Anyone properly into UK energy policy will be familiar with DUKES – the Digest of UK Energy Statistics. Table 1.1 of this annual publication lays out the ‘aggregate energy balance’ for the previous year – it’s like the first page in our national accounts, only for energy.

One of the things you’ll notice looking at the table is that the use of coal in coke ovens and blast furnaces is given equal prominence to its use in generating electricity. This is a bit of a historical relic, but even today the steel industry is a significant coal consumer.

That said, it is now possible to make steel without coal. Electric arc furnaces already produce steel from scrap – and also from direct reduced iron (DRI), which is produced from iron ore using natural gas instead of coal. According to a report in Natural Gas Intelligence, America’s shale gas revolution is driving the growth of coal-free iron and steel production:

“A process used abroad to create direct reduced iron (DRI) is emerging in the United States. DRI uses natural gas as a reducing agent in the iron-making process instead of relying on coke-based blast furnaces. Natural gas and iron ore are currently being used to make DRI in more than a dozen countries, but not yet in the United States…

“In May, European steelmaker Voestalpine AG said it would site a new plant outside of Corpus Christi, TX, to produce DRI… The products will supply the company’s Austrian steel production facilities, it said. One of the benefits of the location is cheap natural gas from the Eagle Ford Shale, the company said.

“While cheap U.S. gas from shale plays makes the DRI process attractive in the United States, DRI plants also require less capital to build.”

Coal is the dirtiest of the fossil fuels – and we can measure our technological progress by the stages we’ve gone through in kicking the coal habit. The first stage was getting rid of coal as a transport fuel (think steam trains). The next stage was replacing coal as the main fuel for domestic heating and hot water. Now, in much of Europe and North America, it is the use of coal for generating electricity that is on its way out – thanks to tighter controls on local air pollution and competition from cleaner sources of power.

The iron and steel industry therefore represents a last stand for coal – but if cheap shale gas allows the expansion of DRI production, then we can begin to envisage a coal-free future. This is something that environmentalists should welcome, but there is a catch, which I’ll come on to.

According to the Economist, shale gas is already driving an industrial renaissance in America:

“Since 2011, 128 new energy-hungry industrial plants have been announced in the Gulf Coast region alone, with a combined value of $114 billion…

“The aluminium, iron and steel industries are also taking advantage of cheap gas supplies. Recently 19 new or expanded plants have been announced by firms including US Steel, Alcoa and ArcelorMittal. Nucor is rebuilding on a site in Louisiana, whose original plant was dismantled and shipped to Trinidad nearly a decade ago, when gas prices were rising in America. Makers of such things as cement and tyres are heavy consumers of energy, too, and thus stand to benefit from cheap gas.”

The catch is that all this extra industrial activity will push up America’s carbon emissions. And yet, without denying the mainstream scientific position on climate change, this is still a good thing – and not just economically. As well as boosting American jobs and growth, the local production of goods and materials using natural gas is better for the planet than producing them in China using coal and shipping them over on oil-guzzling container vessels.

With major shale gas resources of our own, we may soon be in a position to boost British industry too. In doing so, we’d be pushing up our national carbon emissions, but simultaneously reducing global carbon emissions due to the import substitution effect.

Perversely, this would be discouraged by the current system of climate change targets, which doesn’t take ‘imported carbon’ into consideration. Reform is therefore essential if we are to reconcile economic and environmental objectives.

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