April 22, 2016 — This article first appeared on Business Green.
The historic climate agreement reached in Paris last year was widely hailed as a major diplomatic breakthrough. For the first time, virtually all nations have agreed to take action together to try to reduce the global risk of climate change. As we approach the signing ceremony in New York this week the sense of momentum is clear and the USA, Canada and China have all recently contributed with announcements to collaborate closely on existing and new climate commitments.
In Britain, however, climate change policies have just run up against an industrial crisis centering on the potential closure of Tata’s UK steel division and the ongoing quest to find a buyer. Measures to address climate change have been directly blamed for the potential loss of tens of thousands of jobs and some have even tried to blame me personally for my role in the drafting of the Climate Change Act which was, in fact, specifically crafted to give policy makers the tools to guide a sensible transition over long timescales.
There are many reasons for Tata Steel’s decision to put its plants up for sale, some external, such as global over-capacity, some internal to the company but climate policy is not one of them. Like most industrial companies, Tata’s participation in the European Emissions Trading Scheme has delivered it a subsidy in recent years thanks to more emissions allowances being granted to them than were needed to match emissions. Rather than rip up our climate ambitions, just as others are now arriving on the same page, the answer to the UK steel crisis is to embrace the challenge of eliminating emissions of greenhouse gases from industry and to invest in future proofing industrial processes.
The UK is ahead of other countries when it comes to climate change; we have legally binding caps on our economy that stretch all the way out to 2050, reducing our emissions by 80% compared to 1990 levels. Getting emissions down to this level will be no easy task and we do not yet know which technologies will get us there or their future costs, but this is no reason to slow the transition we have begun. On the contrary, because environmental policies are exempt from State Aid rules, we can use targeted climate policies to provide supportive investment frameworks, bringing new investment to our shores, in clean infrastructure that will create future proof jobs and export opportunities.
Rather than bemoaning policies that over the last 25 years have steadily brought on more renewable energy and improvements in efficiency, industry should be demanding supportive environmental policies of their own. Including those which can unlock investments to take advantage of the abundance of low carbon, low price electricity at times of high supply that National Grid is now predicting for this summer and in to the future. The majority of industries’ response to climate policies to date has been to seek exemptions and compensation. This has worked up to a point. The European emissions trading scheme for example has provided companies such as Tata with useful cushions against falling demand for their products, thanks to allocations of emissions allowances set according to historically high ‘grandfathered’ benchmarks. But as caps tighten this strategy cannot last forever. The attitudes of both industry and government need to change to develop specific targeted policies to support investment in the necessary transition to low and zero carbon industrial production.
Industries that have been able to switch their fuels to renewable sources easily, where additional green support policies exist, have already shown transition is possible, particularly in the paper sector. Unfortunately renewable forms of energy are not yet at the point where they can be used easily to decarbonize the production of metals since they are very energy intensive and also use coal for part of the production process. There are alternatives including electrification and carbon capture and storage, but to invest in these solutions will require significant sums and high degree of confidence in market demand. Tata themselves have been exploring options including their HISana project in Holland and Swedish steel maker SSAB is also at the forefront of exploring new investment options. Yet the challenge is to get the UK Government to provide industrial companies with policies that support industrial transformation with a widening of focus away from renewables only. UK leadership on climate change needs to be matched by leadership in industrial modernisation and innovation which will enhance our competitiveness.
The necessary policy tools already exist, carbon pricing provides the overarching framework and generates revenues that can be used to support transformative investments. While other countries move to implement carbon pricing policies alongside us, supplementary policies to bring technologies down the cost curve, should also be introduced. Contracts for difference, have been tested and proven in deploying large scale investment in renewable energy and they can be adapted for use in industrial sectors and should now be the main policy focus. Electrification of British steel capacity can be made to work if some of the risks of capital investment are reduced and new industrial electricity tariffs are introduced to provide time of use incentives to coincide with periods of high supply and reward storage technologies. We are currently exporting scrap steel for it to be recycled in furnaces elsewhere and then paying to import the finished product. Clearly this is a sign that a new approach to this hugely important primary industry can and must be adopted.
I look forward to the Paris Agreement coming in to force which should give the UK the confidence to continue with its own climate leadership and support a new era of investment in clean steel production and a broader industrial base. With the right policies, we can show that climate action can act as a spur for industrial innovation and investment, securing jobs for the remainder of this century. I look forward to working with industry in my new role, as Executive Director of Environmental Defense Fund Europe, to help find the ways that work to achieve that objective.
