Green levy scape-goating will do nothing to save UK steel

The attempts in some quarters to blame the unfolding crisis in the UK steel industry primarily, in some cases even solely, on green policies reminds me of those occasional news stories where an ageing aristocrat takes to the airwaves to complain they are having to sell their stately pile because of exorbitant and scandalous running costs.

It is always, of course, true that the fire sale of the ancestral estate - 'been in the family for 800 years, y'know, back when the peasants knew their place' - has been influenced by high energy and running costs. But then you look at it and quickly realise decades of failure to invest in necessary upgrades, a reluctance to diversify, and, most important of all, the inability to generate revenue by competing with alternative visitor attractions also had a big role to play in explaining the sorry looking 'For Sale' sign.

The UK steel industry has been impacted by relatively high energy costs and it would be glib of green commentators to dismiss these concerns out of hand. An excellent recent analysis by Carbon Brief showed the impact of energy policies on steel production costs are commonly exaggerated and in fact account for just one to two per cent of production costs. But in a hyper competitive global market disfigured by overproduction even marginal cost increases can have a considerable impact. That is why the government was justified in last year announcing it would emulate Germany and exempt heavy industry from green policy costs and why in retrospect it should have made the move much sooner.

But to suggest these energy policy costs were the trigger for Tata's decision to sell up, just at the point when they are being removed is both bizarre and cynical. If energy policy was the only consideration, then Tata quitting the UK at this precise point in time would be akin to a Hedge Fund manager quitting the UK last June because of his fear Ed Miliband would win the election. It makes no sense. There must be something else going on here.

Indeed, there is something else going on here and it is evident in the statistical horror show that is the Chinese steel glut. As has been well documented in recent days, global prices have slumped by over 40 per cent in recent years and the EU, at the UK government's behest (perhaps in an attempt to curry favour with Beijing and its nuclear investors), has failed to crank up tariffs to tackle Chinese dumping of excess steel that dwarfs the UK's entire production capacity.

The UK steel industry is being throttled by low cost competition, unfair or otherwise. Any attempt to salvage it by tackling energy costs and other overheads would, as the government's late intervention has shown, only delay the inevitable crisis, perhaps by no more than a month or two. Trying to tackle the UK steel crisis by axing green levies is like trying to tackle air pollution by increasing fuel duty by one per cent - it will help, but not much; what is actually needed is a whole new strategy.

So what should that strategy look like?

As the government desperately scours around for a solution there appear to be only three courses of action on offer.

The first, if you'll excuse the language borrowed from Paul Mason's provocative blog on the steel crisis, is the 'don't give a shit' option.

It would be entirely ideologically consistent of the government to publicly offer support in the form of re-training programmes and regional development investment, while privately shrugging shoulders and accepting this is free market capitalism, red in tooth and claw. In fairness, this is not quite as uncaring as Mason makes it sound. Pushing up steel import tariffs would load costs on other parts of the economy and the scale of the challenges faced by the UK steel industry are so huge any bailout or nationalisation would come loaded with risk.

There is even a tentative environmental argument, given China's rapid recent investment in clean technology. Long-standing claims that allowing China to manufacture all our goods for us will simply result in higher emissions and laxer environmental standards might not hold water for ever.

However, benefits of the 'don't give a shit' option have to be weighed against the considerable human impact of job losses and, if you see these as inevitable economic collateral damage, the even more considerable impact of the loss of yet another strategic industry from the UK.

The second option is even worse than the first. It involves buying the spurious arguments put forward by the UK's cabal of climate sceptics who have seized on the steel crisis to attack their twin bete noires of environmental policy and Brussels. It would see the government roll back still more environmental protections and offer even greater encouragement to those backbenchers who want to torch the Climate Change Act, all in the supposed name of protecting British industry - industries, which by the way, have often publicly stated their support for long term decarbonisation efforts.

Such an approach would have no more or less of an effect on the long term business case for UK steel production than the 'don't give a shit' strategy, but it would also hammer growing green industries, destroy the UK's credibility with many of its international allies, and once again return us to the question climate sceptics all too often refuse to answer: is doing next to nothing to tackle climate change really in the UK's best interests?

Which leaves the third option, the option successive governments should have been pursuing for years and which countries with a far more resilient industrial base than ours have been pioneering for decades.

Develop and deliver a coherent long term low carbon industrial strategy and stick to it. This does not mean, as some critics have suggested, nationalising every troubled industry or reverting to a planned economy. At this tragically late stage, it might not even mean saving the steel industry.

But it does mean recognising that some industries have strategic value beyond their narrow short term commercial returns, be it through their national security value (as Mason argues, we need steel to maintain an independent military) or their environmental and energy security value (we also need steel to make wind turbines and green buildings) or their long term economic value (failure to innovate and upgrade faltering industries in the short term can quickly result in a country's competitiveness being neutered in the long term). It means state and private sector working in partnership to maximise this value and jointly ensuring investment in infrastructure improvements and essential R&D is maintained in line with the requirements dictated by the existential threat that is climate change and the international deal that is the Paris Agreement. It means unequivocal and consistent backing for the crucial green industries that hold the key to long term prosperity and climate resilience.

In the case of steel and heavy industry it means combining energy levy exemptions with a credible plan to develop new low carbon techniques, on the grounds the world will need green steel and cement and glass and chemicals (or as yet uninvented sustainable alternative materials) this century and the UK can either be a leader in their development or an importer of this valuable resource from elsewhere.

The alternative is an increasingly de-industrialised, unbalanced, and vulnerable UK economic base, caused not by Brussels or green policies - which are unavoidable given the climate risks we face, and nothing more than a footnote in the steel industry's travails - but by competition from those rival markets from Beijing to Washington via Berlin that understand fully the value of a proactive and increasingly green industrial strategy. Ignoring the big picture and fixating on green policies only distracts from the comprehensive upgrade UK industrial strategy desperately needs.