There is a case for tackling carbon leakage concerns, but where is the green industrial strategy that can build a truly sustainable steel sector
Few environmental debates spark a more binary response than the row relating to heavy industry, green regulations, and the risk of "carbon leakage" - a perennial argument that is enduring one of its periodic periods in the headlines thanks to the sad loss of thousands of jobs across the UK steel industry.
On one side environmental campaigners slam pollutocrats for campaigning for exemptions from green rules designed to protect us all from toxic air pollution and tackle existential climate change risks - and in the process risk looking cavalier about the communities impacted by job losses. On the other, industry lobbyists and their cheerleaders in the media warn unless manufacturers are protected from excessive green policy costs they will up sticks and continue emitting carbon elsewhere taking UK jobs and investment with them - and in the process risk looking cavalier about the lungs of the communities impacted by pollution.
As a climate hawk it will surprise no one I instinctively favour the environmentalists' position. Those arguing UK and European climate change policies present a serious "carbon leakage" threat have a long track record of exaggerating the impact of green regulations and criticising clean energy subsidies at the same time as pocketing massive implicit and direct subsidies themselves. EU impact assessments have suggested the bloc's emissions trading scheme (ETS) has resulted in negligible levels of industrial relocation, while even senior executives at BP think the "carbon leakage" argument is a bit of a "red herring" given how many other factors impact investment decisions. The cocktail of arguments for protecting heavy industry from green policies is further compromised by the fact it is all too often flavoured with more than a soupcon of climate scepticism.
The recent debate over the fate of the UK steel industry is a case in point. Some media commentators have sought to blame green policy costs almost exclusively for the crisis. The Prime Minister and Business Secretary have fuelled this impression by rushing through plans to delay the implementation of European pollution rules and compensate industrial firms for energy policy costs. And yet an excellent analysis by Carbon Brief details how policy costs for the UK steel industry amount to perhaps one to two per cent of production costs, an amount that is dwarfed by the 40 per cent collapse in global steel prices over the past four years that lies at the root of the current crisis.
However, while it may be tempting to succumb to cosy tribal thinking and condemn moves to once again give polluters a free pass to keep polluting, when thousands of jobs are lost and many more are at risk any government would feel compelled to act. Anyone doubting that should look at the Corbyn camp's volte face that saw it first condemn 'corporate welfare', before now demanding increased government support for industrial firms.
Equally, carbon leakage fears, while frequently overstated, cannot be dismissed out of hand. In a highly competitive global industry characterised by over-supply even an increase in production costs of one per cent can make a difference. Just because some of those arguing that the climate loses out if heavy industry relocates to countries with less stringent environmental regulations don't actually think climate change is a problem, doesn't mean the argument is invalid.
Consequently, there is nothing inherently wrong with a government taking steps to tackle carbon leakage risks. Many other nations do it, Germany foremost among them. Exempting heavy industry from energy policy costs, as Angela Merkel has done and David Cameron now plans to do, may impose a greater burden on consumers, but it also reduces the risk of Europe deindustrialising at the same time as it is decarbonising. It helps ensure production of key raw materials is close to the markets that will use them, something that is likely to be essential in a truly low carbon global economy. It promises to maximise the economic benefits from the green economic transition, delivering the steel for wind turbines, the cement and glass for green buildings, and the chemicals for advanced bio-engineering. Most importantly, it provides the foundations from which to build the low carbon industrial technologies that are urgently required as part of any credible global decarbonisation strategy.
So Cameron and his ministers can be forgiven for responding to the steel crisis by torching the polluter pays principle. But what is much, much harder to understand is the complete and on-going failure to combine protection from green policy costs with a coherent and ambitious plan to actively help UK heavy industry prepare for an inevitable low carbon future.
A Prime Minister who truly understood the scale of both the climate change threat and the clean tech opportunity would respond to questions at Prime Minister's Questions on green policy costs by declaring: "On energy costs I can announce we'll refund the energy-intensive industries for the full amount of the policy cost they face as soon we get the state aid decision from Brussels, and I can announce we'll pay that immediately. At the same time we will work with the industry to ensure it steps up investment in the low carbon R&D and deployment that will truly secure its long term future, creating the green, well-paid jobs our communities need."
The industrial low carbon R&D landscape is not completely barren - the government and industry have long been working on a series of Industrial Decarbonisation Roadmaps, while tax breaks are on offer for energy efficiency improvements and the like - but the level of funding for such initiatives has been pitiful when set against the absolutely critical need to find ways to slash emissions from steel, cement, chemicals, and other heavy manufacturing sectors. In addition, progress on carbon capture and storage (CCS) and plans to create CCS hubs around the UK's industrial heartlands edge forward at the pace of an asthmatic snail that has spent too long breathing in fumes from the local steel plant.
This is the scandal heaped upon scandal of the new government's low carbon policy record to date. Damaging the renewable energy industry at a time when it is on the cusp of an historic breakthrough is tragic and short-sighted enough, the failure to make rapid progress in the low carbon areas the government nominally favours, such as energy efficiency, shale gas (assuming it actually displaces coal), nuclear (which won't deliver until the mid 2020s), smart grids, and, of course, CCS, only heaps more pain on a green economy that was going great guns. For reasons no one can fully understand, even the low carbon industries the Prime Minister is on record as wanting to support are being hamstrung.
The UK could seize the opportunity presented by the steel crisis to deliver a roadmap to recovery based on R&D, innovation, and the creation of the world's first heavy industrial low carbon hub, sited on the same ground as the world's first heavy industrial high carbon hubs. Smarter targeted tax breaks, government infrastructure funding, significant co-funded R&D programmes, a northern powerhouse vision that extends beyond a sound bite, all of this could make the difference between the development of world-leading low carbon industrial base to challenge those already being built in the US, China, and Germany, and the slow but inexorable decline of once proud industries.
Ministers will counter there is not the money for such public largesse. But the money is available if the government really sees this as a priority. As the Guardian's Aditya Chakrabortty pointed out in an article this week the cash was there to save the banks - that it is not there to save and then reform the steel industry speaks volumes. A well-managed green industrial strategy would quickly pay for itself in tax receipts, exports, and environmental benefits. Tie it into a credible strategy for decarbonising the power sector and the long term benefits will multiply further - just ask the US and China.
Instead a combination of an incoherent energy strategy and ideological rigidity leaves the Prime Minister throwing inadequate compensation at the steel industry, simultaneously undermining decarbonisation efforts while singularly failing to address the structural issues the sector faces. The debate about carbon leakage may be binary with the government once again siding with the short termist approach, but as is so often the case the answer to this crisis lies somewhere between the two camps.
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