How the UK can capitalise on cleaner, greener steel

The UK steel industry is at risk. Green Alliance’s ‘A brighter future for UK steel’ report tells us how we can make UK steel production more sustainable.

Published

September 28, 2023

Setting the steel scene

Figure 1: World crude steel production

Source: Statista

The top five crude steel-producing countries are China, India, Japan, the United States, and Russia.[i]

The steel industry is a significant player in the journey to net zero. Steel production accounts for 9% of global anthropogenic carbon dioxide emissions.[ii] For every ton of steel produced, 1.9 tons of carbon dioxide is released into the atmosphere.[iii]

Figure 2: UK annual crude steel production

Source: Make UK

Between 2009 to 2021, UK crude steel production has fluctuated, reaching a peak of over 12 million metric tons in 2014. Between 2015 to 2020, UK crude steel production declined until 2021 when the UK produced just over 7.2 million metric tons of crude steel.[iv] In 2022, Turkey was the biggest importer of UK steel, importing at the value of £801.5 million ($1 bn USD).[v] This was followed by the Netherlands and Sweden, who imported steel at a value of £575.2 million ($721.3 million USD) and £511.4 million ($641 million USD) respectively.[vi] 34,500 people are directly employed in the UK steel industry, but an additional 43,000 people’s jobs are supported by the supply chain.[vii] The industry directly contributes £2.4 billion ($3 bn USD) to the UK economy.[viii]

Threat of collapse and the future of green steel

The UK government has given the steel industry some support over the last few years. For example, in 2019, British Steel received a £120 million ($149.65 million USD) emergency loan to cover its EU Emissions Trading Scheme (ETS) bill for CO₂emissions.[ix]

However, at the beginning of 2023, it was reported that the UK steel industry was close to collapse due to little help from the government in the face of high energy costs, carbon taxes, lost markets, lower demand, and imported steel from the open market.[x] The support that UK steelmakers are getting does not match that of France and Germany. In July, the European Commission approved a €550 million ($616 million USD) direct grant for German steel, a €850 million ($912 million USD) package for Europe’s biggest steelmaker, ArcelorMittal which was put together by Paris, and a conditional payment mechanism of up to €1.45 billion ($1.56 bn USD) to support ThyssenKrupp Steel Europe.[xi] Whilst the EU has added 15 planned or in-progress clean steel projects between 2021 to 2023, the UK has only added one, up from zero.[xii]

Several UK organisations have become members of SteelZero, committing to buying and using 50% low-emission steel by 2030 and using 100% net zero steel by at least 2050.[xiii]

In January, UK Chancellor Jeremy Hunt announced a £600 million ($751 million USD) funding package for decarbonising UK steel, £300 million each for British Steel and Tata Steel UK.[xiv] Steel experts have said they welcomed this package but it is not enough. The cost of producing emissions-free “green steel” at Tata Steel’s largest plant in Port Talbot is estimated to be £3 billion ($3.76 bn USD).[xv] So, only being given 10% of this cost from the government may not be a big enough incentive to make the switch.[xvi] ZCA have previously discussed the UK Climate Change Committee’s (CCC) ‘Progress in Reducing Emissions Report’. The CCC suggested that the government hadn’t yet created the policy to deliver its ambitious targets for decarbonising the steel industry.

This September, the UK government announced a new steel sector support package to the value of £500 million ($620 million USD).[xvii] The money is going to Tata Steel’s Port Talbot steelworks, to help the transition to net zero and prevent the plant from possible closure. However, this is significantly less money than the £1.5 billion ($1.86 billion USD) that Tata Steel initially said was needed to prevent Port Talbot from closing.[xviii] Gareth Stace, director general of UK Steel, says that “this is the start of investment for our sector”.[xix] The package is part of a long-term partnership between the government and the steel industry.

Green Alliance recently published their report ‘A brighter future for UK steel’, which provides recommendations to the steel industry and the UK government on how to make steel production greener. The UK should maintain its domestic steel production because it supports so many jobs as well as other industries. Furthermore, the UK’s relatively low production capacity makes it more vulnerable to supply chain shocks. The UK steel market could increase by 26% by 2030, mainly through the technology the UK will use to reach net zero, like wind turbines and electric vehicle charging points.[xx] Additionally, most of the steel that the UK needs could be produced domestically.[xxi] However, given the environmental impacts of steel production and the need to meet net zero, clean steel production and better use and recycling of materials are needed.

Steelmaking can be made less carbon-intensive by transitioning from using fossil fuels and fossil methane to low-cost renewable energy and green hydrogen in production.[xxii] However, the main message of Green Alliance’s report is that the UK should move away from the idea that production needs to be maximised as much as possible. Increasing material efficiency is a top priority. Improving the efficiency of the use of steel in the UK and abroad could cut embedded carbon by 14% and reduce domestic steel industry emissions by around 6% in 2030. This is on top of the carbon savings that would be gained from cleaner steel production plants. Furthermore, almost 80% of future UK demand could be met by recycling the UK’s extensive supply of scrap steel. Green Alliance states that transitioning the industry now will “lead to better connections with the domestic market and potentially improved profitability”.[xxiii]

Green Alliance’s recommendations to the steel industry are:

– Shift steel production to electric arc furnaces (EAFs).

– Minimise steel waste during processing and improve scrap recovery.

– Invest in processing capacity for scrap steel and for high-value products.

– Investigate other new business models for the industry, such as leasing, buyback schemes or circular stockholding.

The Think Tank recommends that the government should:

– Create a more favourable investment environment.

– Offer match-funded capital support, including for a hydrogen direct reduction facility supplying low-carbon iron to the UK industry.

– Have dedicated strategies for reshoring manufacturing industries using steel and growing sectors like renewables.

– Drive faster uptake of low carbon steel and resource efficiency in the industry e.g. through mandatory scope 3 (upstream and downstream) emissions reporting and product standards and by extending public procurement, carbon footprint and circularity requirements across the UK.