Government Secures £500 Million Green Steel Deal for Port Talbot

Experts are warning that the UK could lose its primary steel production capacity, while trade unions are voicing concerns over significant job losses. The government has confirmed it will move forward with a £500m deal to help Tata Steel transition the Port Talbot steelworks to low-carbon electric arc furnace (EAF) technology. This comes after negotiating enhanced redundancy and skills packages for workers affected by the shift.

After weeks of talks between Tata Steel, the government, and trade unions, the Department for Business and Trade announced a "new and improved deal" based on the previous government's £500m support package. Under the agreement, Tata Steel will shut down the blast furnaces at Port Talbot and replace them with EAFs, which will recycle scrap steel or iron into new steel, eliminating the need for coking coal. This move is projected to cut the UK's total CO2 emissions by around 1.5%.

However, while EAFs are much less labor-intensive than traditional blast furnaces, the project is expected to create just 500 jobs while losing approximately 2,500. The government has negotiated better redundancy terms, including a minimum voluntary redundancy payout of £15,000 for full-time workers, a £5,000 retention payment, and paid training to support reskilling efforts. It also revealed that around 2,000 employees had expressed interest in voluntary redundancy, with the deal offering 2.8 weeks' pay for every year of service, capped at 25 years.

Additionally, the deal includes strict conditions to ensure government investment can be recovered if Tata Steel does not meet its commitments, including penalties if the company fails to maintain 5,000 jobs across its UK operations post-transition.

"Port Talbot has always been and will always be a steelmaking town," said Business and Trade Secretary Jonathan Reynolds. "This deal does what previous deals failed to do - give hope for the future of steelmaking in South Wales.

"Steel is fundamental to the UK's economy, sovereignty, and communities, but previous government inaction has blighted the steelmaking industry. That's why this government is taking strong action through a new deal and strategy which will reverse the industry's stagnation and set out a long-term vision for a bright and sustainable future."

He added that the government remained committed to delivering £3bn of investment through its industrial strategy to enable "a cleaner, greener future for UK steelmaking [that] is vital to the industry's long-term economic stability."

The new strategy also allows the government to potentially support additional projects focused on producing low-carbon primary steel through hydrogen or carbon capture and storage (CCS) technologies. Officials indicated that Tata Steel would continue collaborating with the government to assess the feasibility of future investments in upstream and downstream assets.

Laith Whitwham, UK industry lead at climate think tank E3G, expressed concern, stating that the UK could become the only G7 nation to lose its primary steel production capacity under the current trajectory. This risk is heightened by British Steel's similar plans to transition to electric arc furnaces (EAFs) at its Scunthorpe facility.

"UK steelmaking must transform to thrive," he said. "The government's deal with Tata for a new electric arc furnace in Port Talbot is a positive step forward, but the UK is the only G7 nation set to lose its ability to produce steel from scratch. This risks jobs and infrastructure goals and could lead to a reliance on high-carbon steel imports. The government must create a long-term plan for steel that supports a green industrial strategy, creates opportunities for workers, and delivers affordable clean energy. The global economy is shifting, and by leading the charge on clean steel, the UK could deliver green prosperity and good jobs throughout the industrial value chain."

Tata Steel rejected alternative proposals for the Port Talbot site, standing firm on its original plan to shut down blast furnaces and transition to electric arc furnace (EAF) technology. In early July, the site's future seemed uncertain as negotiations with the previous government nearly collapsed during polling week—a situation that Labour warned could have led to the complete closure of the Port Talbot steelworks.

T V Narendran, Tata Steel's chief executive, emphasized that the new deal paves the way for a £1.25bn project, marking the most significant investment in the UK steel industry in decades.

"With the UK government's critical support, this complex and ambitious transformation of Port Talbot has the potential to make the plant one of Europe's premier centres for green steelmaking," he said. "I would like to thank the UK Steel Committee and various departments of the UK and Welsh governments for their support in reaching this agreement. We now look forward to the efficient and speedy execution of the EAF project. We will also continue our work with the Transition Board and the UK and Welsh governments to enable this project to be a catalyst for economic regeneration and job creation in South Wales."

Tata Steel stated that the new electric arc furnace assets would cut the UK's industrial carbon emissions by an impressive eight percent while promoting circularity within the steel sector by enabling scrap steel recycling. The company plans to begin large-scale site work next summer, with the EAF expected to be fully operational within three years.

In a joint statement, the Community and GMB unions said the deal was "not something to celebrate, but - with the improvements the unions and the government have negotiated - it is better than the devastating plan announced by Tata and the Tories back in September 2023".

"Going forward, the government must review existing policies and do everything in its power to ensure that decarbonisation does not mean deindustrialisation - you can't build a greener economy without a healthy steel industry," it added. 

Dr. Simon Cran-McGreehin, head of analysis at the Energy and Climate Intelligence Unit (ECIU), called on the government to act swiftly in developing a comprehensive Steel Strategy. He emphasized the need for the strategy to facilitate investment in electric arc furnaces (EAFs) and hydrogen-based steelmaking projects to ensure the UK stays competitive in the global shift toward low-carbon steel production.

"The news that Tata Steel was to close both blast furnaces at its Port Talbot works was a devastating blow to workers at the plant, not least as a better-planned transition to future-proof technologies, including hydrogen, could have saved many jobs," he said. "The confirmation of the government support package will provide some comfort to workers and the community, and the commitment agreed with Tata to look at future investments is positive.

"However, with an announcement from British Steel about the future of the Scunthorpe plant also expected soon, it's clear that the future of British steelmaking still hangs in the balance. Over recent years, the UK has been falling behind Europe in the development of green steel manufacturing, with a number of hydrogen-based green steel plants moving ahead across the continent. The big test for the new government will be whether it is able with its planned Steel Strategy to develop a long-term, strategic plan for the industry."