A Sunrise Industry: Unlocking Green Steel Investment

This research is published in collaboration with the following organisations:

A Sunrise Industry: Unlocking Green Steel Investment

Executive Summary

Green Steel is key to Achieving Government Ambitions

The UK government has committed to reaching net-zero emissions by 2050, creating a skilled workforce to carry out high-wage green jobs in the process. Further, as part of its “levelling up” agenda, the government is committed to rebalancing the geographical inequalities embedded in today’s economy by unleashing the potential of currently held-back regions, unlocking higher levels of good and sustainable jobs, growth, investment and productivity. These pillars rest at the heart of the government's stated ambitions for the economy's future; the challenge now is to deliver them.

At the nexus of these goals sits green steel which — if provided a level playing field, the right level of investment, and an ambitious industrial strategy — can deliver highly skilled, high-wage jobs fit for the future, rapidly green a key industrial sector, steward industries and infrastructures of the future, scale exports at a time of trade uncertainty and support levelling up by stimulating investment in industrial heartlands.

The UK government has made a series of commitments to support the transition of this strategically important sector, from the Industrial Decarbonisation Strategy commitment to consider setting targets for ore-based steelmaking to reach near-zero emissions by 2035, to the green steel-based work of the Steel Council, and developing Resource and Energy Efficiency measures. The industry, however, faces compounding challenges. Trade uncertainties, price slumps, an upsurge in international steel production, and the legacy effects of the pandemic all pose challenges to the competitiveness of UK steel. Moreover, the domestic energy prices for steel are significantly higher than many European competitors, creating an immediate threat to the longevity of the sector.

While urgent action is required to safeguard UK steel now, this action should form the first step on a comprehensive roadmap to securing a thriving future for green steel, and this briefing focuses on the latter.

The public investment to match-fund private investment needed to green UK steel is estimated to be around £3 billion — which is less than the steel sector and its supply chains contribute to UK GVA per year. Should we fail to deliver this, however, the costs of high-skilled job losses in steel communities, and with the long-term hit to innovation, investment, UK industrial power, exports and domestic supply chains will be far greater. Securing a thriving future for UK green steel will require delivering funding to retrofit the industry, unlocking a series of significant benefits:

[.num-list][.num-list-num]1[.num-list-num][.num-list-text]Futureproof highly-skilled, well-paid jobs[.num-list-text][.num-list]

The steel sector plays a vital role in sustaining high-skilled, high-wage jobs, often in areas where levels of poverty and deprivation are comparatively high. Today, despite a dramatic decline in levels of employment over the past few decades, steel remains a major employer, with over 33,000 people directly employed in the industry, and a further 40,000 jobs are supported in the supply chain. Just over half of all UK steel jobs are based in Wales or Yorkshire and Humberside, with a further 6,300 jobs in the West Midlands, 2,900 in the North East of England, and over 1,000 jobs in Scotland, East, South West and East Midlands.

Further, workers in today’s steel industry are likely to work in high-skilled, high-value roles with comparatively high salaries, with average wages in the steel sector 28 per cent higher than the national average and up to 46 per cent higher when compared to the regional average in Wales and Yorkshire and Humberside where steel jobs are concentrated. Further, figures from Make UK show the sector employs around 700 apprentices, providing pathways to employment, training and skills development in Yorkshire and Humberside.  

Over one-third of the sector’s jobs are based in the North of England alone. IPPR North research finds that a commitment to and investment in green steel in the North of England could save around 12,000 jobs directly in the region and up to 20,000 jobs throughout the rest of the UK.

The transition to net zero is an opportunity to centre the UK economy around green, well-paid, highly skilled jobs, and providing public investment to retrofit carbon-intensive industries like steel to make them sustainable by design is key to future-proofing the labour market.

[.num-list][.num-list-num]2[.num-list-num][.num-list-text]Deliver on levelling up[.num-list-text][.num-list]

The levelling-up agenda has been described as a “defining mission” of the UK government, aiming to rebalance investment, productivity and growth, provide more control over how that investment is made, and level up skills. In February 2022, the government set out missions to tackle geographical disparities. Despite these commitments, survey findings published in April reveal roughly a third of manufacturers are not satisfied with the current progress on levelling up, and large numbers remain neither satisfied nor dissatisfied with the programme.

As steel is a comparatively high wage sector, safeguarding its long-term future should be a levelling up priority. For productivity, Office for National Statistics data released in June 2022 show London was 53.1 percent more productive than the median region in terms of output per hour worked, while that figure was -0.9 per cent in the West Midlands, -3.3 per cent in Yorkshire and the Humber, -4.4 per cent in Wales, and -1.6 per cent in the North East. Further, while London, the North West and the South West experienced positive growth in Quarter Three 2021; the North East, East of England, West Midlands, East Midlands and the South East experienced negative growth, while growth was flat in Yorkshire and the Humber.

While regional variations exist for what manufacturers identify as a priority for levelling up, accessing people and skills was strong, and support for prioritising a just transition and jobs is relatively high. In Yorkshire and the Humber, for instance, 53 per cent of manufacturers want to see incentives for businesses to become net zero as a levelling up priority and that figure is 74 per cent for better support for skills training and creating better job opportunities for all. Providing the public investment required to green UK steel can contribute in a meaningful way to the advancement of the levelling up agenda.

[.num-list][.num-list-num]3[.num-list-num][.num-list-text]Support UK decarbonisation targets[.num-list-text][.num-list]

As it stands, steel is one of the biggest UK industrial carbon emitters, producing 7 million tonnes of steel each year, giving rise to around 11.6 million tCO2. The UK’s main primary steel production facilities – Port Talbot and Scunthorpe – currently produce around 15 per cent of the UK’s industrial greenhouse gas emissions. Safeguarding the longevity of this strategically important industry is essential for steel workers and communities and to deliver wider social and economic benefits, but it is also a key opportunity to support the UK’s decarbonisation targets.

Neighbouring states are already pushing with plans to decarbonise steel. In Sweden, a partnership between steel manufacturer SSAB, mining company LKAB, and the state-owned energy firm Vattenfall is underway, utilising hydrogen-DRI, EAFs, and renewable electricity, aiming to reduce Sweden’s total CO2 emissions by 10 per cent.

The UK Industrial Decarbonisation Strategy notes decarbonising industry in line with net zero will entail emissions being reduced by at least two-thirds by 2035 and by more than 90 per cent in 2050. Crucially, a transition can only be delivered by unlocking significant injections of targeted sectoral and regional-specific investment, both from industry and — in addition to creating a viable market for net-zero UK steel — capital funding support from the government.

[.num-list][.num-list-num]4[.num-list-num][.num-list-text]Steward UK industries and infrastructures of the future[.num-list-text][.num-list]

As the campaign Britain: We Need our Steel notes, steel is in “the roads we drive, the bridges we cross, the hospitals that heal us and the schools our children learn in.” At a time of climate breakdown, steel is particularly important in the drive to scale green industries and infrastructures of the future.

While today’s energy market remains dominated by carbon-intensive industries, the UK is well placed to dramatically expand renewables like offshore wind energy capacity. It is estimated that Scottish waters alone possess around 25 per cent of the potential European offshore wind and tidal resources. In the case of wind turbines, for example, from the material used to hold carbon fibre blades in place to the vast majority of wind turbine towers and turbine generators, production depends on steel, creating new opportunities for UK steel to deliver for green industries and help to create a network of resilient, sustainable domestic supply chains, supporting UK green job creation and investment.

Similarly, 40 per cent of UK emissions currently come from households. The UK government has set a target requiring all houses to reach EPC band C by 2035, meaning retrofitting homes and minimising emissions in new builds should be a priority in the UK’s effort to decarbonise. As over half of worldwide steel goes into buildings and infrastructure, green steel has a critical part to play in decarbonising homes, from supplying perforated steel panels for solar thermal generation to improving energy efficiency in construction.

[.num-list][.num-list-num]5[.num-list-num][.num-list-text]Grow the UK’s green export market[.num-list-text][.num-list]

In 2021, the UK government announced a new £1 trillion a year export target by 2030 as part of the first post-Brexit export strategy and alongside a “made in UK, sold to the world” campaign to boost international trade. The government’s task now is to make that a reality in a challenging trading environment.

In 1973, the UK had a 9.1 per cent share of world exports of manufacturing. By 1987, that figure was 7.3 per cent and by 2005 it was just 4.1 per cent. Over the past two decades, the trade deficit in manufactured goods widened: in 1997, it was worth £7.5 billion; by 2018 it was worth £92 billion. As we navigate the new trading landscape, the need to boost manufacturing exports is evident. Moreover, as steel is one of the most highly traded products globally, addressing international competition imbalances in export markets is crucial.

Consumption of steel has surged by 3.3 per cent annually over the last seven decades and global steel demand is expected to increase. Further, as UK Steel notes, a competitive advantage could develop for green ore-based production in the UK, generating greater demand for exports. In place of closing steel plants, offshoring high emission steel production and importing more steel, the UK government should provide the levels of investment required to create a net-zero domestic green steel market, boosting sustainable manufacturing exports amid a turbulent trading landscape while tackling industrial emissions.

Full Text
A Sunrise Industry: Unlocking Green Steel Investment