UK in crosshairs of net zero targets with an electric dilemma to solve

With Britain committed to net zero emissions by 2050, Port Talbot stood out as a blot on the horizon. Reuters

Theirs is a heavy price to pay. As many as 2,800 employees of Tata Steel are to lose their jobs as the Indian-owned company closes its last blast furnace in South Wales and switches to a much cleaner electric arc furnace.

It could have been worse. Tata is only making the investment in the new equipment and preserving steel production and several hundred jobs at the Port Talbot factory because the UK government agreed to a £500m subsidy. Otherwise, it would have stopped making steel in South Wales completely.

In all, the government has said it will make £3bn available, although it is not clear what the remaining £2.5bn will be spent on. The switch of furnaces should cut the site’s carbon emissions by around 85 per cent, equivalent to the annual emissions of two million homes.

Production of a tonne of steel at the Port Talbot blast furnace emits two tonnes of carbon dioxide, making the plant Britain’s biggest single source of emissions. With the new electric equipment, that 2,000kg figure plummets to between 150kg and 200kg.

In a Britain committed to reaching net zero emissions by 2050, Port Talbot stood out as a blot on the eco-compliant horizon. Something had to give.

That’s why the nearly 3,000 jobs are going, this in an area where finding replacement work will be difficult, if not impossible. This part of South Wales may be a black spot where a greener economy is concerned, but it’s also a bleak centre for employment prospects. Those going will struggle to secure jobs locally.

It’s a deal, though, that on its face points to a more environmentally conscious Britain, one that is taking its climate goals and responsibilities seriously, and is determined to reach net zero. Dig deeper, however, and it’s not so clear cut.

Building the new electric arc furnace will take four to five years minimum. In that period, with the blast furnaces (the latest, plus one that shut earlier this year) scrapped, the country will have to import more steel from overseas. The emissions saving takes no account of the emissions in the countries the UK buys its imports from. Neither does it include the emissions associated with the transport of the steel from overseas by ship to the UK.

It would have made sense for the blast furnace to continue production while the new electric furnace was being built alongside. This was an option supported by the trade unions and even by green campaigners who regarded the total switching off and the consequent immediate job losses as too extreme and damaging to the local community.

Costing net zero

The eco supporters were mindful that the move towards net zero could come to be viewed as a cost and a burden and something that threatened jobs, not only at Port Talbot, when they wanted it to be embraced and viewed as a positive step towards a green future.

Ministers stuck to the line that this would be a “just transition” and that with careful planning, job losses could be minimised and replacement job opportunities maximised. It remains to be seen how much of this is empty rhetoric and how many redundant steelworkers will really find meaningful new employment.

Certainly, it would go against the more recent experience of that area of South Wales, where manufacturing and engineering have declined, seemingly inexorably.

The reality is that Tata had the UK government over a barrel. The economic case for investing in Britain, in an industry that consumes a substantial amount of electricity, is poor. The new electric furnace may be cleaner but in producing steel, it swallows electricity.

Currently, UK wholesale electricity prices are far higher than those in similar countries such as France and Spain. In the second quarter of 2024, the average price of a megawatt hour was £66.95 in the UK versus £27.89 in Spain and £26.68 in France.

National embarrassment

Faced with that differential, a company that uses large loads of electricity in its processes is hardly likely to choose to invest in Britain. No wonder Tata needed persuading with hard cash to keep making any steel, let alone from a new green facility. Possibly, too, the company was mindful of the union protests that would have followed and affected its other UK interests had it pulled out entirely.

Nevertheless, it is surely a source of national embarrassment that our electricity should be so expensive to make. It’s a reflection of years of a lack of a cohesive energy strategy, of administrations chopping and changing, and ultimately relying too heavily on the exploitation of fossil fuels from the North Sea and from imports.

We can go green and come up with viable green projects, but we cannot mask an underlying truth: our wholesale energy is too expensive. Even if the new operation produces vastly reduced emissions, it is likely to require power and at present, the British price makes investment in the cleaner alternative unviable – unless the government throws in a hefty sweetener.

This is what requires our urgent attention. The problem is it’s long-term, something that is anathema to British politicians, whatever their persuasion, and it requires enormous investment when the government purse is virtually empty.

Much easier then, to apply a sticking plaster, as in the case of Port Talbot. While it deals with the surface of the wound, unfortunately it is masking a more serious issue.