Steel Industry (Carbon Floor Pricing)

Ian Swales Excerpts

Wednesday 23rd March 2011 Westminster Hall

[Jessica Morden (Newport East) (Lab)]

Thank you, Mr Amess, for the opportunity to take part in the debate today. I am so grateful for the attendance of Members with an interest in steel, which shows the strength of feeling on the issue.

I put in for the debate after one of my regular visits to Llanwern steelworks in my constituency. There has been a steelworks plant at Llanwern since 1962. Although steel making ceased in 2001, Tata at Llanwern is still a major employer with a hot strip mill and a galvanising line run by an extremely enthusiastic work force who make a high-quality product for the automotive industry, among others.

The industry has had ups and downs over the years, with the loss of the heavy end and heavy job losses in 2001, but the dedicated work force produce a high-quality product. Tata’s investment down the road in Port Talbot, to which Llanwern is inextricably linked, means that at the moment things are looking good and employment is back up to around 700. This is a good-news story, but the threat to the steel industry from Government legislation is making the industry wary, and I want to explore that today.

I am also glad to be introducing the debate because on two occasions in the past week the issue of carbon floor pricing has been raised: in the Welsh Grand Committee by my hon. Friend the Member for Llanelli (Nia Griffith), and in the all-party group on energy-intensive industries. Startlingly, there was no Government response in either forum to address the industry’s concerns. I hope that today’s short debate will give the Minister the chance to hear the very real concerns and address them in person so that the industry knows where it stands.

Although “steel” appears in the glamorous title of the debate, the issues apply equally to other intensive energy users such as the paper, glass and ceramics industries, which employ about 225,000 workers in the UK. The issue that concerns the industry is the carbon floor price, which might be introduced in today’s Budget, although the Minister will know more about that than I do.

The Conservative manifesto pledged to reform the climate change levy to introduce a carbon floor price or a stability mechanism so that the total cost of carbon for generators could be more certain. A policy seems to have developed in practice that increases the cost of carbon for UK electricity generators, yet is seen as another tax on the fuel used by generators. The Government’s stated aim for the carbon floor price is to boost investment in low-carbon energy, especially in nuclear power, by putting a minimum price on carbon through taxing fuels used for generating electricity according to carbon intensity. That pushes up the cost of producing electricity from high-carbon fuels such as coal, making renewable and low-carbon means of electricity generation relatively cheaper. UK energy-intensive producers will therefore face huge cost increases that will not be borne by other competitors elsewhere in Europe or the rest of the world.

The UK steel industry’s submission to the consultation makes it clear that the carbon floor price is the wrong policy for three reasons. First, multiple regulations are trying to fix individual problems in lots of different ways. Carbon is already priced through the European Union emissions trading scheme, the climate change levy and the carbon reduction commitment, alongside the renewable subsidies. Secondly, it runs the very real risk of having a negative impact on the competitiveness of UK manufacturers—a disincentive to invest in the UK. Finally, the industry claims it is questionable whether the policy will deliver the desired outcome at all.

[Ian Swales (Redcar) (LD)]

I thank the hon. Lady for giving way and for securing this important debate. Does she agree that many of the industries we are talking about are owned by foreign companies, which can choose where to invest, so if the UK adopts policies different from those of the rest of the world, that will simply drive those industries out of this country?

[Jessica Morden]

I thank the hon. Gentleman for his well-made point, which covers the precise subject of the debate. I shall return to it.

We all know we have to reduce our carbon footprint, but industries such as steel use large amounts of power out of necessity and have no other realistic option at the moment. In the steel industry in my constituency, I see an industry that supports plans to make the transition to a low-carbon economy and is actively trying to be involved in being part of the solution to reduce CO₂ emissions. For Tata, that might involve developing products and improving processes such as the £60 million basic oxygen steelmaking—BOS—gas recovery investment it has made at its Port Talbot plant, which will have great benefits for us at Llanwern, or products such as the photovoltaic project being developed in Shotton.

It is worth remembering that to build low-carbon energy sources, improve energy efficiency and drive advancements in low-carbon construction, steel will be in high demand. Steel is a high-carbon industry in its production, but an essential product for the low-carbon economy.

--- Later in debate ---

[Mr Prisk]

Yes. The manufacturing framework covers issues that are broader than the issue that we are discussing in this debate. It is about all the issues of capital investment, skills and so on. However, the hon. Gentleman is quite right. What we have tried to do with the growth reviews for manufacturing as a whole—I am just going slightly beyond the purview of this debate, Mr Amess, but not too far—is to ensure that we have listened carefully to manufacturers about all the different aspects of manufacturing, so that we understand how the proposal will work. The hon. Gentleman is quite right that the framework needs to be one in which the Government are a partner with industry, so that it is not simply something that we have decided is the right thing without listening to others. That will be reflected particularly in our response to energy-intensive users.

[Ian Swales]

Will the Minister give way?

[Mr Prisk]

I will do so briefly, but there are some detailed responses to be made to the points raised in the debate.

[Ian Swales]

I will be very quick. Is the Minister aware that this very week we have had the first full meeting of the new all-party group on energy-intensive industries? I am the vice-chair of that group and I have never been to an all-party group with a higher attendance. Every single industry that has been mentioned in this debate was represented at senior level, which illustrates the level of concern about the issue. It also supports what the hon. Member for Ogmore (Huw Irranca-Davies) was saying, that we need time to engage with the Government to ensure that they truly understand these issues.

[Mr Prisk]

I welcome that. It is very important that we have a good and thorough debate, and that Members across the House can participate in it. That is very welcome news.

The industry is crucial. We have talked about it in principle, but when one looks at the facts, last year, some 9.7 million tonnes of crude steel were produced in the UK and the industry employs 25,000 people directly. Encouragingly—and this goes back to the point that the right hon. Member for Rotherham made—about half of the UK steel industry’s output is now exported and we are now a net exporter. That is not necessarily something that one reads in the newspapers, but it is a success story, and in that context I commend both the previous Administration and the industry itself. That is quite something.

In Wales—this is particularly relevant to the hon. Member for Newport East—I believe that about 7,000 people are employed in the steel industry, with 4,000 employed at Port Talbot and 1,000 at the Llanwern rolling mills, so that is an important part of the sector. What is encouraging is that despite the fact that in 2008, the industry saw demand for its products drop by 50%, which would be devastating for any industry, it has been able, through good management of production, good co-operation and a flexible and committed work force, to ensure that there were not any major long-term job losses in those plants, which have been able to come back into production. Of course, there were some job losses, but in any industry if demand and production drop by half, that is potentially a killer. Thankfully, that did not happen.

I turn to the specific issue of the carbon floor price, before addressing the energy-intensive industries strategy and thus responding to the question about what my Department is doing to mitigate the impact. We have just consulted on the issue across Government, although the consultation was of course led by the Department for Energy and Climate Change. To respond to a question from the hon. Member for Newport East, we consciously made a specific point of talking to the key industries involved, including the Engineering Employers Federation, which she mentioned, so that we have a careful understanding of the practicalities of the measure for all energy users and for particular industries.