A green transition for UK steel can tackle regional inequality

Brendan Curran is a policy fellow at the Grantham Research Institute on Climate Change and the Environment at the London School of Economics and Political Science.

The UK government is expected to announce a £600-million support package for Tata Steel and British Steel to support their transition to greener methods of production.

Welcomed by business, trade unions and politicians across the political divide, this commitment moves us in the right direction. Using the public purse to support crucial sectors like steel in their transition to net zero makes sense on several fronts.

However, it doesn’t quite meet the scale of the challenge ahead.

The government investment in Port Talbot and Scunthorpe steel plants supports the UK’s net zero ambitions, but can also ensure that those regions, communities and individuals most at risk from the transition are given a chance to benefit from the opportunities promised by a green transition. It is using public funds to ensure what is known as a ‘just transition’.

As we evolve our economy to respond to the challenges of climate change, this means that we make sure the impacts on people remain a central consideration. It may seem glaringly obvious, but we have seen environmental policy and reform in the past take insufficient or no consideration of social impacts.

The introduction of regressive fuel taxes in France, for example, which ignited the ‘gilets jaunes’ protest movement, was designed with climate in mind – but it significantly impacted those on lower incomes and sparked a social backlash.

The current UK Government has been reluctant to use the term ‘just transition’ with regard to their own climate policy – including zero mention in the Net Zero Strategy – but have been happy to promote a just transition internationally, like at COP26, and within their development investment programmes. However, domestically the government has been reluctant to embed worker representation in the transition. 

While there has been a lot of discussion around green jobs, the UK should also see the transition as an investment opportunity that can deliver for different regions across the country. Last year, we published research highlighting the comparative advantage certain regions had to deliver green technologies. In fact, Lincolnshire – where British Steel have a steel furnace – is a region that stands to benefit from green investment if we can get the policies and investments right.

That means economic growth, productivity and community regeneration for regions of the UK that have struggled economically in recent decades. A national green investment programme has the potential to deliver on the government’s ‘levelling up’ agenda to tackle regional inequality. However, without a focus on social impacts, the chances of delivering on this transition to net zero are reduced as we run the risk of alienating people. 

Strings attached

The government can give UK steel necessary funding to accelerate their green transition, but that funding must have conditions attached. Reports suggest that the government cash is conditional on Tata and British Steel also investing their own funds. This stipulation is important to leverage the necessary private investment to deliver the entire transformation.

But as a public funder, this funding should also stipulate that the companies prioritise a just transition. That would involve Tata and British Steel engaging with trade union and local community representatives, ensuring that workers have opportunities to retrain where possible and keeping new and existing jobs in the regions that have been reliant on more carbon intensive steel production. This approach makes sense for the government, but also for the businesses – they are investing in the people they need for this green transition.

Inevitably, there is a question of whether this funding is enough to save the UK steel industry from rising carbon credit prices and energy costs, as well as ever-increasing competition. The answer would seem not: the Tata Group Chair stated a public investment figure of around £1.5bn; the Labour Party have committed to £3 billion of investment in the sector; and an equivalent steel production transitioning plant in Finland received £4 billion of public investment.

To make up the difference, the UK should explore how green bonds could be used to fund the transition across the steel sector and others. The Debt Management Office (DMO) already measure the social co-benefits in their Green Financing Framework for sovereign bond issuances. So why not use the proceeds for transition funding, with a focus on supporting workers and communities?

The government’s approach is a step in the right direction, but we need greater ambition – both in terms of the size of funding but also to ensure that local communities and workers are at the forefront of a just and inclusive transition. Otherwise, UK ambitions to deliver on net zero are doomed to fail.