• Compensation may be too late for Tata, says manufacturers body
  • Levies add to woes caused by Chinese exports flooding market

The U.K.’s steel crisis -- worsened by Tata Steel Ltd.’s decision to sell its plant in Port Talbot, South Wales -- has been exacerbated by three green taxes that the government implemented to boost clean energy, according to the manufacturers’s association EEF.

The three levies are the Carbon Price Floor, Renewables Obligation and Feed-In Tariff policies. Each works differently. Together, they increase steelmakers’ energy costs by about 30 pounds ($43) per megawatt-hour this year, Richard Warren, senior energy and environment policy adviser for EEF, said in an interview.

Tata Steel works in Port Talbot
Tata Steel works in Port Talbot
Photographer: Chris Ratcliffe/Bloomberg

Electricity is an enormous cost for steel companies. The U.K.’s seven steel plants used about 3.2 million megawatt-hours of power in 2014, according to the EEF, not including what they generated themselves. In its effort to save Britain’s last remaining steel works, Prime Minister David Cameron’s government is considering ways to reduce impact of the levies on the industry.

The Department of Energy and Climate Change is consulting about a plan that would exempt energy-intensive businesses such as steelmakers from the levies, which it says would reduce tax revenue by 390 million pounds a year.

The first of the taxes imposes a minimum price on carbon emissions. Like their European peers, U.K. steel companies also pay about 2.5 pounds per megawatt hour of power used for the bloc’s Emissions Trading System. 

The other two levies drive up the cost of electricity in the U.K. by requiring a certain amount of renewable energy and by offering above-market price for clean energy through a feed-in tariff. British industry paid 0.13 euros ($0.15) a kilowatt-hour, which is higher than the EU average of 0.120 a kilowatt-hour, according to Eurostat.

Germany’s Solution

German companies haven’t suffered from green levies because its government offers them compensation, said Warren.

The U.K. government is following the German lead and has started paying back about 70 percent of the green costs these businesses face. From 2017, energy intensive companies will be able to access exemptions from the levies, streamlining the discount process, a spokesman for the Department for Business, Innovation and Skills said.

The compensation won’t necessarily help Tata sell its Port Talbot plant. “Being brutally honest, in the big scheme of things for Tata now, the fact this is in place, isn’t going to magic up a buyer,” Warren said.

Chinese Steel

A market flooded with cheap Chinese exports is the biggest problem facing British steel makers, and energy costs don’t help, he said. The company has recorded several quarters of losses and 2 billion pounds of write-downs, leaving the division with an asset value of almost zero. Steel prices have plunged to the lowest in a decade and in the U.K. higher wages also make the business harder to sustain. 

“You can’t say ‘If the U.K. had just said no to climate change policy we’d have a burgeoning steel industry now’. That would be over-egging it,” said Warren. “Yes it’s had an impact and its an important impact but it’s not the most important impact.”

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