Industrial decarbonisation strategy
In March 2021 the Government published its Industrial Decarbonisation
Strategy. In the Strategy the Government stated it would work in
collaboration with the Steel Council to “consider the implications of the
recommendation” of the Climate Change Committee to set targets for orebased steelmaking to reach near-zero emissions by 2035.34
30 A summary of how coal is used in steel making is available from the World Coal Association
webpage on ‘How is Steel Produced?’ [accesses November 2020] 31 See for example Climate Action Tracker, Blog: Decarbonising the global steel and cement sectors
requires more than zero carbon fuels: analysis, 18 October 2017 32 UK Steel, Key Statistics Guide April 2022, April 2022
33 BEIS, Industrial decarbonisation strategy,
17 March 2021, page 53.
34 BEIS, Industrial decarbonisation strategy, 17 March 2021, Page 19
1 Coal use in steel manufacturing
Coal is used in the steel industry both as a fuel and as a raw material for the
industrial process.
Steel is an alloy of iron, meaning it is made by mixing iron with carbon and
other elements. Iron is found naturally in the earth’s crust as iron ore (iron
oxides with impurities) and must be extracted from the ore to produce steel.
There are two main methods for producing steel: the blast furnace (basic
oxygen furnace) route and the electric arc furnace route. During steel
manufacturing using the blast furnace method, coke (produced from coal) is
needed as a reducing agent to extract iron from iron oxide ores.
30
The electric arc furnace route uses scrap steel as the raw material and
electricity to produce heat. As there is no iron ore processing, the need for coke
is avoided. The electric arc route therefore has much lower carbon emissions
than the blast furnace route. However, there is debate about the extent to
which recycled steel can meet global demand for steel production.
31
The blast furnace route forms the majority of UK and global steel production. In
2018, 82% of UK steel (5.9 million tonnes) was produced using the blast furnace
route at Tata Steel’s Port Talbot site and British Steel’s Scunthorpe site.32 The
Government estimated that 95% of iron and steel industry emissions (and
around 15% of total industrial emissions) come from the Scunthorpe and Port
Talbot blast furnace sites.
33
Contribution of the steel industry to the UK economy
15 Commons Library Debate Pack, 23 January 2023
The Strategy included modelling of options for steel industry decarbonisation
(see Technical Annex, page 153),
presenting two possible options for the
decarbonisation of the iron and steel industry:
• Retain coking coal in steelmaking with Carbon Capture Utilisation and
Storage (CCUS) to sequester emissions.
• Use of electric arc furnaces with hydrogen replacing coal for use in direct
reduced iron processes.
Other policies in the Strategy included using public procurement to support
“green” industrial products and support further research and development
towards new industrial processes.
In the Net Zero Strategy, which followed the Industrial Decarbonisation
Strategy, the Government committed to working with the Steel Council to
consider the implications of the recommendation of the Climate Change
Committee to ‘set targets for ore-based steelmaking to reach near-zero
emissions by 2035’.35
The steel sector welcomed the Government’s ambition in the industrial
decarbonisation strategy however stated that the Government must put in
place a supportive policy framework so that the sector can continue to
compete in domestic and international markets if costs of production rise.36
UK Steel outlined that this must include further action on electricity costs (see
the following section):
Critically this must include creating a market for low-carbon market in the UK.
Steel makers need to know that if they decarbonise and significantly increase
their costs of production, that there is a market out there in which they can
continue to make a profit. Crucially too, we must see competitively priced
power in the UK. All decarbonisation options for steel will see a massive
increase in electricity consumption, and as long as UK producers face the
highest prices in Europe,
the UK is not the primary destination for investment in
low-carbon steel production. We urge the government to act on this longstanding issue as quickly as possible.
37
The Government says that the following steps are being taken to implement
its strategy to decarbonise the steel industry and help achieve net-zero
targets:
38
35 Letter from Secretary of State for Business, Energy & Industrial Strategy to Chairman of
Environmental Audit Committee, 29 June 2022 36 UK Steel, UK Steel responds to Industrial Decarbonisation Strategy, 17 March 2021; British Steel,
British Steel investing in a greener future 9 December 2021 [accessed 4 June 2021] 37 UK Steel, UK Steel responds to Industrial Decarbonisation Strategy, 17 March 2021 [accessed 4 June
2021.
38 PQ 141979, [Iron and Steel: Carbon Emissions], 17 March 2022
Contribution of the steel industry to the UK economy
16 Commons Library Debate Pack, 23 January 2023
Both the Industrial Decarbonisation Strategy and the Net Zero Strategy,
published on 19 October 2021, set out a range of decarbonisation support
available to the sector. This includes:
• Over £600 million in relief since 2013 to make electricity costs more
competitive.
• Access to up to £66 million through the Industrial Strategy Challenge
Fund and the £315 million Industrial Energy Transformation Fund (IETF) to
develop new technologies, help cut energy bills and increase energy
efficiency.
• Long-term work at the Materials Processing Institute in Teesside to help
the UK steel and metals sector improve efficiencies, reduce emissions,
and boost competitiveness.
• The opportunity to bid into industrial fuel switching innovation
programmes under the £1 billion Net Zero Innovation Portfolio (NZIP),
which is intended to promote switching away from more carbon-intensive
fuel sources.
• Around £2 billion spending for Carbon Capture Usage and Storage (CCUS)
and hydrogen. This is split across several schemes, including Industrial
Decarbonisation and Hydrogen Revenue Support the CCUS Infrastructure
Fund and the Net Zero Hydrogen Fund.
Government funds supporting decarbonisation in the Steel industry include:
39
• The Industrial Energy Transformation Fund: designed to help businesses
in energy intensive industries (such as steel) to cut their energy bills and
carbon emissions through investing in energy efficiency and low-carbon
technologies.
40 The fund was announced in the 2018 Budget; £315 million
is available up to 2024.41
The funding is delivered in two phases. Phase 1 focused on energy
efficiency projects and included switching to low-carbon fuels such as
hydrogen. Phase 1 had two competition rounds. Winners of the first round
were announced in May 2021.42 The second round closed to applications
in August 2021.
Phase 2 will focus on funding for large-scale demonstration and
deployment of decarbonisation projects, with £220 million funding
available. Phase 2 will have four competition windows running from
September 2021 to January 2023.
39 Letter from Secretary of State for Business, Energy & Industrial Strategy to Chairman of
Environmental Audit Committee, 29 June 2022
40 BEIS, Industrial Energy Transformation Fund [accessed 4 June 2021]. 41 HM Treasury, Budget 2018, 29 October 2018, para 4.64.
42 BEIS, Industrial Energy Transformation Fund (IETF) Phase 1: Summer 2020 competition winners, 24
May 2021.
Contribution of the steel industry to the UK economy
17 Commons Library Debate Pack, 23 January 2023
A separate IETF fund operates in Scotland with funding to Scotland
calculated by the Barnett formula.43
• The Clean Steel Fund: The Government opened a call for evidence in
August 2019 on the establishment of a £250 million Clean Steel Fund to
“provide a long-term signal of support to the steel sector and its
decarbonisation efforts”.44
A summary of responses was published in December 2020. It stated that
“several factors mean that it would help if funding started to be released
only from 2023 onwards” including that the sector needed time to
develop plans for decarbonisation and that technology options (such as
CCUS and low-carbon hydrogen production) are not yet ready for
implementation.45
• The Transforming Foundation Industries Challenge Fund: a fund of up to
£66 million that provides capital funding to help key foundation
industries, such as steel, develop innovative technology to reduce energy
and resource use. Funding has been awarded to steel projects including
on superalloy atomisation and heat recovered in gas fired continuous
furnaces.
• The Industrial Fuel Switching Programme Fund: a £55 million fund
provide capital funding to promote switching away from more carbonintensive fuel sources. It is part of the Net Zero Innovation Portfolio.
