Big investment to reduce emissions

A109 Light Utility Helicopter flight with mayor Gisborne City from the air in November 2023.

Opinion

Corporate welfare or a necessary investment in reducing New Zealand’s emissions? That is the debate that follows the Government’s announcement it will pay nearly half the cost of a new electric arc furnace for New Zealand Steel.

The Government is covering $140m of the $300m furnace which is being trumpeted as the country’s largest single emissions reduction project, according to Sunday night’s press release by the three parties involved, NZ Steel, the Government and Contact Energy.

The deal will provide cheaper off-peak power to NZ Steel as the new furnace replaces half of the coal it presently uses, removing 800,000 tonnes of emissions or 1 percent of New Zealand’s total greenhouse gas emissions.

The government share is being funded through the Government Investment in Decarbonising Industry (GIDI) fund set up in 2020 to recycle revenue from the Emissions Trading Scheme into climate-related measures.

Climate Change Minister and Greens co-leader James Shaw said melting scrap steel using electricity instead of converting iron sands into steel using coal would substantially reduce the emissions generated from NZ Steel’s current activities. It would also build a more circular, resilient economy and put New Zealand in a much better position to meet its target of net zero carbon by 2050, he said.

“This deal is estimated to contribute 5.3 percent of the emissions reductions needed under New Zealand’s second emissions budget (2026-2030), and 3.4 percent within the third emissions budget (2031-2035).”

Both Prime Minister Chris Hipkins and Energy Minister Megan Wood are also framing this as a big win for manufacturing jobs and keeping manufacturing in the country.

Woods said this deal showed we can tackle even our hardest-to-abate and largest emitting industries, adding that it would not have happened without government support.

But memories of the Think Big projects of the Muldoon era, not to mention continuing debate about the viability of the Tiwai Point aluminum plant, make some wary of major subsidies for industry.

In a pre-Budget speech National leader Christopher Luxon said the Government had set new rules that meant companies were increasingly looking to Wellington for direction before developing their investment plans. This created an unhealthy dependent relationship that was depressing the spark and innovation for which Kiwis had historically been famous, he said.

It is also being pointed out following this announcement that NZ Steel’s Australian parent Bluescope Steel made a $A2.7bn profit after tax in 2022.