British Steel should be the test case for the new steel strategy – Inside track

In September 2024, the last blast furnace at Port Talbot shut. The plant will reopen, operating a 3.2 megatonne (Mt) electric arc furnace (EAF), making it one of the largest furnaces of its kind in the world.

Almost exactly six months after Port Talbot’s closure, British Steel’s owners Jingye started consultations over the closure of its two blast furnaces in Scunthorpe, claiming losses of £700,000 a day. The government stepped in to take over the operation of the plant and the cost of running it has reportedly now increased to £1.2 million per day.

It’s unclear who an eventual buyer might be or whether the government will fully nationalise British Steel, although it is certainly keen to sell it. Indications are that whoever runs the site will move to EAF production in the long term.

Modernising is cheaper than business as usual
A lot has gone wrong at Port Talbot and Scunthorpe. However, one clear problem was that the four blast furnaces operating across the two sites needed to be replaced in the 2020s and ‘30s. The owners had three options: reline the blast furnaces (at great expense), replace them with EAFs or close the sites.

Completely closing the sites would have been disastrous for local communities and left the UK more reliant on imports. It came perilously close at Scunthorpe and was a real possibility at Port Talbot too. In the end, Port Talbot opted to move to an EAF, and it looks like the same will happen at Scunthorpe.

Financially, this makes sense. We’ve revived our analysis from 2022 which compared the costs of steel production methods with relining a blast furnace. Then, electricity prices (£175 per MWh at the time) meant relining was roughly the same annual cost per tonne of steel as building and running an all scrap steel fed EAF.

We also looked at other greener production methods: EAFs fed with iron produced with gas; EAFs fed with iron produced with various amounts of hydrogen; and relining blast furnaces and fitting them with carbon capture and storage (CCS). A relatively low level of carbon pricing (a mechanism to reduce greenhouse gas emissions by charging polluters), representing a business as usual approach, and full carbon pricing, due to be gradually introduced for sectors like steel once a carbon border adjustment mechanism (a tariff to ensure imports match the UK’s carbon price) is in place, were also modelled.

However, industrial electricity prices have since fallen to £59 per MWh, so the cost of producing steel has changed significantly, as the chart below shows. With limited carbon pricing (limited CP), EAFs using scrap steel are now much cheaper than relining blast furnaces, though other cleaner production methods remain more expensive. However, full carbon pricing (full CP) would make almost all alternative production methods cheaper than relining a blast furnace. While carbon pricing is contentious, it aligns with the polluter pays principle and is a better option than alternatives.

For our new analysis, it’s worth noting that while we have updated gas and electricity prices, along with capital costs and full carbon prices, our model still uses legacy figures for the price of inputs and effective carbon prices, so caution should be taken with these results.

Protecting jobs in steel will protect support for net zero
Switching to EAFs that predominantly process scrap metal will make the UK more resilient than if imported ore and coal were used. The industry would be more productive with lower emissions, improving local air quality around plants. EAFs supplied with scrap alone can also meet most of the UK’s steel demand.

However, EAFs need fewer workers. Port Talbot previously had 4,000 employees, and the blast furnace closure directly led to 2,000 workers losing their jobs. This is the kind of story that fuels distrust around the net zero transition. While green jobs are being created, places and timings matter. It’s no comfort if steel jobs are ‘replaced’ by renewables roles in East Anglia and Scotland, or if there is a vague promise of re-industrialisation in future years.

Failing, yet again, to plan for industrial change that protects workers will only further erode trust, which plays into the hands of those making bad faith arguments to politicise net-zero. So what’s the solution?

The steel strategy should signal renaissance for the industry
The government is due to publish its steel strategy before the summer. Regardless of climate considerations, productivity issues and aging infrastructure mean the UK steel industry needs renewal.

As the operator of British Steel, the government can demonstrate what’s possible for a workplace with enormous cultural and economic significance. It could be an example of what a clear, ambitious plan for steel can do and how futureproofing benefits communities and the country.

The strategy should prioritise protecting jobs, pay and conditions, creating a cleaner modern industry, and making British crude steel competitive again. Downstream and scrap recycling industries could also expand.

Green Alliance recommends a phased move to EAFs at Scunthorpe. Retaining one blast furnace, while replacing the other with an EAF, would retain more jobs for longer. Jobs could then be more focused on manufacturing downstream steel products, for example in steel plate. However, there is no guarantee that those jobs will have equivalent pay and conditions.

Unions might be more comfortable with seeing an attempt to increase steel production at both Port Talbot and Scunthorpe using EAFs. While there is a global oversupply of steel, green steel is facing undersupply in Europe by 2030-35. This could present an opportunity for the UK to grow its steel sector, reversing decades-long decline.

Both options above could be supported by other recommendations we make for the strategy, such as increasing domestic UK steel demand through public procurement rules and cutting industrial electricity prices.

If these measures succeeded, they would demonstrate that net zero is positive for workers as well as the planet. This needs to be demonstrated to turn the tide on the argument that decarbonisation inevitably means deindustrialisation.