Tuesday, 23 February 2010

Anglesey Aluminium and Corus both died of the same causes

Anglesey Aluminium and Corus - both died of the same causes

As I wrote about one BBC programme yesterday, I thought I may as well write about another one today: 'QuestionTime' from last Thursday (19th February, 2010).

Many of you may have watched it, in which case you'll know it was broadcast from Teeside and the closure of the Corus steelworks with the loss of 1600 jobs was the dominant topic. During the programme the panel discussed that the cause of the plant's closure was reduced demand due to the global recession. There probably is a lack of demand but if the fundamentals of a business are sound a temporary lack of demand can be ridden out until the economy improves again. Clearly there must be other reasons for the plant's closure - and that is why a blog about Anglesey is writing about the closure of a steelworks hundreds of miles away in Redcar. The fact is that the real reasons behind the closure of the Corus plant are almost identical to those behind the closure of Anglesey Aluminium and its worth examining them in detail as it shows that Anglesey Aluminium's closure was not an isolated incident but is the direct result of policy failure by our current government.

1. Energy Policy Failure

As previously discussed here, when Anglesey Aluminium was operating it used to consume daily 12% of Wales' total electricity and depended on a cut-price electricity deal with the nearby Wylfa nuclear powerstation. With Wylfa approaching its official decommissioning date that cheap electricity deal came to an end on 30th September, 2009, and the closure of Anglesey Aluminium came very shortly afterwards. Anglesey Aluminium's own management said at the time that it had "worked intensively with the UK Government and others" to find an alternative power supply, "but had been unable to do so". Similarly, the Corus steelworks was also one of the UK's largest electricity customers with an annual bill in excess of £80 million and was also suffering from lack of cheap electricity. Here is Labour MP, Denis MacShane in the Commons last year:

"Corus Engineering Steel has been crippled by high electricity prices compared to the EU average".
He goes on to blame EDF Energy for this, but the real reason is that electricity prices are being pushed up because demand is rising whilst supply is dwindling, as evidenced by the below graphic from The Economist.

The fact is that most nuclear plants (including the current Wylfa reactor) and half of UK's coal plants are due to close over the coming decade and as of yet there is still no concrete plan on how to replace them. The Department of Energy and Climate Change itself estimates that, of a total of around 75GW in generating capacity, 20GW will disappear by 2015. And as the current peak demand is around 65GW and growing, that means that the UK could be facing energy blackouts by as soon as 2015.

And this surely is the crux of the matter: this government has for too long prevaricated about rebuilding a series of power stations which are essential for both the UK's industry base and home-life. In other words it has failed to deal with one of the most fundamental requirements of a modern society: a secure and efficient energy supply. And the knock-on effects of this is not only more expensive energy for consumers but also the loss of huge amounts of jobs in energy-hungry heavy industries which depend on competitively-priced electricity in order to be competitive themselves on the world markets. Furthermore the likelihood is that Anglesey Aluminium and Corus, being amongst the largest electricity users, are probably just the first companies to be forced to close because of Labour's lack of a coherent energy policy.

2. Climate Change and Carbon Trading

On top of the energy problems above, the second issue we need to explore are the side-effects of the government's slavish adherence to the theory of man-made global warming. As many of you will know, in the name of fighting climate change the current government has pledged to reduce UK carbon emissions by a staggering 80% by 2050. To meet these goals, the EU has introduced a carbon trading scheme - an administrative approach to control pollution (in the shape of 'carbon') by providing economic benefits to companies for achieving reductions in the emissions of carbon. During a debate about the closure of Anglesey Aluminium in the Houses of Parliament, Robert Goodwill MP, the shadow transport secretary, had this to say about the EU scheme:

"is not the fundamental problem the operation of the European Union emissions trading system, which is making it increasingly difficult for primary metallurgical industries to operate in the EU? It would be all well and good if it resulted in the reduction of global CO2, but it merely results in carbon leakage to other economies such as China and India, which are not constrained in the same way."
Exactly right, and precisely what happened in the case of Anglesey Aluminium - many of whose ex-workers were headhunted to work at Dubai's new state-of-the-art aluminium smelter, operating safely outside the EU's emissions trading system. The simple fact is that charging for carbon adds yet another layer of anti-competitiveness for already struggling heavy industries operating within the UK or Europe.

Even more perversely such schemes can actually make the closing of heavy industrial businesses, like Corus, more profitable than keeping them open. As Dominic Lawson wrote in January:

"The owners of the Corus steel company stand to gain up to $375m (£234m) in European Union carbon credits for closing their plant in Redcar, only to be rewarded on a similar scale by the United Nations’ Clean Development Mechanism fund for switching such production to a new “clean” Indian steel plant."
The simple fact is that the government's pledge to dramatically cut emissions by 80% is in effect a manifesto to subsidise the closure of large swathes of the UK's industrial base and transfer those jobs to developing countries. If you believe in man-made climate change then perhaps you believe that such drastic actions are necessary - but it should be made absolutely clear to the electorate by whichever government is in charge that following such policies will result in dramatic job losses as heavy industries in this country become less competitive. And right now it is not clear whether all the jobs being lost in Anglesey Aluminium and Corus can be replaced by the promised 'green jobs' of the future.

There are other reasons behind the closure of Anglesey Aluminium and Corus such as high regulatory costs, high rates of corporation tax, and the recession forcing steel or aluminium using industries outside of the UK or Europe thus forcing up transportation costs. But the Druid believes that the above two issues are demonstrably the two major factors - and neither are to do with the global recession/reduced demand etc but are the direct result of political incompetence.

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