Steel Industry (Carbon Floor Pricing)

Mark Prisk Excerpts

Wednesday 23rd March 2011 Westminster Hall

[The Minister of State, Department for Business, Innovation and Skills (Mr Mark Prisk)]

Thank you very much, Mr Amess, for calling me to speak. It is good to see you in the Chair.

I want to begin by congratulating the hon. Gentleman—sorry, the hon. Member for Newport East (Jessica Morden). There is obviously a little too much gin in the water in Westminster Hall. I congratulate the hon. Lady not only on securing the debate but on her incisive comments about the balance that we all have to strike between the environmental and business challenges. I will respond specifically to the points that she has made.

It is slightly unfortunate that today is the day of the Budget because, as right hon. and hon. Members will understand, that somewhat hampers my ability to be more specific about measures such as the carbon floor price. The Chancellor will be on his feet imminently and I am sure that he will set out some things in that regard in more detail. The hon. Lady not only has an interest in the steel industry in her own constituency but she is chair of the all-party group on the steel and metal related industry. That combination of interests was very evident in her speech and indeed in her responses to questions from Members, all of whom have a strong constituency interest in this important industry. The right hon. Member for Rotherham (Mr MacShane) is absolutely right that this is a very important industry. It is dramatic, in the way that he rightly described, but it is also fundamentally important to many other industries, particularly in manufacturing. Later today, the Chancellor will set out our framework for growth for manufacturing, which I hope Members will welcome. That framework reflects some of the long-term issues that the steel industry and similar industries face.

[Huw Irranca-Davies (Ogmore) (Lab)]

I should point out that I am speaking today in my capacity as the MP for Ogmore and not in my capacity as a shadow Energy Minister.

I am not asking the Minister to reveal the details of what is in the Budget. However, he just used the word “framework”. That is quite interesting, because the Energy Intensive Users Group and others have been calling for us not to pin this down, right here, right now, in the Budget, but to allow scope for further discussion. Is that what the Minister meant when he used the term “framework”?

[Mr Prisk]

Yes. The manufacturing framework covers issues that are broader than the issue that we are discussing in this debate. It is about all the issues of capital investment, skills and so on. However, the hon. Gentleman is quite right. What we have tried to do with the growth reviews for manufacturing as a whole—I am just going slightly beyond the purview of this debate, Mr Amess, but not too far—is to ensure that we have listened carefully to manufacturers about all the different aspects of manufacturing, so that we understand how the proposal will work. The hon. Gentleman is quite right that the framework needs to be one in which the Government are a partner with industry, so that it is not simply something that we have decided is the right thing without listening to others. That will be reflected particularly in our response to energy-intensive users.

[Ian Swales]

Will the Minister give way?

[Mr Prisk]

I will do so briefly, but there are some detailed responses to be made to the points raised in the debate.

[Ian Swales]

I will be very quick. Is the Minister aware that this very week we have had the first full meeting of the new all-party group on energy-intensive industries? I am the vice-chair of that group and I have never been to an all-party group with a higher attendance. Every single industry that has been mentioned in this debate was represented at senior level, which illustrates the level of concern about the issue. It also supports what the hon. Member for Ogmore (Huw Irranca-Davies) was saying, that we need time to engage with the Government to ensure that they truly understand these issues.

[Mr Prisk]

I welcome that. It is very important that we have a good and thorough debate, and that Members across the House can participate in it. That is very welcome news.

The industry is crucial. We have talked about it in principle, but when one looks at the facts, last year, some 9.7 million tonnes of crude steel were produced in the UK and the industry employs 25,000 people directly. Encouragingly—and this goes back to the point that the right hon. Member for Rotherham made—about half of the UK steel industry’s output is now exported and we are now a net exporter. That is not necessarily something that one reads in the newspapers, but it is a success story, and in that context I commend both the previous Administration and the industry itself. That is quite something.

In Wales—this is particularly relevant to the hon. Member for Newport East—I believe that about 7,000 people are employed in the steel industry, with 4,000 employed at Port Talbot and 1,000 at the Llanwern rolling mills, so that is an important part of the sector. What is encouraging is that despite the fact that in 2008, the industry saw demand for its products drop by 50%, which would be devastating for any industry, it has been able, through good management of production, good co-operation and a flexible and committed work force, to ensure that there were not any major long-term job losses in those plants, which have been able to come back into production. Of course, there were some job losses, but in any industry if demand and production drop by half, that is potentially a killer. Thankfully, that did not happen.

I turn to the specific issue of the carbon floor price, before addressing the energy-intensive industries strategy and thus responding to the question about what my Department is doing to mitigate the impact. We have just consulted on the issue across Government, although the consultation was of course led by the Department for Energy and Climate Change. To respond to a question from the hon. Member for Newport East, we consciously made a specific point of talking to the key industries involved, including the Engineering Employers Federation, which she mentioned, so that we have a careful understanding of the practicalities of the measure for all energy users and for particular industries.

[Mr MacShane]

I will be brief. I regard the Department for Business, Innovation and Skills as an ally in this process while, as we know, the real enemy is across the road in the Treasury. Then there is DECC, with its open-toed sandals, greenery and all that nonsense.

The Minister of State, Department of Energy and Climate Change, the hon. Member for Bexhill and Battle (Gregory Barker) told me on the Floor of the House before Christmas that he would accept an invitation to meet a delegation, but nothing happened. I then asked him about it face to face in the Lobby, and he said, “Oh, I’m terribly sorry, Denis, we’ll try and sort this out”, but nothing happened. Does the Minister accept that there has not been enough consultation, especially with hon. Members, the workers and trade union employees? As this process unfolds—I think that we will be discussing this for some time; it will not be fixed for ever, either today or tomorrow—will he agree to receive a bit more input from right hon. and hon. Members, the trade unions and the work force?

[Mr Prisk]

My hon. Friend the Energy Minister is a very busy man, and I suspect that it will be through no fault of his own if he has not yet been able to fulfil that obligation. However, the door is not closed in this area. There is work to be done. My view, and I am sure that it is the view of my hon. Friend, too, is that we would always encourage involvement in this process. If there is an opportunity to do that at the right moment, yes, we will do so.

Let me come back to where we are on the carbon price floor, then look at the strategy as a whole and at how we mitigate some of the impacts. The aim is to encourage investment in low-carbon electricity generation, by giving greater support, yes, and also by providing certainty on the price of carbon in the power sector. Getting that right is important for the whole of manufacturing but, as Members have rightly pointed out, we must strike a balance between the environmental gain and improvements in energy efficiency, which could help all manufacturing, and doing so in a way that does not pinch key energy-intensive sectors unreasonably. Members will understand that as the price is going to be set in the Budget later today, and as I would like to continue to be a Minister of State for a little while yet, it would be unwise to pre-empt what the Chancellor will say, in what I know will be an excellent Budget.

Let me turn to the question that the hon. Member for Newport East rightly asked about what my Department is doing in conjunction with others to consider how to mitigate the impact. We are working with the Department of Energy and Climate Change on a comprehensive strategy on energy-intensive industries, including steel. The strategy is deliberately intended to look at energy costs, and to assess the incremental changes that industries have made—I will come on to some that have very successfully been achieved in Wales—and possibly the longer-term transformational changes that might help the industry to deal with the bigger, long-term issues.

[Huw Irranca-Davies]

The Minister has said that a line in the Budget will set the carbon floor price, but before he moves away from the issue I would like to ask him whether he is alive to the concerns raised by my hon. Friend the Member for Newport East (Jessica Morden) about the complexity of different measures. The carbon floor price sits alongside the ongoing electricity market review and other measures that are already in place. Is the hon. Gentleman, as a Minister in the Department for Business, Innovation and Skills, focused on streamlining, and on removing complexity to achieve the overall outcome? Is he having those discussions with his colleagues in the Department of Energy and Climate Change to see what is the simplest, most direct and most effective way of achieving the decarbonisation objectives, and boosting renewables and potentially the nuclear industry—despite what is going on in that field at the moment—while at the same time stripping out layers of complexity and bureaucracy?

[Mr Prisk]

Absolutely. The hon. Gentleman is right. There are two challenges for the Government in this context: dealing with the low-carbon energy issue and ensuring that the lights do not go off in a few years’ time. Those two challenges do not necessarily run in the same direction, and if there is any conflict or tension we need to ensure that we get the balance right. As the hon. Gentleman rightly says, as a Minister in the Department for Business, Innovation and Skills, I want to ensure that we do not lose our competitive edge. The export roles that the right hon. Member for Rotherham referred to are very important. We must ensure that we remain competitive and continue to be a net exporter, and I would like to encourage that.

Let me come back to the strategy and explain to Members what is in it, how it works, and how we are involving the industry. The strategy is designed to deal with a number of key objectives. First, it will assess the potential for cutting greenhouse gas emissions, not just in steel but across the industries, and look at the interplay between the sectors. There are a number of subsectors, and if we are not careful we will lose the capability of the larger sector because we have not taken care of the smaller ones. That is sensitive issue of which we are very much aware, and there is a thorough technological review of the sectors and their processes, because that, I suspect, will be where the transformational change can best be achieved in the longer term. There have nevertheless been some very good short-term changes, which I will mention in a moment.

Secondly, what we are trying to do with the strategy is build on existing research and both public and industry initiatives, to look at how reducing emissions can be progressed further. In many ways, it is about extolling and developing best practice. Thirdly, the review looks at a whole range of ways of decarbonising energy-intensive sectors. We are examining improvements to existing processes, as well as looking at substitutes and alternatives. That is partly to do with materials, as well as with processes. Fourthly, the strategy is embedded in a collaborative process with industry, the regulators and the various experts engaged in the field, such as institutions dealing with materials, and we seek to provide evidence to make the case for the EU to move towards a 30% EU emissions reduction target, to which we committed ourselves in the coalition agreement. That is an important shift, and it comes back to competitiveness.

Lastly, we are looking to introduce, promptly but not unduly hastily, a range of policy options on which we can work with the industry so that it can make the transition, while—from my point of view—always looking at competitiveness. That is a difficult balancing act, and I suspect that we will not achieve it perfectly because of the inherent tensions and the nature of the industry, and of the steel sector in particular. We are looking at the sector leaders and the supply chain, and at engaging with them through the strategy, to ensure that it can work. Although there are natural anxieties there is some really good practice, and I want to highlight a couple of examples that I suspect the hon. Members for Newport East and for Ogmore will know, given that they are Welsh Members.

Last spring, Tata Steel in Europe completed a £60 million investment to recycle process gases from the Port Talbot melt shop. The new facility reduces Port Talbot’s carbon dioxide emissions by 240,000 tonnes a year, its particulate emissions by 40 tonnes a year and, most interestingly, cuts its energy requirement from the grid by half. As the right hon. Member for Rotherham rightly says, this is a genuinely energy-intensive industry. It is also an industry in which we need to be able to control the energy in key bursts, and therefore the ability to reduce the energy requirement from the grid by half is tremendously encouraging.

A further £185 million investment at Port Talbot was announced last August, and the project, which is due to finish in July, will involve the rebuilding of blast furnace No. 4 and will increase liquid steel capacity at the plant by 400,000 tonnes, while improving environmental performance and safety. If production can be increased and performance improved, let us see how we can roll that out and work with the rest of the industry on that best practice.

[Tom Blenkinsop]

I think that that is a good argument, but if the Minister or the Government are going to propose new taxation on carbon, one option might be to recycle some of those funds into industrial programmes that would help the steel industry across the board and across the nation to do similar projects.

[Mr Prisk]

We are always mindful of the need to consider whether we can help the industry, particularly where there are up-front capital projects that need to be bridged, and I am always in discussions with the sector. I cannot make open tax promises at this stage as that is not my job; it is the job of the Chancellor, and rightly so. I am nevertheless always happy to talk to the industry on that basis.

The strategy, together with the carbon price floor and the fact that the strategy is founded on a consultative approach, means that we can, I think, work with the industry. As the right hon. Member for Rotherham rightly says, the Treasury, the Department of Energy and Climate Change and the Department for Business, Innovation and Skills all need to be involved, and that is the approach that we seek to take. If we had only a single Department approaching the issue from one perspective, we would be in danger of not looking at it in the round.

[Jessica Morden]

As part of that, has the Minister done a full impact assessment of the effect of carbon floor pricing on intensive energy users? If not, will he make a commitment to doing so?

[Mr Prisk]

The lead on this is not my Department; the proposal comes from the Department of Energy and Climate Change, which has been looking specifically at the impact of the price across sectors. I deal with deregulation, and impact assessment has many other, often challenging, implications. We have been looking at how it impacts on the sector, what it means and, most of all, what the practical outcomes are that the industry can use to progress. That is the key point.

In conclusion, we believe that energy efficiency and business competitiveness go hand in hand. We are trying to ensure that the challenge for the environment does not become something that is done at the expense of the economy, and we are very sensitive to the fact that particular industries, whether it is steel or—as I saw for myself recently—brick making, understand the practicalities of changing processes, changing materials and the regulatory environment, and how the carbon price floor will work, so that we can help businesses move through this period and successfully decarbonise themselves and compete at the same time.