Does AEP Want To Shut The UK Steel Industry Down?

By Paul Homewood


h/t Ian Magness


AEP is away with the fairies again:




Britain has sold its climate credibility for a mess of brown pottage. The proposed Whitehaven coal mine in Cumbria has no commercial rationale and will be obsolescent before it ever opens.

One can only sympathise with Alok Sharma. The president of Glasgow’s Cop26 “summit to save the world” is entering the last critical phase of talks with China, India and Russia, only to be undercut at home by well-meaning Tory colleagues living in an economic time-warp, and deaf to the higher notes of global statecraft.

Over coming weeks, Mr Sharma will strive to conjure some sort of G20 consensus on the hardest of the hard issues: a timetable for the total phase-out of “unabated coal power”, the bedrock requirement for a 1.5-degree world.

While he does so, his own country will be debating a brand new mine at Whitehaven Colliery, intended to produce coking coal until the middle of the 21st century. The public inquiry began this week and will run for four weeks, a ghastly torment for Mr Sharma’s negotiating team.

The G20 resisters might note wryly that if an affluent post-industrial UK cannot muster the political courage to forgo a pork-barrel scheme for jobs in Cumbria – where pre-pandemic unemployment was just 2.8pc – why should they give ground on a coal-based infrastructure of systemic economic importance.

Presumably the Australian private equity group backing the mine – EMR Capital – is aware of the near unstoppable political moves in Brussels to extend the EU’s carbon trading scheme to steel producers, which account for 6pc of the EU’s total CO2 emissions.

Carbon futures prices in Europe have tripled in a year to €63 (£54) a ton. They will hit €100 a ton by the mid-to-late 2020s almost automatically because the European Commission is dialling down the permits. By that point coking coal will be caught in a hostile scissor-action of moving variables, ever less able to compete with exempted “green” steel made from hydrogen via electrolysis.

Chris Goodall, from Carbon Commentary, has crunched the figures: a ton of coal-based steel typically is responsible for 1.9 tons of CO2. Ergo, a carbon fee of €100 will add nearly €200 a ton to the final cost. That would raise the price of European steel by a third. 


For a start, if AEP thinks anything Alok Sharma can say that will make the slightest difference to what China, India and the rest of Asia do, then he is a bigger idiot than I thought.

And I would rather put faith in the business acumen of EMR Capital, who are putting their money where their mouth is, than AEP, who is rapidly losing the plot.

AEP believes that the future of steel production in Europe lies in a process called direct reduction, using heat to convert iron ore to iron, instead of the traditional blast furnace. To make direct reduction carbon free, however, the heat must come from renewable energy, in our case hydrogen produced from electrolysis using offshore wind. AEP has not worked it out yet, but this is an extraordinarily expensive way of making steel.

That is why the EU will have to jack up carbon prices to crippling levels, in order to make hydrogen steel viable.

The problem then, of course, is that EU steel becomes totally uncompetitive against imported steel. Yes, the EU may decide to impose tariffs, but this simply passes the uncompetitiveness onto products made from steel, such as cars.

The UK currently produces about 7 million tonnes of steel a year. About a quarter is from electric arc furnaces, but these are limited by the availability of scrap. The rest comes via the blast furnace route. To switch all of this to direct reduction, as AEP proposes, would mean spending billions to scrap existing plant and build new processes, money that the steel industry does not have. The inevitable consequence of AEP’s strategy will be the shut down of the British steel industry.

The EU produces just 8% of world steel, so are an irrelevance in global terms. Whatever they do, the rest of the world will carry on as they are now, making 70% via blast furnaces, and virtually all of the rest from electric arcs (all of which of course need fossil fuel generated electricity).

As for AEP, he seems determined to wreck this country’s economy in the mad pursuit of Net Zero.


September 9, 2021 at 08:57AM

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