Does a carbon price mean the end of Australian steelmaking?

Port Kembla steelworks, Wollongong, NSW. Photo: Paul Strasser

Manufacturer BlueScope Steel has been at the forefront of the campaign against the carbon price proposed by Labor and the Greens.

Chief Executive Paul O'Malley has argued it could spell “the end of steel manufacturing in Australia”; something the Opposition Leader Tony Abbott agreed with during a recent tour of BlueScope's steelworks in Port Kembla.

Both have said that a price on carbon would threaten the company's profitability and therefore force operations offshore in search of cheaper labour.

The Australian Workers’ Union (AWU) has said BlueScope’s comments were “scaremongering”, but workers at the Port Kembla plant are worried about their jobs.

BlueScope and Abbott have implied that the cost of any action to cut the industry's emissions would be automatically passed on to workers through job losses.

The big contradiction in their argument is that no action to reduce emissions will really mean the end of the steel industry in Australia. For example, a sea-level rise of one metre would devastate infrastructure at the Port Kembla plant.

But there is a grain of truth in their scaremongering. A price on carbon in a market economy will put people out of work in areas reliant on polluting industries.

If the cost can’t be passed on, companies will move manufacturing offshore in search of cheaper labour and bigger profits.

The Port Kembla steelworks supports about 12,000 jobs in the Illawarra. To sack these workers would be a social catastrophe.

But Labor's Climate Change Minister Greg Combet was quick to reaffirm his support for BlueScope's profitability.

After ruling out a tax on steel imports to help BlueScope, Combet told the March 18 Illawarra Mercury that the only other option would be, “coming up with a policy that significantly offsets the carbon liability for the steelworks so that the carbon price doesn't bring the competitiveness of the company into play”.

Combet argued the assistance should resemble the amount agreed to under the Carbon Pollution Reduction Scheme (CPRS), where the government would have paid for 94.5% of BlueScope's pollution. The Greens have also said they support compensation for trade exposed industries, such as steel.

The problem with Combet’s approach is that it entrenches business as usual. What’s the point of pricing carbon in the steel industry if nearly all of it is reimbursed?

First, susbsidising industry puts the lie to market-based solutions. Second, how will this drive a transition to a cleaner production process to reduce emissions?

It also doesn’t guarantee jobs.

Manufacturer Pacific Brands showed last year that government handouts won’t stop companies moving operations offshore to maximise profits.

This is a problem we need to solve because Australia needs a steel and manufacturing industry, and not only because it employs thousands of people.

Steel will be required in the transition to a zero-carbon economy, in the production of train rolling stock or wind turbines for example. The industry has a vital role to play in reducing emissions across a range of industries.

So how do we ensure the survival of the industry, guarantee jobs and start to seriously reduce emissions from steel production?

The need to cut emissions in the steel industry needs to be acknowledged.

BlueScope is Australia’s ninth biggest polluter. If you exclude the power generators, it is Australia’s second biggest polluter after aluminium manufacturer, Alcoa.

In the 2009-10 financial year BlueScope emitted more than 12 million tonnes of carbon dioxide equivalent, mostly from the blast furnaces at its Port Kembla steelworks.

The extent of the climate crisis demands we reduce our greenhouse gas emissions, not just in power generation, but also in manufacturing.

There is a range of technologies that could make steel production carbon neutral.

The CSIRO is investigating the use of oil mallee trees and other native hardwoods for example.

It argues steel production could be a net zero-emissions process as each new generation of trees absorbs the carbon emitted from the production process.

Other technologies under research in Europe to seriously reduce emissions include the Fastmelt process, top gas recycling, and the HIsarna coke-free process. Of course, shifting to these technologies will cost a lot of money.

As a first step, BlueScope should be required to restart plans to build a cogeneration plant at Port Kembla. By recycling heat and flare gases for electricity generation, the plant could reduce emissions at the steelworks by 900,000 tonnes a year.

First proposed by BHP in 1989, the construction of the plant has been put off again and again.

Steel producers should also be compelled to increase the recycling of steel to reduce reliance on making new steel from iron ore in a blast furnace.

Electric Arc furnaces can be used to recycle steel from old scrap, avoiding the need for coking coal. This process could be net-zero emissions if powered by renewable energy.

The key problem is that BlueScope's profitability is treated as non-negotiable. A rational approach would treat emissions cuts and maintaining jobs as the non-negotiable factors.

BlueScope has argued it “can’t afford” to act to cut emissions. It announced a $55 million loss for the six months to December 2010.

But the big polluters have known of the need to reduce emissions for decades, why haven’t they acted earlier? What about the $406.9 million profit BlueScope posted for the six months to the end of December 2008?

If they can’t afford to reduce emissions big polluters should open their books to workers and the community to prove it.

If they refuse, they should be placed in public ownership. The chance of a safe climate future shouldn’t be held hostage to the profits of the big polluters.

Humanity cannot afford to wait for a time when new, cleaner technology is profitable. The market will not drive the shift away from cheap and dirty coal. The government needs to drive investment in converting the steel industry to prototype new technology as quickly as possible.

In public hands, we could start the transition to a cleaner, low-carbon, steel industry now, even if it was a loss-making exercise in the short term.

Jobs in the industry would be guaranteed, even increased, as the green energy revolution unfolds. What other alternative do we have?