UK steel closures show risky path to decarbonizing heavy industry

UK steelworkers in Port Talbot, Wales were informed by their employer, Mumbai-based Tata Steel, that it plans to shutter the two coal-powered blast furnaces..

Tata Steel's plan to decarbonize its UK steel plants holds insights for others seeking a fair transition out of emissions-intensive industry. Tata steel photo.

This article was published by The Energy Mix on Feb. 15, 2024.

By Gaye Taylor

The global tug-of-war between Welsh steelworkers desperate to preserve their jobs and their India-based employer gunning to decarbonize while protecting profits, holds insights for others seeking a fair transition out of emissions-intensive industry—including workers at Canadian steel mills on a similar trajectory.

Mid-January saw the ground shake beneath the feet of thousands of steelworkers across the United Kingdom when their employer, Mumbai-based Tata Steel, announced plans to shutter the two coal-powered blast furnaces at its steelworks in Port Talbot, Wales, BBC News reports. Tata Steel plans to replace the blast ovens, which make virgin steel, with a far more climate-friendly electric arc furnace (EAF) that makes steel using recycled scrap. The EAF is expected to be up and running by 2027.

Traditional steelmaking with a blast furnace is hugely carbon-intensive, emitting 2.32 tonnes of carbon dioxide per tonne of steel. By contrast, EAFs are far less polluting, producing as little as 0.67 tonnes of CO2 per tonne of steel, provided the input is 100 per cent scrap. So switching to an EAF in Port Talbot would be considered a climate win. But it feels nothing like a triumph for workers, as EAFs need a much smaller labour force.

EAFs are also much cheaper than blast ovens to build and run. They take up less space, and unlike blast ovens, can be switched on and off, allowing steel companies to capitalize on off-peak electricity. For all these reasons, companies around the world are embracing EAF technology. This includes Algoma Steel in northern Ontario, where employees were notified of impending job losses last year, and ArcelorMittal Dofasco in Hamilton, where a similar transition is in the works[Stay tuned for more on this story.]

Across the UK, Tata Steel has confirmed that 2,423 jobs are on the chopping block—1,929 at the Port Talbot steelworks, where 3,859 people currently work. Hundreds of Tata steelworkers stand to be classified as redundant elsewhere in Wales, including a potential 300 at a downstream steel rolling plant in Llanwern, while at least 70 can expect their current jobs to vanish in England. Most of the job losses will happen before the end of September, BBC writes.

Rejecting a union proposal that one blast furnace be kept open while the EAF is built, thereby preserving some 1200 jobs for four or more years, Tata Steel’s global CEO and managing director T.V. Narendran said the EAF plan is “pretty much there.”

Tata plans to invest £1.25 billion (CAD$2.12 billion) to build the EAF, with a £500-million subsidy from the UK government included. The restructuring aims to address financial losses, which the company estimates at £1.5 million per day.

A £100-million transition fund (£80 million from the government and £20 million from Tata Steel) has been established, and Tata has earmarked a further £130 million “to fund severance payments, community programs, skills training, and job-seeking initiatives,” reports the Guardian.

Communities Left in Crisis

Rumours of job losses had been circulating in Port Talbot, a city of 35,000, since at least last September—much to the apprehension of local steelworkers, some of whom are third-generation. (The steelworks have been in continuous operation since 1902.)

BBC News writes that the Port Talbot plant is “a significant contributor to the Welsh economy,” making up 3 per cent of the country’s total economic output. The also pays well, with average salaries 36 per cent higher than the UK average. The UK’s ITV estimates the company annually “puts £200 million into the economy in wages alone.”

That said, the steelworks is but a shadow of what it was in the 1960s, when it employed around 20,000 people, making it the largest steel plant in Europe. Cheaper steel from aboard, especially from China, has been chipping away at that primacy for decades. “More than 300,000 people worked in Britain’s steel industry in 1971; by 2021 it was about 26,000,” writes the Associated Press. Today, some 8,000 steelworkers in the UK are employed by Tata.

Port Talbot and its hinterland are not the only steel towns feeling the seismic shift of industrial restructuring. British Steel has announced plans to shutter blast furnaces in Scunthorpe in North Lincolnshire, and at Teesside on the outskirts of Middlesbrough, and replace them with EAFs. Union estimates are that some 2,000 jobs will be lost to this reconfiguration.

The impact of all the job losses, at Port Talbot and the ones anticipated at Scunthorpe, “cannot be overestimated,” Charlotte Brumpton-Childs, national officer for steel at GMB, a UK trade union heavyweight, told a Welsh Affairs Committee meeting in the UK House of Commons January 31. The thousands of jobs now poised to vanish as a result of the Tata Steel restructuring “are just the tip of the iceberg,” Brumpton-Childs added, recalling that her own first job had been as a steelworker in Scunthorpe.

“The knock-on effect can be really direct: it is about people who work in the logistics supply chain of the steel industry,” she explained. “But it is also about the cafés down the road from the steelworks where people go and get their bacon butty in the morning. It is about the dance schools that the steelworkers’ kids go to, because they have an income that will allow them to pay for those sorts of pursuits.”

And the work force skews young. “This is not a dying industry, and this is not a group of workers who are trying to eke out getting to retirement,” , Brumpton-Childs noted.

“It is a vibrant, young industry that could and should provide livelihoods and jobs to our communities for the next 100 years.”

Discussion With Unions ‘Did Not Happen’

At the same committee meeting, Alasdair McDiarmid, assistant general secretary at Community Union, the leading union for UK steelworkers, said discussions with Tata Steel about the future of Port Talbot had been going on since 2020, with the unions and the company going “back and forth” on strategies to minimize job losses.

“We were told there would be a constructive discussion around the different technology models, and no decisions would be made before a full consultation with the unions,” McDiarmid said. “Unfortunately, that did not happen, and out of the blue in September we had the announcement of the three million tonne [of crude capacity] EAF proposal, with 3,000 job losses.”

Community and GMB had pushed for a “two-stage solution.” First, Tata could add a smaller EAF and keep the existing two-million-tonne blast furnace, they proposed.

The blast furnace would have operated until 2032, then been replaced in the second stage by a direct reduced iron (DRI) smelting furnace, a system that produces the “metallics” critical to ensuring that EAFs—which make steel from recycled scrap, not virgin ore as blast furnaces do—can produce the highest quality and most profitable steel products currently listed in the “UK steel book.”

McDiarmid told the committee this strategy would require a total of “£1.9 billion of investment, which is £683 million above what has already been committed by Tata and the government.”

Noting that the science on “what EAFs can and cannot do” is still evolving, even though 70 per cent of American steel is produced using EAFs, McDiarmid said he was convinced that going with an EAF alone is a matter of “all eggs in one basket” and thus a “massive risk.” Aside from a steelworks in Italy, which he said produces a lower-quality product than Port Talbot, no European steelworks is taking the EAF-only path: all are “retaining their blast furnaces into the 2030s at least and/or investing in DRI EAF capacity.”

Stephen Kinnock, a Labour Member of Parliament for the Port Talbot district, has urged Tata Steel and the UK government to rethink their plans.

“By pursuing a narrow EAF-only model, Tata Steel will be unable to seize the commercial opportunities of the future, while at the same time leaving Britain more dependent on imported steel,” Kinnock said, after news of Tata’s restructuring plan broke.

Pushed by the committee to respond to concerns about the lack of a plan to produce metallics onsite, Narendran said that the EAF “need not be the end,” and that a DRI furnace could well become possible in the future—pending the building of a gas pipeline to supply the requisite energy. (Greening the steel sector will depend heavily on getting green hydrogen DRIs up and running.)

Narendran also referenced a new report produced by Tata engineers warning that keeping the blast furnace running whilst building the EAF nearby would be hazardous.

Tata Steel UK CEO Rajesh Nair said the UK steel committee had full access to the report, but Kinnock responded that “every person from the trade unions I have spoken with said they have not seen that engineering report.”

Narendran elaborated that ensuring worker safety while the EAF was under construction might be possible—but would create delays. “We have looked at the detailed engineering of it over the last two months, and have seen that, operationally, there are complexities,” he said. “The project may get delayed by another 10 months.”

Carbon Credits Sweeten the Deal

No one disputes that the blast furnaces at Port Talbot are a climate bomb. The steelworks are the UK’s largest emitter, responsible for roughly 1.5 per cent of the country’s annual carbon dioxide emissions, and the steelworker unions accept the need for decarbonization. The argument is how to get there. The unions say Tata’s plan is unfair to workers, and shortsighted to boot, but there are also suggestions that it is something of a climate boondoggle.

Panning the EAF as “the cheapest decarbonization strategy [for steel] anywhere in the world,” McDiarmid pointed to a yawning gap between the German government’s support for greening its steel industry and that of Prime Minister Rishi Sunak’s government. “The £500 million that the government is giving to Tata equates to just £166 of assistance per tonne of steel, whereas the German government is giving Salzgitter €525 per tonne,” he said.

But Welsh MP Kinnock pointed out another source of funds at the committee meeting: Closing down both blast furnaces will enable Tata Steel to bank £177 million in carbon credits “while importing three million tonnes of dirty steel from India,” he said, adding that this “seems to be a big motivating factor for it in this whole deal.”

New Blast Furnaces in India

Asked by the Welsh Affairs Committee to respond to union charges that Tata’s plan “is the lowest-cost, bargain-basement way of doing decarbonization” and not the best plan on the table, Narendran maintained his company had been an excellent corporate and community citizen. “Tata Steel has tried very hard over the last 15 years to keep this business going, and we have invested significantly,” he said. “Just to give you a sense, we have invested more than £2 billion of capex [capital expenditures], and then in loss funding we have spent about £5 billion over the last 15 years to keep this business going.”

Clarifying the “primary driver” behind the restructuring, Narendran said that while decarbonization was important, the financial woes in the UK arm of its global business were top of mind for the company.

“You must appreciate that Tata Steel is a listed company,” the CEO said. “Somewhere, we want to be as reasonable as possible to all stakeholders, but we don’t want to be seen as irresponsible to some stakeholders at the cost of others.”

Some stakeholders certainly appear buoyed by Tata’s decision to blow down its blast ovens, with its shares “jumping” 2.5 per cent shortly before the company’s formal announcement of the closures, Bloomberg reported.

But several committee members queried the merit of Tata Steel UK’s claim to financial fragility, given the evident health of its parent company.

The company took home an EBITDA (earnings before interest, taxes, depreciation and amortization) profit of £3 billion last year, reports the Mirror, citing an analysis by Unite, another UK steelworkers union heavily involved in the fight to preserve Port Talbot jobs.

Reporting on Tata Steel’s current share price in the wake of the announcement, Bloomberg flagged “a strong performance at its Indian operations” as a critical part of the picture.

Those operations include a new 5,870-cubic-metre coal-fired blast furnace at Tata’s Kalinganagar industrial complex in the Jajpur District of Odisha, India. Now nearing completion, the new furnace will be “amongst the largest in the world,” and the second on a site that already hosts “a vast blast furnace, with a capacity of 4,330 cubic metres,” writes the Guardian.

UK steelworkers are unimpressed by the company’s claims to environmental stewardship in its decision to close the Port Talbot furnaces. In its formal announcement of the closures, Tata vowed to “secure most of Tata Steel UK’s existing product capability and maintain the country’s self-sufficiency in steelmaking, while also reducing Tata Steel UK’s CO2 emissions by five million tonnes per year and overall UK country emissions by about 1.5 per cent.”

“Gross hypocrisy” is how GMB’s Brumpton-Childs described the dissonance between Tata’s rejection of blast furnaces in the UK, and its embrace of them in India, according to the Guardian.

Green Steel Dreams, Government Inaction

Doug Parr, chief scientist for Greenpeace UK, called Tata’s plan to move swiftly to an EAF-only mode of production at Port Talbot a “missed opportunity.”

Steel is central to the UK’s economy, and “we will need steel’s versatility to manufacture new clean technologies just as we needed it for old, dirty ones,” he told The Energy Mix in an email.

(For instance, UK-made green steel could play a part in the future of offshore wind in Wales, as discussed during the Welsh Affairs Committee meeting.)

Parr confirmed the DRI-EAF furnace combination recommended by the steelworkers’ unions as the way for the UK to continue producing virgin steel—with the strong caveat that the climate benefits of that approach can only be achieved if the DRI unit is powered by green hydrogen.

While the development of hydrogen-powered versions proceeds across Europe, the truth is that “any industrial processes powered by hydrogen could have life cycle emissions that are higher than those from using old-fashioned natural gas, due to the high carbon cost of hydrogen produced from fossil fuels,” he added.

But Parr recalled better days. “There was a time when British industrialists would have seen this situation—a need for a new process driven by regulation and commercial demand, with a visible route to a lucrative goal, but more refinement of the technologies still required—as an opportunity,” he said.

“We would encourage those making decisions over the future of Port Talbot to try to recapture some of that spirit—so that as well as retaining some capacity for producing virgin steel, we should see a new DRI furnace as an experimental plant that we will use to push forward steel production.”

“This would mean improving and greening the performance of both the DRI furnace and its fuel sources, including the large-scale production of green hydrogen, which is one key piece currently missing from the puzzle,” Parr said.

At the same time, policy-makers must keep the needs of steelworkers and their communities firmly in view, Parr told Planet Radio in a separate interview. “In the transition to a greener economy—it’s got to be fair, it’s got to be just. It’s got to be reasonable for the people involved in high-carbon industries.”

The UK Labour Party agrees. Responding to the news of Tata’s decision to go all-in on an EAF, Labour leader Keir Starmer “urged the [Sunak] government to look again at the union’s proposals to avoid compulsory redundancies,” describing the plan as “viable” despite its extra costs, reports the Guardian the time.

Sunak, for his part, declared that his government’s £500-million investment in the new EAF proved it is “absolutely committed” to British steelmaking.

But Welsh First Minister Mark Drakeford said he’d been told the PM was “not available” when he asked Sunak for urgent talks about the furnace closures, the Guardian says.

Friends of the Earth (FOE) said the Sunak government’s failure to develop a green industrial strategy had made a huge contribution to the steel industry crisis, with workers paying the price for it. “Our steel industry must change to remain competitive, and ministers must do more to help them,” said FOE campaigner Tony Bosworth, speaking ahead of a recent House of Commons debate on protecting UK steel.

That the Sunak government would “offer half a billion pounds of taxpayers’ money to help them move away from coal,” less than a year after approving a new coal mine in Cumbria for the purpose of supporting traditional steel production in the UK, shows an industrial strategy unworthy of the name, Bosworth added.

Government Engagement Urgently Needed

“As trade unions, we have found it incredibly frustrating that there has been no dialogue from the UK government with the trade unions and, by extension, the work force, on what [Tata’s] plan looks like,” Brumpton-Childs told the Welsh Affairs Committee.

Such a lack of engagement can be seen in £80 million in transition funding promised by the Sunak government, Welsh Economic Minister Vaughan Gething told the committee.

Noting that 2,500 direct job losses could lead to “potentially north of 10,000 when you think about the indirect jobs,” he said the funding “will not be anything like enough if you do see that level of eye-watering job loss.”

Recalling the tens of thousands of coal workers made redundant in the 1980s in Wales, Gething urged everyone to “learn the lessons from the past,” in order to avoid “significant scars that are human and social, as well as economic.”

If the transition goes right, “I do think we are going to be able to create serious high-value employment right across South Wales,” he said. “I think there is a big future for manufacturing, the semiconductor sector and more, and floating offshore wind.”

But “you will not see all those jobs being created in the next 18 months. That is part of the challenge.”

A 45-day consultation period on the closure ends March 18.

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