica Morden and Denis MacShane

Wednesday 23rd March 2011 Westminster Hall

[Jessica Morden]

I thank the hon. Gentleman for his well-made point, which covers the precise subject of the debate. I shall return to it.

We all know we have to reduce our carbon footprint, but industries such as steel use large amounts of power out of necessity and have no other realistic option at the moment. In the steel industry in my constituency, I see an industry that supports plans to make the transition to a low-carbon economy and is actively trying to be involved in being part of the solution to reduce CO₂ emissions. For Tata, that might involve developing products and improving processes such as the £60 million basic oxygen steelmaking—BOS—gas recovery investment it has made at its Port Talbot plant, which will have great benefits for us at Llanwern, or products such as the photovoltaic project being developed in Shotton.

It is worth remembering that to build low-carbon energy sources, improve energy efficiency and drive advancements in low-carbon construction, steel will be in high demand. Steel is a high-carbon industry in its production, but an essential product for the low-carbon economy.

[Mr Denis MacShane (Rotherham) (Lab)]

Has my hon. Friend seen scrap metal being recycled in an electric arc furnace? An element powered up to 2,000° of heat plunges into it and recycles instantly, but that requires a huge amount of electricity and energy. I understand where the Government are coming from, but unless they find a solution to the problem, their proposals might have the perverse effect of making that unprofitable, and their welcome focus on manufactures and exports—there is a demand—might come to nought. For the first time in 17 years as MP for Rotherham I am desperately worried about the future of electric arc furnace steel manufacture in our country. We must find a tweak and a solution to the problem, so I welcome my hon. Friend securing the debate.

[Jessica Morden]

I welcome my right hon. Friend’s intervention. Steel making is an incredibly beautiful process. His point is that we must ensure balance and that the new tax does not drive heavy industry out of this country.

Steel is a high-carbon industry in its production, but an essential product for a low-carbon economy. Surely we all want the UK’s low-carbon economy to be built with steel produced in the UK, not imported from China, Russia, Ukraine and other steel-producing countries that do not face the same regulatory restraints.

The industry would say that there is consensus for some regulation in this area, but that current policies are complex and over-burdensome. As I have said, if carbon floor pricing goes ahead, there will be four prices on carbon—the carbon floor price, the climate change levy, the carbon reduction commitment emissions trading scheme, and the renewable subsidies—but no consistent way of measuring carbon as between those. The industry argues that if the Government are to price carbon, they must make it simpler for everybody involved.

The major issue, to which the hon. Member for Redcar (Ian Swales) alluded, is competitiveness. The debate takes place in the context of escalating costs for UK steel producers from existing UK and EU climate policies that are eroding their international competitiveness. Nobody else in Europe or the world will face those costs, which is a threat to UK steel. The Government are asking the private sector, especially manufacturing, to create jobs, but that will not happen if we impose certain conditions and have carbon leakage. Manufacturers will choose to go to parts of the world where they can get away with less stringent conditions. They will be able to produce steel with the same amount of emissions and we will have lost the industry. Where is the sense in that? That applies not only to some developing countries, but, most worryingly, to Europe. No other EU Government are making similar proposals, and many have taken steps to reduce the impact on trade-exposed industries precisely to avoid the problem.

The figures are quite stark. Tata Steel estimates that by 2020 the cost of carbon floor pricing will add at least an extra £20 million per year to its energy bill. I also draw the Minister’s attention to the Waters Wye report, which documents the cumulative impact of all climate change policies on heavy energy users.