Half of the coal being used at Glenbrook Steel Mill will be replaced with electricity to recycle scrap steel. Photo: RNZ / Rebekah Parsons-King
Without investment from the government, NZ Steel would not have gone ahead with installing an electric arc furnace as there was no financial benefit in doing so, the company's chief executive says.
The government has partnered with NZ Steel to install a clean Electric Arc Furnace at its Glenbrook site - halving the company's coal use.
The $300 million project will cut 800,000 tonnes of emissions from day one - the equivalent to taking about 300,000 cars off the roads.
NZ Steel company will receive up to $140 million from the Government Investment in Decarbonising Industry (GIDI) Fund and it will foot the bill for the rest of the cost, which has not been specified.
"There would be no direct financial benefit" for the company to pay for the project in its entirety itself, NZ Steel chief executive Robin Davies told Morning Report.
Davis said while the company was in good shape financially, the project did not improve the financial viability of the business currently, it was a cost neutral outcome.
"Without this kind of of support from the government, co-investment, our approach to decarbonsation would be back to the sort of drawing board."
The Decarbonising Industry Fund was acting as a catalyst to start more major projects, he said.
"I think climate change is a priority for everybody and I think we've got very clear blue scope targets to make... and we're pushing very hard towards that."
Climate Change Minister James Shaw told Morning Report the "massive" deal was the largest decarbonisation project in country's history.
"It really can't be underestimated in terms of it's scale."
NZ Steel approached the government about a year ago to share a range of options it was looking at to reduce emissions but the "significant capital investment" was an issue for the company, Shaw said.
The company wanted to continue operating in New Zealand and to cut its emissions "but we needed to work out how we could do that together", he said.
NZ Steel was steering down 10 years with the same emissions profile as it currently had but this deal buys a decade of much further reduced emissions while waiting for new technology to become viable, he said.
"The situation that they're (NZ Steel) faced with is not whether to install an electric arc furnace and pay for it themselves or do so with assistance from the ETS revenues, but rather whether to continue operating the existing coal operation for another decade or so or to install the new plant."
Climate Change Minister James Shaw says the deal is "massive". Photo: RNZ / Samuel Rillstone
If the electric arc furnace was not built, NZ Steel would have to continue using coal furnaces for the foreseeable future, he said.
"At the same time the process of carbon is of course increasing and I guess there may have been a question as to whether they were going to continue to be viable over the long term but that wasn't the conversation we were having with them, the conversation we were having with them is how do we protect a strategic assets which is the ability to use steel in this country, how do we kick start the New Zealand steel recycling industry...and how do we decarbonise the operation here faster than it might have otherwise happened."
Shaw said if NZ Steel performed, it would get a bonus - if it can beat the 50 percent cut of emissions it has has agreed to, there will be a performance bonus of another $10 to $20 million on top, Shaw said.
There were call backs if it did not perform, he said.
Shaw said the money comes from polluters paying for the decarbonisation of other polluters.
"It really can't be underestimated in terms of it's scale" - Climate Change Minister James Shaw
Enough power to run a midsize New Zealand town - 30 megawatts - will be needed for the project, Contact Energy chief executive Mike Fuge said.
Contact Energy will be supplying the power to run the new furnace, with a power purchase agreement running for ten years.
Over peak times for the motu, the steel mill will turn down and allow that power to go to the rest of the country, he said.
It will enable everyone to avoid the high cost of thermal peaking during the high demand periods, he said.
Fuge was confident Contact Energy was producing enough renewable power to run the project.
"We're building a lot of renewable new generation at the moment and we have a pipeline of development that will over serve to serve this even more.
"We're very passionate that industries in New Zealand were able to decarbonise and its a key part of our strategy, working with industry to help them switch across to electricity."
'This is a great initiative'
Coal Action Network Aotearoa said the project was a huge step towards decarbonising the economy and ending coal use.
No coal should be mined or burned in the 21 Century, in the middle of a climate emergency, Coal Action Network's Tim Jones said.
The government and industry have been taking small steps so far, this deal was a big step, he said.
"There's still a lot to do but it's really good to see a major reduction in coal use like this.
"Under the Emissions Trading Scheme, we still have free allocations of carbon credits - in other words subsidies - being paid out to heavy polluters to keep polluting and NZ Steel itself has benefited from those.
"Those free credits are an incentive to keep burning coal and other fossil fuels. They were originally supposed to be ended by 2030, we want to see them ended by 2023."
If government funds were to be used to give money to polluters money, Coal Action Network wanted to see them given it to get out of coal - as in this case - not to keeping burning it.
The Council of Trade Unions says the plan will help workers and the climate.
"Our view is that we need to take some serious and significant action on climate crisis but we also need workers in industries that are contributing more than most when it comes to carbon, to have a future," union president Richard Wagstaff said.
"We think this deal does both of those things."
The deal will provide stability and certainty for hundreds of jobs at Glenbrook.
"We're very pleased with this announcement."
"This sort of thing really gives them confidence to know they're going to be part of the future and not thrown on the scrap heap" - Council of Trade Unions president Richard Wagstaff
Lawyers for Climate Action's Grant Hewison hopes the project will get the ball rolling on other initiatives.
"This is a great initiative, this kind of initiative is exactly what the government investment in decarbonising industry fund was intended for."
Hewison said it was a small step but demonstrated there was a lot more that needed to be done.
"There is a long road ahead and we to need to be doing a lot more in this space if we're going to reach the commitments that we've made."
"This is a great initiative" - Lawyers for Climate Action's Grant Hewison