Govt pays $140m of $300m cost of new NZ Steel electric arc furnace, cutting emissions by 800k tonnes at $16.20/tonne; Luxon says it's corporate welfare; I argue it's money well spent
IMO NZ Steel should have to pay for more of it themselves - but indirectly, by means of being subject to increased/new general corporate/land/capital/windfall profit taxes. It is nevertheless a good policy, the perfect can't be the enemy of the good when dealing with the climate catastrophe.
The agreement with Contact to supply off peak power helps reduce the need for extra coal burning. Hopefully these sort of investments in electrifying our industries will encourage the govt to sort out the energy sector asap to get more renewables built (and not just consented).
I agree the agreement with Contact would HELP reduce the need for extra coal burning, assuming NZ has surplus electrical power off-peak and assuming they run it then. (I
am doubtful, because once you have a big furnace running, you don’t turn it off.) However, although it may help, it sounds like more coal will need to be burned.
Also, there is a delay. This furnace comes online in 2027 and the new renewable capacity built by Contact will come online when? 2033? So does this mean we burn more coal for the first 6 years or so and are better off after that?
I haven’t personally looked too far into this, but given the whole electricity grid in NZ is more complex than direct lines from power stations to consumers (excluding Tiwai), this will likely involve a bit of accounting. I’m sure there are plenty of ways Contact can speed up additional renewables as this gets locked in.
Thankyou Luke, we need to support practical positivity now as it is easy to get mired in the negative ‘what ifs’ and ‘buts’ which can lead to stagnation of ideas.
We can’t not electrify because we have Huntly - we need to electrify and add capacity and replace Huntly’s capacity. It’s all things and it’s currently a chicken and egg - the more investment announced in electrification the more enthusiastically capital will go after renewable energy projects.
Fair point, but we cannot and should not say we are reducing emissions by implementing this project. We should say we will reduce emissions if and when the project is implemented AND we have the renewable energy in place to support it. It is the misleading/misinformation aspect which bothers me.
Cliff first of all the coal burning generators (rankine units were programmed to be decomissioned but were delayed due to dry years.
If you are seriously interested in the answers to this I highly recommend you go to Transpower website and read the many documents they have on “rapid electrification” In particular the key report is Whakamana i Te Mauri Hiko empowering our Energy Future.
You might not be aware that Transpower is doing a lot of work to enable decarbonisation. I can speak with a tiny bit if authority on this as I was recently one of the “fourteen thousand burraucrats when I had a fixed term contract as a Principal Strategy Engineer filling in for an Engineer who was on site for the upgrading of the Lines in the bottom of the south Island to enable the sending North of surplus energy from Manapouri when Tiwai point closes the “Clutha Upper Waitaki Lines Project”. This was completed ahead of program despite being done through Covid.
By the way I can say some of my work included developing strategy in Resilience and a climate change roadmap.
It is, of course, still corporate welfare. Unfortunately though because they are exempt from the ETS, their emissions problem is NZ Inc.’s emissions problem and Bluescope have little commercial incentive to fund it on their own or via other market mechanisms. NZ Inc. is over a barrel and the NZ government is up for the emissions liability in the future so may as well deal with it now rather than later. It’s not would you like to eat the dead rat but how would you like to eat it.
The purchase of (other) emissions reductions (offsets) locally could be encouraged by assisting the development of voluntary carbon markets using the global accreditors (Verra, Gold Standard, etc.). Emissions reduction projects (like NZ Steel’s) that aren’t tree-planting or vegetation-related are a bit more black & white when it comes to measurement & certification of actual emissions reductions. Maybe a future government should spend some effort on these policies.
Agree that this is corporate welfare. Understand all the arguments presented also. All I can say is this is one screwed up system we find ourselves within!
The other aspect that deeply concerns me about this announcement is that this is a very narrow emissions-related decision when we know multiple of our planetary boundaries are being breached. Industrial waste streams go far beyond GHG emissions. The Govt had a planetary boundary analysis done for NZ last year - so are aware that 'Climate' is just one of 9 key boundary measures and the others like novel entities (toxins/industrial waste/chemical outputs) as best they can be measured, are serious concerns. CC mitigation is a golden opportunity to address multiple pollutants rather than just ticking off one box - so a whole of business commitment to pollution-reduction is what I'd expect from this tax-payer investment.
ETS is now the problem. Precedent has been set. Do nothing and wait for the handout. Otherwise the government will have to pay even more for overseas credits.
When you talk to Luzon re ETS, and in relation to this comment from your report “Luxon looks captured by the NZ Initiative’s purist approach on this, which is to argue that the ETS should be the only policy designed to reduce emissions and all emitters should be included and the price should be allowed to equilibriate to achieve emissions reductions.”, if the ETS is the way then where should the money be spent?
With some of our large corporations being allowed a free pass on the ETS does anyone check the legitimacy of their claims regarding competitors? Especially as many other countries also move to reduce emissions.
Of corse this is corporate welfare. And excellent to put NZ Steal in the same bag as Air NZ and Rio Tinto and other robbers. The so-called national airline has a long history of privatising profits and socialising losses. It should have been nationalised years ago as Luxon and the PM both know. Rio Tinto has been the arch-corporate bludger in Aotearoa for over 50 years. Tax payers could have retired all their employees on $1m a year each for the welfare the string of governments have paid out to Rio Tinto in electricity subsidies. They have monopolised all of Manapouri production, polluting Southland to add insult to injury. And yes, let’s put Fonterra in the bag with the corporate polluters. Dairy producers provide few jobs, relatively little of GDP and much of our environmental degradation. The problem is systemic. We need to address the farce of ETS, not hide behind the bullshit that it’s cleaning up after the corporate polluters.
Bernard I am a big fan but disagree with a few things here, you say - "given NZ Steel has no need to reduce its emissions, which is exempt from the Emissions Trading Scheme". NZ Steel is not exempt from the ETS. They are mandated to buy units and in addition receive around a $100 million in free credits from the govt. This article also implies the same thing which NZ Steel CEO said, "There is no business case/ financial incentive for us to make these reductions". This isn't true as they ignored the fact they are paying for their emissions in the ETS which is a significant motivator to cut emissions, and if they had to pay their for their full emissions liability, the extra $100 million I am sure they would very quickly make this investment themselves! I agree $16.2 is fantastic cost for abatement, but that suggests that this reduction would not have happened anyway, which I argue it would have if govt decrease NZ steel free unit acclamation. I am glad we are using the cost per tonne as a measure though finally, clean car rebate was $400+ per tonne !
IMO NZ Steel should have to pay for more of it themselves - but indirectly, by means of being subject to increased/new general corporate/land/capital/windfall profit taxes. It is nevertheless a good policy, the perfect can't be the enemy of the good when dealing with the climate catastrophe.
Lynn's pics are fantastic. That Chris Hipkin's smile! Better than a caricature.
Will NZ burn any additional coal to provide the electricity to run this furnace?
In response to your poll about opening up, I am happy for you to share the article broadly, once it is balanced by an answer to this question.
The agreement with Contact to supply off peak power helps reduce the need for extra coal burning. Hopefully these sort of investments in electrifying our industries will encourage the govt to sort out the energy sector asap to get more renewables built (and not just consented).
I agree the agreement with Contact would HELP reduce the need for extra coal burning, assuming NZ has surplus electrical power off-peak and assuming they run it then. (I
am doubtful, because once you have a big furnace running, you don’t turn it off.) However, although it may help, it sounds like more coal will need to be burned.
Also, there is a delay. This furnace comes online in 2027 and the new renewable capacity built by Contact will come online when? 2033? So does this mean we burn more coal for the first 6 years or so and are better off after that?
I haven’t personally looked too far into this, but given the whole electricity grid in NZ is more complex than direct lines from power stations to consumers (excluding Tiwai), this will likely involve a bit of accounting. I’m sure there are plenty of ways Contact can speed up additional renewables as this gets locked in.
Thankyou Luke, we need to support practical positivity now as it is easy to get mired in the negative ‘what ifs’ and ‘buts’ which can lead to stagnation of ideas.
We can’t not electrify because we have Huntly - we need to electrify and add capacity and replace Huntly’s capacity. It’s all things and it’s currently a chicken and egg - the more investment announced in electrification the more enthusiastically capital will go after renewable energy projects.
Fair point, but we cannot and should not say we are reducing emissions by implementing this project. We should say we will reduce emissions if and when the project is implemented AND we have the renewable energy in place to support it. It is the misleading/misinformation aspect which bothers me.
Cliff first of all the coal burning generators (rankine units were programmed to be decomissioned but were delayed due to dry years.
If you are seriously interested in the answers to this I highly recommend you go to Transpower website and read the many documents they have on “rapid electrification” In particular the key report is Whakamana i Te Mauri Hiko empowering our Energy Future.
You might not be aware that Transpower is doing a lot of work to enable decarbonisation. I can speak with a tiny bit if authority on this as I was recently one of the “fourteen thousand burraucrats when I had a fixed term contract as a Principal Strategy Engineer filling in for an Engineer who was on site for the upgrading of the Lines in the bottom of the south Island to enable the sending North of surplus energy from Manapouri when Tiwai point closes the “Clutha Upper Waitaki Lines Project”. This was completed ahead of program despite being done through Covid.
By the way I can say some of my work included developing strategy in Resilience and a climate change roadmap.
I am interested and I will read there, thank you. Does it invalidate my point?
It is, of course, still corporate welfare. Unfortunately though because they are exempt from the ETS, their emissions problem is NZ Inc.’s emissions problem and Bluescope have little commercial incentive to fund it on their own or via other market mechanisms. NZ Inc. is over a barrel and the NZ government is up for the emissions liability in the future so may as well deal with it now rather than later. It’s not would you like to eat the dead rat but how would you like to eat it.
The purchase of (other) emissions reductions (offsets) locally could be encouraged by assisting the development of voluntary carbon markets using the global accreditors (Verra, Gold Standard, etc.). Emissions reduction projects (like NZ Steel’s) that aren’t tree-planting or vegetation-related are a bit more black & white when it comes to measurement & certification of actual emissions reductions. Maybe a future government should spend some effort on these policies.
Agree that this is corporate welfare. Understand all the arguments presented also. All I can say is this is one screwed up system we find ourselves within!
The other aspect that deeply concerns me about this announcement is that this is a very narrow emissions-related decision when we know multiple of our planetary boundaries are being breached. Industrial waste streams go far beyond GHG emissions. The Govt had a planetary boundary analysis done for NZ last year - so are aware that 'Climate' is just one of 9 key boundary measures and the others like novel entities (toxins/industrial waste/chemical outputs) as best they can be measured, are serious concerns. CC mitigation is a golden opportunity to address multiple pollutants rather than just ticking off one box - so a whole of business commitment to pollution-reduction is what I'd expect from this tax-payer investment.
Agree, but perhaps 'corporate welfare' that could be in some ways 'societal welfare' given the intent?
ETS is now the problem. Precedent has been set. Do nothing and wait for the handout. Otherwise the government will have to pay even more for overseas credits.
Not different to do nothing, pollute and leave the cleanup to the govt.
We either decide to hammer corporations strongly or we swallow the frogs they are feeding us.
Count me out of hammering corporations. Corporations operate in the regulatory environment the body politic allows.
Yes, and every time there is a suggestion to tighten the regulatory framework we get howling of the sky is falling.
So we swallow the frogs they feed us because we are not going to reduce emissions by banning plastic bags.
When you talk to Luzon re ETS, and in relation to this comment from your report “Luxon looks captured by the NZ Initiative’s purist approach on this, which is to argue that the ETS should be the only policy designed to reduce emissions and all emitters should be included and the price should be allowed to equilibriate to achieve emissions reductions.”, if the ETS is the way then where should the money be spent?
With some of our large corporations being allowed a free pass on the ETS does anyone check the legitimacy of their claims regarding competitors? Especially as many other countries also move to reduce emissions.
Excellent article Bernard.
Of corse this is corporate welfare. And excellent to put NZ Steal in the same bag as Air NZ and Rio Tinto and other robbers. The so-called national airline has a long history of privatising profits and socialising losses. It should have been nationalised years ago as Luxon and the PM both know. Rio Tinto has been the arch-corporate bludger in Aotearoa for over 50 years. Tax payers could have retired all their employees on $1m a year each for the welfare the string of governments have paid out to Rio Tinto in electricity subsidies. They have monopolised all of Manapouri production, polluting Southland to add insult to injury. And yes, let’s put Fonterra in the bag with the corporate polluters. Dairy producers provide few jobs, relatively little of GDP and much of our environmental degradation. The problem is systemic. We need to address the farce of ETS, not hide behind the bullshit that it’s cleaning up after the corporate polluters.
Bernard I am a big fan but disagree with a few things here, you say - "given NZ Steel has no need to reduce its emissions, which is exempt from the Emissions Trading Scheme". NZ Steel is not exempt from the ETS. They are mandated to buy units and in addition receive around a $100 million in free credits from the govt. This article also implies the same thing which NZ Steel CEO said, "There is no business case/ financial incentive for us to make these reductions". This isn't true as they ignored the fact they are paying for their emissions in the ETS which is a significant motivator to cut emissions, and if they had to pay their for their full emissions liability, the extra $100 million I am sure they would very quickly make this investment themselves! I agree $16.2 is fantastic cost for abatement, but that suggests that this reduction would not have happened anyway, which I argue it would have if govt decrease NZ steel free unit acclamation. I am glad we are using the cost per tonne as a measure though finally, clean car rebate was $400+ per tonne !