Steel Industry (Carbon Floor Pricing)

Tom Blenkinsop Excerpts

Wednesday 23rd March 2011 Westminster Hall

[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.

[Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)]

My hon. Friend has secured a very important debate and she is making an excellent argument for the steel industry. Is she aware that we now have a 14-month high in the inflation rate, with the retail prices index running at 5.5%? That is pushing sterling to a much higher rate than previously. Coupled with current commodity prices, particularly for coke and iron ore, there is already a strain on the industry.

[Jessica Morden]

My hon. Friend makes a valid point, which I am sure the Minister will address. My hon. Friend is, of course, quite an expert in this field.

Tata’s submission to the consultation on carbon floor pricing also questions the effectiveness of the measure, claiming that it will have only a limited impact on reducing carbon emissions, even though its cost is real and direct. Tata’s submission suggests better ways to achieve lower emissions, which I will not go into now, but I draw the Minister’s attention to the submission and ask that further consultation with the industry be pursued.

I also ask the Minister to address several other points. It would be helpful if he outlined how the Department for Business, Innovation and Skills has worked with the Treasury and the Department of Energy and Climate Change to limit the impact on intensive energy users of the proposals for carbon floor pricing and of the wider electricity market reform. Does he accept that the Government’s proposals will have a serious impact on the competitiveness of key industries? If so, does he understand how such an impact will directly conflict with the Government’s policies on private sector growth and an export-led recovery?

How do the Government intend to ensure that these measures do not impact on the competitiveness of UK manufacturers? Given that there was only a very short time for consultation—I believe it was about six to eight weeks over Christmas—will the Government at least commit to carrying out a comprehensive assessment of the impact on energy-intensive industries of their proposals for electricity market reform and a carbon floor price? Many organisations raised fears about the proposals during the consultation, including the Engineering Employers Federation, the CBI, the TUC and the Energy Intensive Users Group. Has the Minister taken their views on board and are the Government listening?

Finally, in fairness to the steel industry, I must say that I believe that it is continuously looking for ways to improve its CO₂ performance through improvements to processes, products and investment, particularly in research and development. The UK steel industry wants to be part of the solution to climate change, but it needs the Government to understand that it must compete on a level playing field around the world to do so. Otherwise, we will face a situation where companies could make long-term investment decisions based on the Government’s policies and take their investment plans abroad. As an MP with a steel interest, I certainly do not want that to happen, so let us make our steel industry part of the solution to climate change. I look forward to the Minister’s response.

--- Later in debate ---

[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.