British Steel’s Green Death

  • Date: 19/10/15
  • Editorial, The Wall Street Journal

Another 2,000 lost jobs are collateral damage in the war on carbon dioxide. Pin the blame on David Cameron’s climate policy.

SSI Steelworks in Redcar. Photo: Anna Gowthorpe/PA Wire/Zuma Press

Britain’s industrial heartland has been rocked by news that Thai steelmaker Sahaviriya Steel Industries, or SSI, will close its plant at Redcar in England within months. SSI is winding down its entire U.K. subsidiary at the cost of up to 2,000 jobs. Pin the blame on David Cameron’s climate policy.

The company hasn’t attributed its decision directly to environmental regulations, citing instead growing competition from cheaper Chinese steel and slack demand as developing economies around the world start to falter. But the converse of saying Chinese steel is too cheap is that British steel is too expensive. Why?

Start with a suite of renewable-energy policies that keep ratcheting up electricity costs. The so-called renewables obligation, which requires utilities to buy a steadily increasing share of their power from trendy green sources such as solar and wind, is driving up wholesale power prices. So is the feed-in tariff, which forces utilities to pay a minimum rate for renewable electricity that’s higher than the cost of fossil-fuel-fired generation.

Meanwhile, Britain since 2013 has imposed a floor price on carbon-dioxide emissions that’s higher than the cost elsewhere in Europe. Under the European Union’s emissions-trading system, in which Britain participates, manufacturers such as steelmakers and electricity generators already are required to buy credits equal to their annual emissions.

On top of this, Mr. Cameron’s government set a minimum price per ton of emissions, starting at £16 in 2013 and originally intended to increase to £30 in 2020. In any year that the price of a European emission credit falls below London’s preferred level, London levies a tax to make up the difference.

As European carbon prices have plummeted amid declining economic activity and Britain’s price floor has increased, British companies and consumers at times have had to pay up to six times more than their European peers per ton of emissions. The EU’s emissions scheme itself makes European energy more expensive than most other parts of the world.

This all trickles through to higher electricity prices. Out of a total electricity cost of £90 ($136.70) per megawatt-hour for a large consumer in 2015, Britain’s renewables mandate accounts for around £13 while the carbon-price floor accounts for another £10, according to the Energy Intensive Users Group, an organization that represents large manufacturers. All climate policies together add more than 50% to the price of electricity for large industrial users.

That hurts all companies and households, but disproportionately wallops energy-intensive industries such as steel. Britain’s heaviest industrial-power consumers paid 9.3 British pence per kilowatt hour for electricity in the second half of 2014, according to EU data, compared to an EU median of 5 pence. Subsidies to large industry partly compensate for the higher costs of the carbon-price floor, but not for the renewables mandates.

SSI’s closure is the latest consequence of policies that drive up energy costs, but it’s not the first. Tata Steel has announced more than 700 layoffs this year as it reduced or suspended production at plants in Wales and northern England. Tata’s chief executive for Europe, Karl Koehler, is clear about why: “Energy is one of our largest costs at our speciality and bar business and we are disadvantaged by the U.K.’s cripplingly high electricity costs,” he said in July.

Belatedly recognizing what an economy-killer the carbon-price floor is, Mr. Cameron’s government last year capped the additional amount emitters would have to pay at £18 per metric ton of emissions at least until 2020. That’s progress, but not nearly enough to save jobs when a ton of emissions under the Europe-wide trading scheme costs only £6, and the cost is zero in most of the rest of the world. London’s only other brain wave appears to be to promise subsidies to help offset companies’ higher energy costs.

A better idea would be to scrap Britain’s war on carbon entirely. As the science surrounding climate change becomes ever more contentious—and as green industries chronically fall short of the job creation and growth they promise—the costs of anticarbon policies grow and grow, not least for those 2,000 workers at Redcar.

Full editorial

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