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Glenbrook Steel Works.
photo: RNZ/Rebekah Parsons-King
New Zealand Steel says the Government’s $140 million investment in its electric furnaces should be recouped in about three years because taxpayers will be obliged to provide the company with fewer free carbon credits.
New Zealand Steel’s carbon reduction from its new electric furnace has been increased to 1 million tonnes per year, brought forward to the end of 2025.
Chief executive Robin Davies said the blast furnace would significantly reduce the amount of coal used at the Glenbrook power station and could be shut down with just 40 minutes’ notice in the event of a power shortage, as agreed by the company in its contract with Contact Energy.
The new furnace will recycle scrap steel instead of smelting iron sand. Steel production will remain the same.
Davis said finalising the design of the imported equipment and confirming the availability of scrap metal in the country enabled the business to increase its expected carbon reductions.
The Australian company is the biggest beneficiary of a government program that protects exporters from paying for carbon emissions, as otherwise carbon-intensive companies might move production to other countries without a carbon price.
In 2023, New Zealand Steel reported to the Environmental Protection Agency that Its Glenbrook Steel Mill emitted 1.3 million tonnes of CO2 and received 1.8 million free carbon credits From the government.
The system allows companies to claim extra credits for higher energy bills due to the carbon price, meaning they can get more carbon emissions for free than they actually do.
The government can’t auction off every ton of pollution that companies get for free, which means taxpayers will lose more than $60 per ton in revenue, depending on the demand of other polluters.
From 2026, steelmakers’ free quota will be significantly reduced by 200,000 tonnes from what was initially announced.
New Zealand Steel’s revised estimates show its carbon emissions will fall by about 1 million tonnes a year from the start of the blast furnace, compared with the 800,000 tonnes initially announced. That’s more than 1% of New Zealand’s total emissions.
New Zealand Steel also said the blast furnace would be operational earlier than announced, by the end of 2025.
Even at a floor carbon price of A$37 per tonne in 2023, the free carbon credits given to New Zealand Steel (a Bluescope business) in 2023 would be worth $66 million.
The environment ministry is reviewing industrial allocations to correct outdated emission assumptions.
Davis said that in 2026, the steel industry’s electric furnaces will come into operation, and steel companies’ quotas will fall again.
By his estimates, the money the government saves on carbon credits would pay for taxpayers’ investment of up to $140 million in the furnaces in about three years, although from 2026 it would depend on the carbon price.
Steel can be used to build roofs, beams, and other things.
The government’s investments were made under a now-cancelled program to subsidize large polluters to switch to cleaner fuels.
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