One initial response to this is how much are UK steel production costs really likely to increase in the coming decade? As far as carbon emissions are concerned, much will depend on the price of carbon. Will it be $15/t or $30/t? The UK government has promised to set a floor price on carbon, but has put off deciding where this should be set until at least the next parliament. How this has been accounted for in the report is uncertain.
And then there is the extent of free allowances… to be decided by the Commission. So the question has to be asked to what extent is this report just propaganda against EU carbon legislation?
But more generally, the vast bulk of the UK’s steel supply comes from either the UK or its European competitors, and the latter will face similar cost increases in carbon and energy: thus the implications for the UK steel-making industry in particular are not likely to be massive. The ultimate answer, nevertheless, has to be to find a way to make carbon legislation apply to all major steel producing countries and regions.
SBB 28 July 2010 Steel producers and other energy intensive companies could flee the UK to escape from the financial burden imposed by climate change policies, according to a report sponsored by the Energy Intensive Users Group (EIUG) and Trades Union Congress.
Energy bills, including costs of electricity, gas and emissions reductions schemes, could increase 18-141% by 2020, according to the Waters Wye Associates report.
“If the government continues to simply add one energy or carbon reduction levy after another on to the energy-intensive sectors, then the risk is that these industries will no longer be able to compete internationally and will simply cease to operate in the UK,” says the report seen by Steel Business Briefing.
Some companies are already unable to reinvest in infrastructure because of the increased energy tax burden and the report assesses they will fade away.
Carbon leakage, the flight of production to less regulated regions, is the likely result, the report continues. Industries such as steel provide raw materials to a host of other sectors, so when they pass through increased costs it results in higher prices further down the supply chain. This can result in rising prices and inflation, making UK produced goods less competitive.
“The very significant cumulative nature of the additional costs likely to come in under European legislation will damage the competitiveness of all EU steelmakers and limit their ability to fulfil their crucial role in a low carbon future,” says Kirby Adams, md and ceo of Tata Steel Europe.