Friday, 8 April 2016

Ed Miliband must be delighted - Chris Huhne and David Cameron too

A long term strategic goal of Ed Miliband's is coming a step nearer - the elimination of energy intensive manufacturing, like steel, from the UK.

The slowly unfolding train wreck of Tata steel and the Port Talbot works is a direct result of the Climate Change Act 2008, which set out to reduce our CO2 emissions by 80%. As a result, British industrial users pay twice the EU average for electricity and also much higher prices than US companies, who benefit from shale gas. A House of Commons Committee reports that green levies mean British industry pays 80% more for energy than the European average.

Miliband was the first secretary of state for energy and climate change, so he must be delighted at the prospect of taking such a big step towards his goals by getting rid of Port Talbot. After all, it's difficult to see how the 80% target could ever be met while having such an energy intensive industry. One wonders if he really understood that night follows day, or if he just regards the Welsh steel workers as collateral damage.

Cameron and the 2010 coalition government are just as guilty. Miliband's Climate Change Act was passed by 463 votes to 3, with the Tories whipping it through to the extent that one of the 3 Tory MPs who voted against was apparently personally warned by Cameron that he could say goodbye to any front bench job, ever, a promise that was kept.

Then Huhne, as the coalition's energy secretary before his speeding points demise, instituted a carbon price floor, which apparently means that UK industrial users pay four times more for the cost of carbon in their electricity prices than continental competitors. Poor prune Huhne thought that the price floor wouldn't matter because fossil fuel prices could only rise and renewables would become more competitive, albeit not very useful for running industrial processes. Anyone who has tracked the ups and down of fuel costs since the 1973 oil crisis (er, yes I have from time to time, sadly) would not have been totally shocked when the next large movement after this policy was conceived was down rather than up.

And local MP Stephen Kinnock, who attracted a lot of publicity with his dash to India, argued last year that we should be "leading the world" in climate change legislation, calling for a "green growth revolution".

In case you think this is all to do with Chinese steel, note that Tata is not planning to pull out of its steelworks in Holland at Ijmuiden, though that is a smaller facility and well integrated with transport links.

The Welsh steel workers were arguing last week that, once they have gone, China will have a free rein in setting prices. They did produce half the world's steel in 2015. But the other 50% is split between some 65 countries, so unless a lot of them decide to follow our lead and commit industrial suicide, I doubt the Chinese will be able to hike prices. And as we produced less than 1% of the world's steel last year, very expensively, I can't see that we are any brake on the Chinese.

I rather doubt that we can be internationally competitive in steel making, even if we, like Germany, shielded industrial users from increased energy costs, putting more of the burden onto domestic customers. Can't see that being electorally popular mind and of course it would do nothing for meeting CO2 targets. And I'm not actually sure that it matters too much whether we have a fairly small crude steel manufacturing capability. Germany made 4 times as much as us in 2015, Italy twice as much and France and Spain nearly 40% more, in Europe alone. Our army's latest tank is made with Swedish steel (and being built in Spain).

The industry employs about 15,000, down from the 24,000 when Tata took over Corus. And in the whole steel sector it's 24,000 compared with 320,000 in 1970. The number of employees has shrunk by 13 times and the output by 2.5 times.

Of course, the other big problem for Tata is the fact that they actually bought a pension fund with a small sideline in making steel. There are 130,000 members of the scheme. It's deficit, at £485m, is one of the largest in the UK, though at 3% of liabilities it strikes me as surprisingly small.

What's puzzling to me is that Cameron and Osborne did not appear to see this coming. Well, maybe Osborne did but he thinks cosying up to the Chinese matters more (as, indeed, it might).

But even more puzzling is why anyone would think that the world will follow the CO2 policy of a country that generates less than 2% of the world's emissions. Isn't this a bit like unilateral disarmament?

Indeed, the director of the Energy Intensive Users Group said some years ago that "Outsourcing our emissions is not a solution to a global problem. Politicians need to understand that unilateral action will come at a terrible cost in terms of UK manufacturing jobs, investment and export revenue, for no discernable gain."

So, when politicians start wringing their hands about the Welsh steel industry, I want to know one thing: are you a hypocrite or are you just stupid?

Dominic Lawson, Sunday Times, 3 April 2016.
John Collingridge, Sunday Times Business, 3 April 2016.
World Steel Association (
And my experience in energy economics, even if it was 30 years ago.

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