The truth about EU state aid rules

14 October 2015

On September 18th 2015, the SSI Steelworks in Redcar, North-East England paused production, citing tough international competition and a falling global steel price. The plant which employs 2000 people directly, along with 1000 contractors, and supports an estimated 5000 people in the local economy or supply chains, is a vital part of the local economy. When the idea of government financial support was brought up, the UK Conservative Government, in a statement from business Minister Anna Soubry MP, stated "There are extremely strict state aid rules, which especially apply to the steel industry, so we are limited as to what we can do...our hands are tied."

However, as SSI chief operating officer Cornelius Louwrens noted "Other European countries are finding ways to support their steel industries because they believe it is so (strategically) important."

So is it possible for the UK Government to provide State-Aid to steel producers such as SSI?

Ultimately the answer is yes, governments can provide State-Aid to the steel producers such as SSI, however, it must be qualified for a specific reason beyond simply supporting an industry. Normally, these would relate to environmental or public health concerns, or the investment in R&D, which would be lost with the closure of a works. 

There are many other examples of European steel businesses receiving State-Aid.

In early 2015, the Italian Government temporarily renationalised the Ilva Steel works in Taranto, Southern Italy. The Italian government cited the unabated toxic emissions and very poor environmental standards, which had led to unusually high rates of cancer in the area around the plant.

However, it must be noted, that the European Commission is currently investigating this cases, to ensure it fits within the State-Aid rules. The Commission received a formal complaint from EUROFER, the trade-body representing European steel manufactures. A decision is expected in the next few months.

Currently the French government are providing state-aid to the ArcelorMittal plant at Florange, in France to support their ongoing R&D work, this follows on from a long running industrial dispute over the closing of two blast furnaces. This State-Aid comes to a total of €20-50 million over 4 years, with a further 33 million been raised in public-private investment.

In 2010, before the May elections (which saw a change in Government), the UK Labour government was willing to provide Sheffield steel producer Foragemasters with an £80m loan to develop new technologies as part of a supply chain for nuclear reactors. While ultimately the new government withdrew this offer, the reasoning for a change of heart was ideological and not related to European State-Aid rules.  

We believe there is potential for SSI to claim similar State-Aid provisions because of its part in ongoing development of cutting edge Carbon Capture and Storage (CCS) facilities in Teesside.

If we are to achieve a low-carbon economy, which stay's within the IPCC's two degree scenario at the lowest possible cost, we must develop CCS. This technology captures Co2 at the point of production, transports it through pipes or on-board ships, to secure, permanent storage sites, usually deep under the sea bed. Specific industries such as Steel and Cement have no affordable alternative option to CCS, if they are to successfully decarbonise, while CCS could significantly reduce the cost of, and increase the speed of, the transition to a low carbon future in the energy sector.  According to the IPCC, without the development of CCS, the overall cost of the transition to a low-carbon economy within the 2° scenario will be 138% more expensive.

Teesside, through the Teesside Collective industrial hub, is a leader in Europe in developing this critical technology. By linking up a wide range of industrial Co2 producers throughout the Teesside area, sharing infrastructure costs and ensuring a steady supply of Co2, Teesside Collective hopes to develop one of the first working industrial CCS hubs in Europe. SSI, as one of the biggest Co2 emitters in the area and a key stakeholder in the project, is a critical part of the plans to provide a decarbonised future for this region and more broadly for European industry. Without SSI, Teesside Collective is not really viable.

As SSI is such a key part of these plans and significant resources have already been put into developing the idea of industrial hubs, CCS technology and specifically the Teesside Collective, this plant is permissible for state aid on environmental and R&D concerns. 

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