Steelmaking will benefit hugely from the Energy Bill’s mandate to protect energy intensive companies from the costs of implementing a more sustainable energy mix. But the Bill won’t be enough to safeguard the steel industry.
If there is one thing that the steel industry doesn’t need it is higher energy costs.
It was a relief, therefore, for steel companies to learn that Ed Davey’s Energy Bill proposes to exempt energy intensive companies from subsidising the vast costs of developing renewable energy infrastructure.
To cover the cost of a switch to green energy such as more offshore and onshore wind energy, and nuclear, the energy levy is being raised to £7.6bn from £3bn. But consumers and low energy use businesses will fit the bill.
This strategy was chosen in response to advice from industry that if high energy use companies were penalised for these costs, they would leave the UK. It was no soft threat. In March, Rio Tinto Alcan in Lynemouth announced that it would close its smelter due to high energy prices, following the introduction of the carbon price floor, with the loss of more than 500 jobs.
Ian Rodgers, chief executive of UK Steel, the trade association for the UK steel industry and a division of EEF, suggested the Bill vindicated many months of hard lobbying but cautioned that by itself it was not enough to safeguard the sector’s future.
“I am delighted that the government has now promised to shield energy intensive industries such as steel
from the full costs of the future programme to decarbonise the power industry,” says Mr Rodgers. “This is no more than other manufacturing economies such as Germany have been doing for many years, and will help towards retaining a steelmaking industry in the UK.
“However we must caution that this measure by itself is insufficient as it is far from clear whether the government will deliver adequate levels of compensation under the £250m scheme currently under consideration.
In the 2011 Autumn Statement, government said it would “implement measures to reduce the impact of policy on the costs of electricity for the most electricity-intensive industries, beginning in 2013 and worth around £250 million over the Spending Review period.”
“The government is also doing nothing to abate the punitive costs of the current decarbonisation measures which by April will be adding over £10 per MWh to steelmakers’ electricity bills.”
Many commentators who understand the needs of heavy industry as well as the need to decarbonise the economy – such as James Murray at BusinessGreen.com – have acknowledged the government is right to accept the UK needs to decarbonise without “deindustrialising”.
A question that remains on the £250 million worth of measures to reduce energy costs for electricity-intensive firms is – what are they?
If they will be structured to persuade or encourage companies to invest in carbon-reducing kit – such as power optimisation units, insulation, solar panels and low energy automation – the benefits of the funding will pass into the economy. A meaningful incentive should be built into this subsidy pot to get targeted firms to be more energy efficient.