Port Talbot’s steelworks will be given up to £500m by the UK government in a bid to keep the plant open and produce steel in a greener way.
Tata Steel will add £700m of its own as it invests in cutting emissions. It has asked ministers to provide a bigger chunk of the cost.
But the package could mean as many as 3,000 job losses across the UK.
The site in south Wales is home to Britain’s biggest steelworks.
The steelworks features two blast furnaces working around the clock to produce steel used in everything from tin cans to submarines.
But the site is also one of the UK’s largest polluters.
The UK government has agreed to fund the installation of new electric arc furnaces for steelmaking.
The £1.25 billion furnaces are expected to be up and running within three years of getting regulatory and planning approvals.
The company has warned there will be a “transition period including potential deep restructuring” at the plant.
The UK government said the deal “has the potential to safeguard over 5,000 jobs across the UK”.
Unions have previously said the move to the new less labour-intensive furnaces could lead to thousands of job losses.
The UK government said the transition is expected to reduce the UK’s entire business and industry carbon emissions by 7%, Wales’s overall emissions by 22% and the Port Talbot site’s emissions by 85%.
It also said the plan to replace existing coal-powered blast furnaces at the site would “reduce the UK’s entire carbon emissions by around 1.5%.”
Kemi Badenoch, business and trade secretary for the UK government called the deal “an historic package of support from the UK government”.
Asked whether the job losses were a price worth paying, she told reporters: “That’s completely the wrong way to look at it.
“We are saving jobs which would have been lost. Without this investment we would probably have seen the end of steelmaking certainly in this part of the country, possibly in the whole of the UK.”
Rishi Sunak said people whose jobs are at risk should be “reassured” that there is a £100 million transition plan in place to help them retrain.
“Obviously, there will still be some people affected and I know this will be an anxious time for them.”
Natarajan Chandrasekaran, Tata group chairman, described the agreement as “a defining moment for the future of the steel industry”.
“The proposed investment will preserve significant employment and presents a great opportunity for the development of a green technology-based industrial ecosystem in south Wales.
“We look forward to working with our stakeholders on these proposals in a responsible manner.”