Source: New Zealand Government
Prime Minister Chris Hipkins made the announcement alongside Energy and Resources Minister Megan Woods and Climate Change Minister James Shaw at the Glenbrook steel factory in South Auckland today.
“This size of this project demonstrates how serious the Government is about reducing New Zealand’s emissions as fast as possible,” Chris Hipkins said.
“This project dwarfs anything we have done to date. Alone, it will eliminate one per cent of the country’s total annual emissions.
“The plan means New Zealand businesses will have access to locally produced, cleaner steel, and high value jobs are protected that otherwise might have gone offshore.
“Partnering on this project with New Zealand Steel makes sense because it delivers such huge benefits for our environment. Without Government investment this wouldn’t have happened, so it’s fantastic to see what working together can deliver,” Chris Hipkins said.
The conditional deal with NZ Steel will be part funded up to $140 million from the $650 million Government Investment in Decarbonising Industry (GIDI) Fund, which enables partnerships with industry to reduce their emissions. The rest will be funded directly by NZ Steel.
“The Government is partnering with NZ Steel to reduce 800,000 tonnes of climate pollution from its Glenbrook mill each year. That’s the equivalent of taking approximately 300,000 cars, or all the cars in Christchurch, off the road,” Megan Woods said.
“The Government will help co-fund an electric arc furnace to replace the existing steelmaking furnace and two of the four coal-fueled kilns.
“The installation of an electric arc furnace at Glenbrook means NZ Steel will cut its emissions by more than 45 per cent and will produce 100 per cent of its annual steel production as lower carbon steel.
“To understand the scale of this project, it reduces more emissions on its own than all the other 66 GIDI projects we have approved to date.
“Our partnership with NZ Steel shows we can tackle the challenge of decarbonising even our hardest to abate and largest emitting industries. This investment would not happen without government support.
“Steel is critical to our economy for manufacturing and construction. Lower carbon steel production at Glenbrook has massive wins for our materials supply chain. It also helps retain a significant local source of employment.
“We are proving once again that decarbonisation does not mean de-industrialisation. It demonstrates how the transition to a low emissions economy can not only be good for the climate, but also a win for minimising waste, retaining jobs, and improving New Zealand’s economic resilience,” Megan Woods said.
“Melting scrap steel using electricity, instead of converting ironsands into steel using coal, will substantially reduce the emissions generated from NZ Steel’s current activities. It will also build a more circular, resilient economy. This will put New Zealand in a much better position to meet its climate target of net zero carbon by 2050,” James Shaw 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).
“The economics of this really stack up, especially compared to current carbon prices. The lifetime abatement cost is forecast at $16.20 per tonne. Current carbon prices are around $55 per tonne. In the long term this saves the Government and the country money.
“We must reduce our reliance on fossil fuels to help avoid the worst of climate change. Switching to cleaner ways of generating process heat is one of the biggest opportunities we have to reduce our domestic emissions and meet our international climate commitments.
“Adaptation to protect our communities against our changing climate is important. But we cannot underestimate the need to cut the pollution that causes climate change in the first place. We cannot underestimate the benefits a low emissions economy will bring for New Zealanders,” James Shaw said.
Notes for editors:
The supply of electricity required for the new furnace will also include a demand response arrangement in partnership with Contact Energy – where NZ Steel can scale down power supply from the electricity grid when needed to secure electricity supply in the region at peak times.
Details will be completed over the coming months, including various assurances on critical parts of the new operation, to make sure the proposal can be given the full green light and the agreement can become unconditional.
This deal is the first in a number of bespoke opportunities that the Government is exploring, through the expanded GIDI Fund, to deliberately target appropriate support for New Zealand’s largest emitters.
Background on GIDI:
- GIDI (Government Investment in Decarbonising Industry) was first introduced in 2020 – to ramp up decarbonisation of our industrial process heat while stimulating our economic recovery post the pandemic, to create and protect jobs.
- The $650m expansion of GIDI in Budget 2022, funded from the Climate Emergency Response Fund is a key initiative to help deliver on the Government’s Emissions Reduction Plan (ERP).
- The Fund enables partnerships between Government and businesses to accelerate emission reductions by supporting energy efficiency and fuel switching projects.
- GIDI helps get decarbonisation projects across the line and happening faster than they otherwise would, delivering larger and earlier emissions reductions for New Zealand.
- It helps ensure that decarbonisation happens in New Zealand by investing in New Zealand businesses instead of buying offsets overseas – and that we support our businesses with a just transition.
- The project is forecast to have an abatement cost of $16.20 per tonne. The abatement cost per tonne is the cost of removing one tonne of carbon dioxide equivalent pollution.
- This partnership agreement is with EECA (Energy Efficiency & Conservation Authority), with support from the Ministry for the Environment, and the Ministry of Business, Innovation and Employment.
- EECA – which delivers projects under GIDI – has a programme dedicated to ‘Partnerships with Very Large Emitters’ as part of the funding allocated.
- The conditional agreement will be co-funded by the GIDI Fund, with the rest funded directly by NZ Steel. The agreement has three components:
- base build funding support up to $110m
- an additional $10m commissioning funding incentive paid if NZ Steel can get the furnace up and running by January 2027
- a further $20m of performance funding paid upfront if NZ Steel can achieve a further 800,000 tonnes of emissions reductions by 31 December 2030 over and above the base amount committed to in the agreement.
- NZ Steel is New Zealand’s sole producer of flat rolled steel products for building, construction, manufacturing and agricultural industries.
- It operates a fully integrated steel mill at Glenbrook, about 60 kilometres south of Auckland, as well as Pacific Steel, a manufacturing facility in Ōtāhuhu and Steltech, a manufacturer of custom welded columns and beams in Takanini.
- It produces around 670,000 tonnes of steel each year for mainly domestic consumption. Key products include roofing, structural beams, steel framing and reinforcing steel.
- NZ Steel contributes over $900M to the economy per annum and adds $398 million in value to the Auckland region. It supports the employment of 4,000 people across its New Zealand and Pacific Island operations, employing 1,400 directly and the remainder indirectly. It trains more than 40 apprentices and graduates annually.
- NZ Steel receives industrial allocation under the Emissions Trading Scheme, as an ’emissions intensive, trade exposed’ business – recognising that ETS costs might impact the international competitiveness of these businesses.
- Emissions budgets set the amount of emissions New Zealand can produce in order to meet its climate change goals. These are described in New Zealand’s first emissions reduction plan, published in May 2022.
