Politics: a Pyrrhic victory

By Richard North - April 13, 2025

Much as I would like to condemn net-zero and electricity costs for the demise of steelmaking in Scunthorpe, I am not sure the arguments made in this respect hold up at the moment.

Unsurprisingly, though, some legacy media sages think otherwise, such as John Armitage in today’s Sunday Times, who has published a long article headed: “Decline of coal raised electricity costs — and shattered our steel industry”.

“Make no mistake”, he writes, “the crises ripping through Britain’s industrial behemoths — the deaths of Port Talbot and Redcar’s steelworks, the closure of Grangemouth’s oil refinery, the struggles of Staffordshire’s ceramics plants — all trace back to that one factor: the high price of British electricity”.

“By killing off cheap, coal-fired electricity generation”, he continues, “successive governments focused on meeting net-zero emissions targets have crippled energy-intensive manufacturers”.

The fragility of this claim can be readily demonstrated by the observation that, at Scunthorpe, British Steel operates an integrated plant with blast furnaces feeding hot pig-iron into BOS (Basic Oxygen Steelmaking) converters – otherwise known as Linz-Donawitz converters.

The process is an interesting one. The molten pig iron is poured into a refractory-lined charging ladle, where initial desulphurisation occurs, the ladle is transferred to the BOS converter, where an amount of scrap steel is also loaded.

At that point, a water-cooled lance injects high-purity oxygen at high pressure (twice the speed of sound) onto the molten iron’s surface. This oxidises impurities such as carbon, silicon, phosphorus, and manganese, and reduces the carbon content to the desired level (typically below 2 percent).

Lime is added as a flux, forming a slag that binds oxidised impurities, following which the liquid steel is poured off (tapped) for further refining, the whole process taking about 25 minutes per batch, converting up to 330 tonnes of raw material into crude steel.

The process is largely exothermic, the carbon oxidation and other chemical processes generate significant heat, minimising the need for external energy sources. Electricity is required only for auxiliary operations, such as powering the plants to produce high-purity oxygen, operating machinery such as cranes, pumps, and fans, and running control systems and other plant infrastructure.

Costs are dominated by raw materials, labour and metallurgical coke which provides the primary heating. Electricity cost as a percentage of the total production costs, is minimal and, while the rates fluctuate the best estimate is about 3 percent, although it may amount to as much as 8 percent.

This is somewhat mitigated by a number of government schemes devised for energy intensive industries (EIIs), set out in a recent consultation document on steel strategy.

At the heart of this is the EII compensation scheme, where the government compensates eligible energy intensive businesses for up to 100 percent (or 1.5 percent GVA) of the indirect costs incurred by the UK Emissions Trading System and the Carbon Price Support Mechanism in their electricity bills.

Additionally, there is the scheme known as the British Industry Supercharger, on top of which there is a 60 percent reduction in network charges – the costs industrial users pay for their electricity supply.

The government estimates that the cumulative support should be worth around £24 to £31/MwH, so that British energy-intensive business ends up paying about the same in electricity costs as its competitors in countries in the EU.

Whatever John Armitage and others might assert, therefore, neither electricity costs nor emission levies are responsible for Scunthorpe’s problems. Rather, as I pointed out yesterday, at 70 years old, the plant is relatively inefficient and cannot compete with the ultra-modern plants built in China and elsewhere – including Japan and Korea.

The other main factor, elucidated by the House of Commons Library briefing note, is the global excess capacity, largely due to Chinese over-production, which has created a glut on the international market, driving down prices.

Outside the EU though – courtesy of Brexit – the UK is not entirely defenceless and, working within WTO rules, currently applies 17 trade remedies measures against steel products. This includes a safeguard on certain steel goods. Furthermore, the UK is a key player in a number of international bodies, including G7 and the WTO – and the Global Forum on Steel Excess Capacity, which the UK chaired in 2024 under the aegis of the OECD.

As to yesterday’s action in parliament, and the promulgation of the Steel Industry (Special Measures) Act 2025, the Labour Party is now preening itself on having rescued Scunthorpe, publishing a huge graphic on Twitter, proclaiming “Labour is securing British steel”, with its text declaring: “We are securing Britain’s future, with British steel: made in Britain, in the national interest”.

And therein lies the rub. While the Starmer Regime may have indeed rescued Scunthorpe from immediate closure, it has done nothing to secure the future of the industry, even in the short-term. Once the costs of keeping Scunthorpe running are known, the government is going to be in for a very difficult time.

But the main issue, as set out in a Labour Party press release issued on 23 October 2023, the party now in government sees “a bright future for UK steel”, but with a plan centred on making the UK “a world leader in clean green steel”.

This is given substance in the government’s consultation document on its steel strategy, published as recently as last February.

Here, its determination to base the industry on “green steel” is writ through its proposals and even though this demands a huge investment by the industry, all that is on offer from the government is “up to £2.5 billion” through the National Wealth Fund (NWF) and other routes.

Rather than invest in ultra-efficient blast furnaces, though, it expects to see a “transition from aging blast furnaces to primarily EAFs” (Electric Arc Furnaces) which, it asserts, “brings with it the opportunity to develop innovative products and processes, invest in modern efficient plants and capitalise on the UK’s potential in scrap metal processing”.

At the same time, the government says, the UK’s leading status in decarbonising its electricity grid brings an opportunity to capitalise on the growing market for low-carbon products “by ensuring the supply of UK-produced green steel is more competitive than carbon-intensive imports”.

And yet, while the electricity costs for crude virgin steel production are estimated at 3 percent, the cost soars to 30 percent when operating EAFs, a process requiring the cold melt of scrap steel, making it an additional cost compared with the exothermic Linz-Donawitz process.

To suggest that “green steel” is ever going to be competitive with virgin steel, therefore, lies within the realm of delusion at a level never before attained. And then there is the scrap issue, that metal becoming the main feedstock for the industry.

At least the government does realise that there is a problem, noting that, as EAFs replace blast furnace production, production of high-quality steel products that have a much lower tolerance to residual elements – especially copper – will require higher quality scrap or will need to be supplemented with virgin iron products.

The government also records that “industry suggests the current market does not encourage the processing of sufficient quantities of high-quality scrap material in the UK”, then concluding that there will need to be a fundamental reorientation of the recycling industry, and the development of technologies which do not yet exist on a commercial scale.

As the MPs drifted home last night, buoyed by the warm glow of rescuing the Scunthorpe plant from its rapacious “Chinese bosses”, therefore, they might – but certainly won’t – reflect on the fact that all they have done is lumber the hard-pressed taxpayer with a massively expensive white elephant, while the government works to ensure that the industry has no future at all.

This, I believe, is what is known as a Pyrrhic victory.