Michael Gove’s Cumbrian coal mine is economic and diplomatic idiocy
The Whitehaven colliery plan does nothing to help UK industry and fails to improve energy security
‘Its only purpose is to placate a noisy wing of the Tory party’
The futility of Britain’s new coal mine in Cumbria leaves one gasping. The world’s top steelmakers are trying to rid themselves of coking coal forever.
The Government has degraded this country’s diplomatic credibility for no economic purpose. It has once again damaged efforts to turn Britain into a global clean-tech hub, the real growth accelerant this decade if only they would grasp the chance.
British Steel does not need or want the high-sulphur coal from the Whitehaven colliery, and Tata is unlikely to buy much for its flat-rolled plant in Port Talbot.
The Australian private equity group backing the mine – EMR Capital – plans to export 83pc of production but there is not a durable market for this in Europe either. Green steel made without coal is already a reality. The mine will be a stranded asset long before its commercial life-cycle ends in 2049.
The venture is theoretically viable today for supplying old steel plants only because coking coal prices are $260 a ton, double the average of the last decade. That is a temporary distortion caused by Putin’s energy war: Europe has been burning coking coal in power plants as an emergency. Fitch expects prices to settle back to $140 over the mid-2020s. Germany’s steel conglomerate Thyssenkrupp says it will never again build a blast furnace. It will switch from coking coal to electric arc furnaces using natural gas, to be replaced by green hydrogen over time.
Arcelormittal, the world’s largest steel group outside China, broke ground on its first green steel project in October at its Dofasco plant in Canada. In Europe it is launching a €1bn (£860m) electric arc plant at Gijon in Spain, aiming to produce low-carbon steel by 2025 from ultra-cheap solar arrays, which generate almost free energy at £25 per MWH.
This technology is not just for rich states. As Cop26 host, Britain co-ordinated the Breakthroughs Programme in Glasgow, a joint pledge by developed states to share green steel know-how with poor countries.
We can have a robust debate over how soon clean hydrogen will be here and at what price but the direction of travel is in no doubt. Washington has accelerated the process dramatically by offering tax credits of $3 a kilo for clean hydrogen. The US energy department is aiming to cut the pure market cost to $1 a kilo by 2030 by sheer scale and colossal funding for US labs and universities. If anything close to this is achieved it will drive fossil-based steel out of the global market.
The US start-up subsidies risk setting off a green trade war with Europe, locked into a three-way hydrogen arms race with China. The UK plans 10 gigawatts of capacity of its own by 2030, half “green” from renewables and half “blue” from gas with carbon capture.
Michael Gove’s Levelling Up Department justified approval for the Whitehaven colliery with several outrageous assertions, including the following claim: “There is no certainty that electric arc furnaces will make a significant contribution to UK steel production in the short (5-10 years) to medium term (10- 15 years). While there is a likelihood that its use will increase across Europe, the extent cannot be predicted with any degree of certainty.”
Where does one begin with this nonsense? The UK already has four electric arc furnaces, including a Celsa plant in Cardiff making rebar, and a Liberty Steel plant in Rotherham making specialist products for cars and aviation. A third of UK steel output relies on this technology.
“It is very odd for a government minister to say this because we’ve been operating electric arc furnaces for some time,” said Gareth Stace, head of UK Steel. “There won’t be any major investment in the old technology. It makes more economic sense to go for arc furnaces in the future,” he said.
British Steel wants to replace its coke-based furnaces in Scunthorpe with arc technology when they come up for renewal this decade, provided the Government sorts out the broken electricity market. The suggestion that the Whitehaven mine is either needed or wanted by the UK steel industry is a gross deception. UK Steel launched a net-zero plan in July arguing that the industry stood to benefit from being a first-mover in decarbonisation, eyeing 35,000 jobs in green steel.
European steel companies are not going to buy Whitehaven coal for long either. They must buy carbon emission permits under the ETS trading system for a portion of their output. These are trading at €89 a ton and will rise over time, rendering coking coal progressively untenable. The Energy and Climate Intelligence Unit says there are 23 green steel plants under development in Europe.
Nor can the mine rely on exports to Turkey and other parts of the EU’S near abroad. These countries will not be allowed to sell into the single market unless they shadow Europe’s CO2 price. Carbon dumping will not be tolerated for long. If the objective of the project is to boost jobs in Whitehaven, there are better ways of doing it than digging a complex lateral coal mine underneath the seabed. Britain’s other neglected coastal cities are being revived one by one by the marine energy boom. Each new gigawatt of offshore wind employs 1,500 workers. Whitehaven would make a perfect hub for arrays in the Irish Sea, or indeed for development of ground source heat from old coal mines.
Cumbria is not facing an unemployment crisis. The jobless rate in Whitehaven’s Copeland district is 2.4pc, which is below national average and evidence of a tight labour market. Can the colliery find 500 workers in the area willing to toil in a mine, three quarters of them underground?
The Government is approving the first new coal mine in the UK for 30 years for no compelling economic reason even as it cajoles South Africa and Indonesia to make major social sacrifices – at the risk of political unrest – by shrinking a fully functioning coal industry with large sunk costs.
The Whitehaven mine does nothing to help UK industry and nothing for energy security. Its only purpose is to placate a noisy wing of the Tory party that has turned this colliery into a cause celebre for its own mystifying reasons.
“Opening a coal mine in the UK now is a serious mistake: economic, social, environmental, financial and political,” said Lord Stern, the climate economist.
A year ago the British Government told the world that “Glasgow must be the COP that consigns coal to history”. It delayed the Whitehaven decision during the UK’S tenure as COP president, only to slip it through a month later like a thief in the night.
Greenpeace says the UK has become a “superpower in climate hypocrisy”. Indeed it has. The episode is both shameful and profoundly stupid.