House of Commons - Teesside Cast Products - North East Regional Committee

Teesside Cast Products - North East Regional Committee Contents

Teesside Cast Products

Introduction

1. Corus decided on 4 December 2009 to mothball its Teesside Cast Products (TCP) integrated iron and steel plants at Redcar and Lackenby. The decision was endorsed by Corus's owner, Tata Steel. About 1,600 workers will lose their jobs now that the decision to mothball has been implemented, from 19 February. An estimated 1,000 more sub-contractors will be directly affected, with an estimated 8,000 people further down the supply chain also at risk of losing business or their livelihoods. One North East (ONE), the Regional Development Agency, suggests some 346 main suppliers could be affected. About 98 are in the North East, with 235 elsewhere in the UK and 13 international. ONE also suggest that the loss of 1,600 TCP jobs could result in a further 1,100 job losses down the Corus supply chain and 400 more in the wider regional economy.[1] That makes about 3,200 North East jobs in total.

2. Corus initially announced that the Redcar blast furnace—Europe's second largest—and Lackenby Steelmaking and the South Bank coke ovens would be mothballed from the end of January, but kept ready for any possible restart of business. It later agreed to defer mothballing until February, and to keep South Bank open, saving about 100 jobs. These followed earlier decisions in June 2009 to cut 428 more jobs in the area at the Teesside Beam Mill. Corus continues to employ a further 2,000 people in the area, including at Hartlepool and Skinnigrove. Most of Corus's Teesside iron and steelmaking facilities were constructed in the 1970s, but the company moved its core steel business elsewhere from 2003.

3. Until recently, the TCP plant was profitable. Corus itself describes its Redcar operation as "a unique steelmaking business with the capability to produce a wide range of steel slabs for the international market. It is operated by a highly skilled and experienced workforce and is located in a region that understands and supports the needs of the business".[2]

Why mothballing was announced

4. Three broad reasons have been advanced explaining why Corus took the decision to mothball its Teesside plant. First, a worldwide fall in demand for steel resulted in significant falls in production at Teesside. Corus, dependent largely on export, was expected to produce 33% less steel in 2009 than it did the previous year, and was operating at only 60% capacity. Steel demand across Europe had fallen by 40% in the first nine months of 2009 compared with the previous year. Secondly, falling demand has been accompanied by falling prices. In July 2008, prices peaked at just over $1,000 a tonne. By December 2009, the price per tonne of the type of steel produced at Teesside had fallen by nearly 60%.

5. The third reason is the main reason why the plant has been mothballed. Partly as a result of the combination of the first two factors, an off-take agreement to buy the steel produced at Teesside collapsed. Under that agreement, 78% of slab steel produced at Teesside was to be sold at cost over the 10 years to December 2014 to a consortium of four foreign-based steel companies—Marcegaglia of Italy, Dongkuk of Korea, Alvory of Argentina, and Duferco of Switzerland. The agreement broke down in May last year, partly because the cost price had become higher than the world market price for steel, and the four companies walked away from the agreement.

Attempts to sell TCP

6. Discussions between Corus and Marcegaglia Steel, the lead partner in the consortium, did not result in an agreement to continue the deal. Corus is taking legal action against its former consortium partners, but no result can be expected from that for several years.[3] Nor have Corus's efforts to find an alternative buyer for its plant proved fruitful. Short-term contracts were used to keep the plant working until December, when the decision to cease operations was announced. Corus lost £137 million while employing internal contracts to keep the plant operating.[4] Short-term external contracts kept operations going through October and November, but on a month-by-month basis.[5] With no orders beyond 31 December, and no buyer for the company, Corus announced the decision to mothball on 4 December. The negotiations with potential buyers failed, Corus says, "because TCP is forecast to remain unprofitable for an indefinite period. In an environment of rising raw material costs and uncertain global markets, no partner/buyer could be found who was prepared to take on the liabilities such as employment costs, pension liabilities, environmental compliance costs and other contractual obligations, as well as the ongoing loss-making attributes of the business".[6]

Effect on the regional economy

7. The loss of 1,600 jobs at Teesside Cast Products and several thousand more within the North East as a result of the Corus decision to mothball the plant at Redcar and Lackenby will devastate the local economy. About half the workers affected live in Redcar and Cleveland Borough, and about half in Middlesbrough. Redcar and Cleveland Borough Council estimate the loss to the national exchequer will be about £40 million in the first year in lost income tax and national insurance and in increased employment allowances and other benefits. It estimates the cost over five years at £192 million (although the Government point out that that would result only if no one made unemployed by TCP were employed again elsewhere in that time).[7]

8. New employment for those who lose their jobs will be affected by their age profile: the average age of TCP workers is 49.[8] Workers are also unlikely to find jobs at the same wage levels—wages at TCP average £40,000 a year, and a manufacturing job in the steel or chemical industries contributes around £70,000 to regional gross value added (GVA) while a job in warehousing, for example, contributes only £30,000.[9] The Mayor of Middlesbrough, Mr Ray Mallon, said there are already 13 applicants for every job in the town, and that most new jobs are in the lower-paid or part-time service sector rather than in manufacturing.[10]

9. Employment in manufacturing in Redcar and Cleveland fell from 16,800 in 1991 to 7,150 in 2007, and the area has, in its own Council's words, not found replacement employment in financial services, retail and distribution, as has been the case elsewhere.[11] The Borough is among the most deprived in the UK. The TUC feared local unemployment could reach 9% if TCP were mothballed or closed, the highest figure in a decade.[12]

10. The central priority for Corus and for the Government, the trade unions and the region must be to find a way to return the plant to operation as soon as possible and to maintain the jobs of a highly skilled workforce until what may well be a temporary downturn in world steel prices has been worked through. In particular, the development of the offshore wind industry, the infrastructure required to implement carbon capture and storage and the other opportunities in developing the low-carbon industries of the future will all need substantial quantities of good-quality steel. It seems counterproductive, and classically short term, to remove a local steel producer from the area just as these industries are developing.

Worldwide demand for steel

11. Jon Bolton, Managing Director of Teesside Cast Products (Corus owns TCP, and is in turned owned by the Indian steel company Tata), told us that falling world steel prices were a significant aspect in the events that led to the collapse of TCP's market. Between September 2008, when TCP was profitable, and the beginning of the worldwide recession, demand for steel worldwide fell by between 30 and 40%, and prices fell even further, by 50%. This led to significant overcapacity problems—world steel capacity is currently about 1.6 billion tonnes, and demand about 1.2 billion; and Europe alone has overcapacity of about 350 million tonnes.[13] The off-take consortium was taking about 3.2 million tonnes produced at Redcar but the price set under the agreement forged in 2004, then significantly below the cost price of production at TCP in Redcar and Lackenby, had risen above that cost price by the time the four consortium partners decided to end the deal. Prices halved between July 2008 and March 2009.[14] Said Mr Bolton: "We lost 80% of our turnover overnight and that put us in an extremely difficult position".[15]

12. World steel prices have begun to rise again. The World Steel Association believes the price may rise by 12.5% this year (back to the level attained in 2008), and Kirby Adams, Chief Executive Officer of Tata Steel Europe (Corus's and TCP's parent company), has been quoted as anticipating an increase of around 8% in demand within Europe.[16] Ray Mallon, Mayor of Middlesbrough, suggested prices had again risen above the cost of production at Redcar and were predicted to rise higher this year.[17]

13. Continual criticism has been made of engagement shown by Mr Kirby Adams, Chief Executive Officer of Tata Steel Europe. Mr Adams did not attend in person to give evidence to the Committee. During our meeting in Redcar, we made him the offer that the Committee would meet with him at any time during its inquiry to fit in with his diary.[18] It is disappointing, and unacceptable, that this and subsequent written offers of specific dates did not receive a positive response.

14. Mr Adams's only response to us was written, in answer to a list of questions that may be found among the evidence attached to this Report.[19] The Committee was not, as a result, able to question Mr Adams in any detail about why a decision affecting the lives and livelihoods of thousands of people on Teesside had been taken. Similar lack of engagement has been shown to the multi-union committee of Corus workers: Geoff Waterfield, Chair of the Corus multi-union committee, expressed the frustration of the workforce by saying that "the sticking point has been there from day one with Tata and its executive board. Kirby Adams has been very reluctant to meet with us at any length. In the two or three meetings that we've had, he has only ever stayed for half the meeting and then disappears—He comes in, makes a statement of fact, and walks out. We've never had an opportunity to sit down with the company—Tata—or with any prospective buyers around the same table and discuss any long-term possibilities".[20]

Closing the rolling mill

15. The difficulty for TCP is that its own part of the steel market is extremely limited, largely because of decisions taken a decade ago. TCP produces steel slab, an unfinished product which other steelmakers then turn into finished products. The market for that is small, about 30 million tonnes at best, and, according to Corus, only about 19 million tonnes in 2009; TCP's capacity is about 3.5 million tonnes.[21] Nor is Corus hopeful that the market will quickly demand more slab: "With global overcapacity expected to persist for several years, the slab market is expected to remain depressed for a considerable time and any limited recovery in demand that does occur is likely first to be taken by slab producers at a considerable cost advantage, mainly from the [Confederation of Independent States] but also Brazil. [The] latest forecast is that the merchant slab market will be 24mt in 2010".[22]

16. Although the slab market is unlikely to recover quickly, there are signs of recovery in the market for some other steel products. Teesside is ill-placed to benefit from that, however, as decisions taken in the early 2000s left it without the flexibility to make anything other than slab. Most other producers of slab have 'downstream' capacity—plant which allows them to turn the semi-finished slab into something else when the market requirement for slab is low. TCP does not have a rolling mill that would allow it to do that. Its mill was closed in 2002, against opposition from the unions and warnings that that decision would leave the company exposed by a lack of flexibility. The Iron and Steel Trades Confederation, then the major steel union, "argued at the time that it would limit the plant's ability to compete in the global steel market as the plant would only be able to produce steel slab".[23] Corus decided to concentrate steelmaking for internal use at Scunthorpe and Port Talbot, and to run the Redcar operation for export of steel slab only.[24]

17. Mr Bolton accepted that "not having more downstream capacity available to us on Teesside obviously makes it more difficult".[25] He said that it was "difficult" for him to comment on decisions taken in the past, but "plants that have rolling mills on their steelmaking facilities and added value potential attached are in a stronger position".[26] He also, however, ruled out developing that capacity on Teesside—"difficult to justify with a business case" at a time when world capacity is already too high.[27] The short-sighted decision by Corus to close its rolling mill at Redcar and Lackenby eight years ago has left it unable to respond flexibly to changes in the world steel market in a way that would guarantee continued production on Teesside. This is not simply a statement that benefits from 20:20 hindsight. They were told at the time by the local trade unions and politicians that this would be the result of their action. The Government would be well advised to note the fact that local trade unions and politicians have a track record of forecasting outcomes correctly, and, in reflecting on that fact, they should give additional weight to their views in relation to the present situation.

18. The slab produced on Teesside cannot be rolled there for lack of a mill. The question remains whether Corus could continue to produce slab at TCP and roll it at its mill in Llanwern, South Wales, which produces hot and cold rolled steel products, for which the international market remains significantly larger than for slab. The South Wales plant certainly has the capacity—it has been operating at below capacity for some years. The question is whether Corus could unite the plants in a profitable manner. We urge the Government to continue to work with Tata and Corus and the unions on both sites to explore fully the inherent potential in the Llanwern proposal and to seek support from the European Union to progress the initiative.

Collapse of the consortium

19. The off-take consortium was clearly profitable during the four years before steel prices began to fall. John Lowther of Tees Valley Unlimited cited evidence that the consortium had made about £800 million over that period, and as Corus retained 20% of output, it is clear that it, too, benefited substantially while that deal continued to operate.

20. The off-take consortium deal was initially so successful that two of the partners are reported to have been interested in taking stakes in TCP itself.[28] That ended with the worldwide steel price downturn. After the consortium's decision to break the deal completely in May 2009, Corus attempted, first, to negotiate a continuation of the deal, and then in the latter part of last year, to find a new buyer willing to take on the Redcar and Lackenby operations. Those negotiations, which Corus says involved every steelmaking country in the world, ended in November, resulting in the mothballing announcement made in December. Corus has said it would still welcome a new partner willing to keep the site going. Mr Bolton told us: "We need a strategic investor, somebody who can actually utilize over 3 million tonnes of steel and is willing to invest in the business […] we still have some hope that, potentially, up to the point and after the point of mothballing someone could still come forward and take a strategic role in steel making on Teesside".[29]

21. Corus has launched legal action against its four former consortium partners over their decision to break the deal. Mr Bolton said: "We initially tried to take out a court injunction to compel the consortium to fulfil that contract, which we failed to do. As a result of that, we are now suing the consortium for breach of contract. […] it is likely that it will take a number of years to come to a conclusion".[30] In reaching that conclusion, any agreement on compensation from the consortium must fully consider the impact on the public purse of the disgraceful and reckless behaviour of members of the consortium and, where appropriate, compensation to the public purse should be paid.

Government response

22. Immediately after the collapse of the consortium in May 2009, the regional development agency, One North East (ONE), established a Corus Response Group to put in place an aid package for those affected. The Group is chaired by One North East and representatives include: Corus, Vera Baird MP, Business and Enterprise North East (BENE), Job Centre Plus, Learning and Skills Council, North East Chamber of Commerce, Confederation of British Industry, Engineering Employers Federation Northern, Redcar and Cleveland Borough Council, Teesside Works Multi-Union Chair, Communitas, Tees Valley Regeneration, Tees Valley Unlimited, and the Government Office for the North East (GONE).

23. On 8 December, only four days after Corus announced the plan to mothball TCP, the Business Secretary, Rt Hon. Lord Mandelson, announced a £60 million aid package for the North East, in a deal brokered via One North East. The Government is to be commended on its swift response to the mothballing announcement. Some £30 million of this is new money, drawn from the Government's strategic investment fund. The other £30 million will, however, be "reprioritised" by GONE and ONE from current resources. GONE say that the package is intended "to secure immediate investment to support the region's industrial transition to low carbon and advanced manufacturing".[31] Ian Williams, ONE's Director of Business and Investment, said proposed projects over the next three to five years were expected to provide around 3,000 jobs.[32] The Government also cite 3,000 as the job target, but say the package will also "sustain" 10,000 more jobs in the long term.[33] About £10 million goes into apprenticeships and support for those setting up business, about £20 million into investment at Wilton International (the other major local employer), and about £30 million into low-carbon manufacturing for the future.[34]

24. Inevitably, though, much of the Corus Response Group's work focuses on help for workers who lose their jobs—skills assessments, options for other employment, and tax advice for those who might consider setting up their own businesses, for example.[35] ONE says that resettlement rates for workers who lose their jobs have been around 70 to 80% in the six months after job loss, but recognise that the current economic circumstances will make it hard to maintain that record in the case of TCP.[36]

25. Mayor of Middlesbrough, Ray Mallon, pointed out that the £60 million is not directly targeted at Corus workers.[37] He also pointed out that half of it is being drawn away from other projects within the North East rather than being entirely new money.[38] The North East Chambers of Commerce, too, have expressed concern about the diversion of ONE resources.[39] Cllr George Dunning, Leader of Redcar and Cleveland Borough Council, said that the money was welcome, but not enough, and being spread beyond the steel workers and to the chemical industry; the Council thinks another £40 million is needed.[40] Alan Clarke, Chief Executive of One North East, accepted that half the money is being diverted from his regional development agency resources, but said that the deal was a good one, and would remain in place even if TCP continued to operate.[41] Ian Williams, ONE's Director of Business and Industry, added that although the money is not directly targeted as aid for steel workers, it will provide "investments that will leave a long-term legacy", including in the process industries on which Teesside's future so heavily rests and which have also suffered a difficult last 12 months economically.[42]

Mothballing

26. In spite of its losses, Corus has chosen to mothball rather than close down the Redcar and Lackenby facilities. This implies keeping the plant ready to restart operations if market conditions for steel imply profits may once again be made there. Jon Bolton, TCP's Managing Director, said that the plant could, in theory, be mothballed indefinitely, although questions will eventually arise over whether the site could be put to another use if the plant remains out of action in the long term.[43] Corus said that "a small workforce" would be retained to keep the plant in a reusable condition.[44]

27. The trade unions are fearful, however, that the mothballing proposal will prove merely a prelude to closure. Community Union and the TUC both say the loss of 1,600 jobs implies closure rather than a realistic mothball.[45] "Proper mothballing would leave enough people in place to pick up production as soon as an opportunity arises. Therefore keeping people in work must be a priority while alternatives are sought or the market recovers,"[46] says Community. Corus is negotiating with the unions over how many workers should remain on site, but told us in response to written questions that it could expect either to recruit new staff or to divert existing workers from Scunthorpe or Port Talbot in the event of a longer-term restart to operations.[47]

28. Steve Readman of GMB warned, too, that the costs of returning the plant and site to action if the mothball is not correctly handled could be prohibitive to any company that might want to take over steelmaking at Redcar.[48] There is a wider point at issue here, too: if any land from the Corus sites is released for other uses, there will be considerable clean-up costs to be borne. The Minister for the Region, Rt Hon. Nick Brown MP, said that that is among the matters being discussed with the company at a high governmental level.[49]

29. We deeply regret that the Teesside Cast Products plant at Redcar and Lackenby has now been mothballed. We believe that it should have remained open while any hope remained that TCP, Corus and Tata could find alternative markets for its steel, alternative uses for the site, and potential alternative buyers for the site. Now that the plant has been mothballed, we seek an absolute guarantee from Corus that sufficient staff will be maintained on site to enable a return to production as soon as market conditions permit, and we urge all parties to utilise European wage subsidies and other supportive measures to maximise employment opportunities at the mothballed site to ensure the quickest possible restart of operations if and when new operators are in place.

Wage subsidy

30. Redcar and Cleveland Borough Council, the Mayor of Middlesbrough and the unions have all backed the idea of a Government-funded wage subsidy to keep the plant in action while the avenues outlined above are explored. John Lowther, Director of Tees Valley Unlimited, told us that work commissioned by Redcar and Cleveland suggested a wage subsidy of £10 million would be required, and argued that this compared favourably with an estimated £40 million cost to the Exchequer in lost tax revenues and increased benefits.[50] The Redcar and Cleveland scheme implies a two-day-a-week Government subsidy for 12 months, a period the unions also broadly support for a temporary scheme.[51] Kevin Rowan, regional TUC Secretary, also argued that some 22 of the 26 Organisation for Economic Co-operation and Development (OECD) countries have wage subsidy schemes in place for industries in economic difficulty.[52] A list of wage subsidy schemes in operation across the EU has been supplied to us by Tees Valley Unlimited.

31. Both Corus and the Government have, however, ruled out the use of wage subsidy as a means of keeping the plant going. Jon Bolton, Managing Director of TCP, said much more would be needed than the £10 million John Lowther had suggested, since Corus had, in fact, been subsidising TCP's operations since last May.[53] He added: "If the purpose […] was to keep everybody employed by Corus and to enable Corus to operate, the scale of the subsidy would not be enough to compensate for all the development opportunities that exist in the Tees Valley […] A wage subsidy would not be enough to enable us to keep the plant going".[54]

32. Alan Clarke, Chief Executive of ONE, expressed concern about the value of wage subsidy: "once you set the precedent at the national level and talk about wage subsidies during a recession, the question is where you intervene, what the priority is, how long you go on for and what the cost is. I'm not necessarily saying that you shouldn't go down that road; I'm just saying it's a very difficult area".[55]

33. A memorandum from the Department for Business, Innovation and Skills, sent after the Regional Minister, the Rt Hon. Nick Brown MP requested it on our behalf, also rules out wage subsidy entirely, saying: "The Government is exploring all [the] possibilities but […] does not believe that a wage subsidy would achieve its objective. Therefore, it does not believe it would be money well spent or that there would be a net benefit to the Exchequer from such a policy".[56] Mr Brown made it clear to us, however, that the Government would explore every option to retain steelmaking at Redcar and Cleveland.[57]

34. We are disappointed that Corus ruled out any possibility of a wage subsidy scheme to maintain production at Redcar and Lackenby under any circumstances. We are disappointed, too, that the Government, having explored all possibilities, has concluded that a wage subsidy would not achieve the desired objective. We urge the Government to keep an open mind on this question should a future operator for the plant emerge.

Other uses of Corus land

35. The land occupied on Teesside by Corus is considerably more than is required to keep Teesside Cast Products in operation. Tees Valley Unlimited's Director, John Lowther, pointed out to us that there are three major proposals for development of parts of the Corus site, including a South Tees eco-park at Redcar and Cleveland, which would bring in new industries involved in making energy from waste and the former Warrenby ironworks, which could be used for a heavy oil upgrader.[58] ONE says the three projects, with a capital value of £4 billion, could create 900 jobs. A decision is expected shortly from Corus on whether land might be released for them.[59]

36. While it was attempting to find a buyer for the site after it announced the decision to mothball last May, Corus placed a moratorium on releasing any of its land for other projects. Alan Clarke, ONE's Chief Executive, and the Regional Minister, the Rt Hon. Nick Brown MP, both expressed some sympathy with that decision, taken at a time when the future of the whole site was uncertain.[60] However, now mothballing has gone ahead, Corus should be able to take decisions soon on which land might be released for other wealth-creating and job-creating projects on under-utilised land.

37. The question of who pays clean-up costs on such land is one barrier to quick action on bringing in new projects. But North East Chambers of Commerce argue for the importance of getting unused land assets into action as soon as is practicable. Indeed, in the long term, it suggests that the mothballed site needs to be monitored in that respect. "The site being mothballed for decades, as has been seen with the former nylon plant at Wilton, will not serve the ambitions or the regeneration of the Tees Valley".[61]

38. We believe that Corus should make clear immediately whether it will release land for projects that could provide new jobs and investment for Teesside, and we hope that it will release that land. If Corus fails to give such a commitment, or if it is seen to be holding back in any way, both national and local government should act in the public interest to acquire the land. Corus's responsibility to the community which has served it well should also make it contribute substantially and swiftly to the work needed to make those sites available for new projects. We call on the Government to ensure that the "polluter pays" principle is rigorously applied on land made available for uses that may replace some of the jobs likely to be lost by Corus's decision to reduce its Teesside operations.

European Union and state aid

39. Shortly before Christmas, in a parliamentary debate, the Business, Innovation and Skills Minister, Rt Hon. Pat McFadden MP, said both that Corus had not asked for Government aid to keep the plant open and that such aid would not in any case be possible under state aid rules.[62] The Government Office for the North East says that EU state aid rules are stricter for steel than for other sectors.[63] Aid is restricted to the purposes of research and development, environmental protection and implementing plant closures. The Government believes that any financial support aimed at keeping the plants open would probably be declared illegal by the European Commission.

40. Tees Valley Unlimited entirely disagrees. John Lowther, its Director, told us the Government should be more proactive in seeking EU aid for an area in need of economic restructuring.[64] The Regional Minister, Rt Hon. Nick Brown MP, said that market conditions rather than state aid were the insuperable obstacle to keeping TCP in operation, though it was unclear from that whether some state aid might, in fact, be possible.[65] The Government Office for the North East and One North East have been considering whether European Globalisation Adjustment Funding might be available. That fund can provide money in response to large-scale redundancy, and TCP would qualify in terms of scale. But the money, which is used only to help workers who are redundant rather than preventing them from becoming so, can only be made available if it does not duplicate other European funding, which it may do in this case. GONE told us "If it can be shown that an application to the EGF would be of added value by differentiating from the provision already provided then this would be given the fullest consideration".[66] We recommend that GONE and ONE find out as a matter of urgency whether European Globalisation Adjustment Funding would be available to assist those who might be made redundant at TCP. If such funding is available, we recommend that they do not give the matter "the fullest consideration" but apply immediately.

41. Whether or not any tranche of European Union funding is available or UK state aid for TCP possible, the Government also needs to address the clear perception among witnesses to our inquiry that the UK fares less well than its EU partners in supporting troubled work forces through such funding. In particular, we urge the Government to look closely at the evidence submitted by Mr Lowther for Tees Valley Unlimited and at background information provided by Mr Stephen Hughes MEP, which spell out the significant advantages that other European countries and industries seem to enjoy.

Carbon Emissions Trading Scheme

42. There has been some speculation in the media that Corus could benefit from deciding to shut down the Teesside Cast Products plant by up to £600 million. Corus strongly denies that this is so.[67] The implication is that ceasing to emit about 6 million tonnes of CO₂ will benefit Corus via the carbon allowances available under the European Union Emissions Trading Scheme. Corus argues that the £600 million figure is incorrect since it assumes both that Corus would receive the maximum allowance and that the price per tonne of CO₂ would be significantly higher than it is at present. The North East Chambers of Commerce, however, argues for further investigation on whether the incentive to mitigate production of carbon dioxide played any part in Corus's decision to mothball TCP, and of how the Emissions Trading Scheme can be managed to ensure that other manufacturing facilities are not closed just to enable the trade of carbon credits.[68]

43. Corus did not address whether mothballing the plant, with a subsequent reduction in carbon emissions, will benefit it financially to a lesser extent. Jon Bolton, TCP's Managing Director, told us that Corus, its parent company, would be able to trade whatever allowances it receives. How much it made from those allowances would depend on their value at the time of a trade.[69] Corus points out that the allowance it receives will be affected by mothballing and that the estimate of £600 million depends on carbon trading prices significantly higher (£37 per tonne) than those projected for 2012 and beyond.[70] Corus also notes that its allocation of allowances may fall below the level of its emissions, and that that implies costs for purchasing allowances of between €42 and €112 from 2013, depending on the price of carbon trading at that time.[71] All the same, as a simple matter of natural justice, it would be wrong for Corus, or any company, to profit from a scheme intended to cut carbon emissions simply by closing down companies and putting the heart of a community out of work. Corus will soon receive new Carbon Emissions Trading Allowances. If any such allowance relates to Redcar and Lackenby, any profit made from trading the allowance on plant that is not emitting simply because it is not working must be put into supporting the work force and the regional economy.

44. Tees Valley Unlimited notes that the Tees Valley is among contenders to provide a carbon collection and storage network, and indeed has a strong case for being one of the pilot areas chosen by the Government for this new industry.[72] Michael Leahy, General Secretary of Community Union, notes that the steel no longer produced on Teesside will be produced elsewhere in the world, and probably in a country where carbon emissions are less efficiently controlled than the UK.[73] This appears to run counter to the Government's welcome commitment to developing a low-carbon economy in the North East and to contributing to a global reduction in emissions, and it is further evidence of the need to retain steelmaking on Teesside.

Renewable energy and the future

45. The Government's £60 million aid package, as mentioned already, looks beyond the immediate difficulties of the steel industry to the wider future for the Tees Valley in low carbon manufacturing and renewable technologies. The Tees Valley Industrial Programme, built around 20 projects offering a potential 3,000 jobs for the area, is aimed to a greater degree at equipping the "Tees Valley to move beyond traditional heavy industry to realise its potential to be part of our low carbon manufacturing base".[74] Among the £8 billion potential schemes on the drawing board are a £4 billion oil refinery which refines heavy oil from the North Sea, the Progressive Energy clean coal gasification plant with carbon capture and storage, the Northern Gateway Container Terminal, £1 billion investment in two combined heat and power plants, three new biomass power plants, one of which will be the UK's second largest, various recycling plants and a second nuclear power station.[75] The manufacture, construction and installation of renewable energy generation facilities, from wind turbines to nuclear power generation and energy-from-waste facilities, offer considerable potential for the area, said the North East Chambers of Commerce.[76] There is also huge potential for the whole region in linking the work on Teesside into the activities being carried out on carbon capture and storage at the Alcan site in Lynemouth and the groundbreaking work being piloted by Newcastle University, ONE, the Association of North East Councils and local businesses in relation to the underground gasification of coal off the North East coast.

46. We recommend most strongly that the Government choose the Tees Valley as one of the areas to pilot carbon capture and storage projects later this year. The Tees Valley is home to 18 of the North East region's 21 largest emitters of carbon and has the infrastructure and expertise to make such projects work. Such projects also offer a future to a region still more dependent than most on traditional heavy industry and desperately in need of good news at a time of grave economic difficulty, including loss of jobs now Teesside Cast Products has been mothballed by Corus.

Conclusion

47. The decision taken by Corus to mothball the Teesside Cast Products plant at Redcar and Lackenby with the loss of around 1,600 jobs will have a devastating effect on the local economies of Redcar and Cleveland and Middlesbrough, on the sub-regional economy of the Tees Valley and on the wider North East. The central priority for Corus, for the Government, for the unions, and for the region must be to find a way to reopen the plant as soon as possible and to maintain the jobs of a highly skilled work force until market conditions allow the plant to operate profitably again, as it has in the past. Corus must continue to seek either a market for the slab made at Redcar and Lackenby or to find a buyer interested in taking over the operation. Mothballing must be real and viable, and that has to mean keeping not just the plant, but the highly skilled work force, ready to restart production at short notice when market conditions change.

48. The future for the North East economy relies heavily on carbon capture and storage and on the development of renewable energy sources, for both of which substantial quantities of steel will be necessary. That steel will not, regrettably, be the slab produced at Redcar and Lackenby since Corus chose to close the plate mill. The irony that a region crying out for steel is closing a steel works will be lost on no one.

1 Ev 49 Back

2 Ev 54 Back

3 Q 58 Back

4 Ev 47; Ev 54 Back

5 Ev 54 Back

6 Ev 85; Ev 54 Back

7 Q 3 Back

8 Q 37 Back

9 Ev 58 Back

10 Ev 67 Back

11 Ev 69 Back

12 Ev 78 Back