Glenbrook steel mill. Photo: RNZ / Rebekah Parsons-King
NZ Steel says the government's up to $140 million investment in its electric furnace should repay itself in about three years, because taxpayers will be liable to supply the company fewer free carbon credits.
Carbon savings from NZ Steel's new electric furnace have been upped to 1 million tonnes a year, and brought forward to the end of 2025.
Chief executive Robin Davies said the furnace, which will slash coal use at its Glenbrook plant, will only need 40 minutes' notice to switch off in times of electricity shortages, something it agreed to do in its contract with Contact Energy.
The new furnace will recycle scrap steel instead of melting ironsand. The amount of steel produced will remain the same.
Davies said firming up the design of the imported equipment and confirming the availability of scrap metal in the country had enabled the business to bump up the expected carbon savings.
The Australian-owned company is the biggest beneficiary of a government scheme to shield exporters from paying for their carbon emissions, on the basis carbon-intensive companies might otherwise move production to other countries that don't have a carbon price.
In 2023 NZ Steel reported to the Environmental Protection Authority that it made 1.3 million tonnes of carbon dioxide emissions from its Glenbrook Steel Mill and claimed 1.8 million free carbon credits from the government.
The system allows companies to claim extra credits for the higher price of energy bills attributed to the carbon price, meaning they can receive more tonnes free than they actually emit.
Every tonne companies receive free cannot be auctioned by the government, meaning taxpayers can forfeit revenue of over $60 a tonne, depending on demand from other polluters.
The steelmaker free allocation is set to plunge from 2026, by 200,000 tonnes more than initially announced.
Revised estimates from NZ Steel said its carbon emissions will drop by around a million tonnes a year from when the furnace comes online compared with 800,000 tonnes originally announced. That's over one percent of New Zealand's gross emissions.
NZ Steel also said the furnace will start operating sooner than announced, by the end of 2025.
Even at 2023's lowest carbon price of $37 a tonne, the free credits given to NZ Steel (owned by Bluescope) in 2023 would be worth $66m.
The Ministry for the Environment is already reviewing industrial allocations, to fix out-of-date emissions assumptions.
Davies said the ministry would revise NZ Steel's allocation down again in 2026, when the electric furnace would be operating, resulting in a lower allocation again.
By his estimate, the government's savings on carbon credits would pay for the up to $140m taxpayer investment in the electric furnace in about three years, though it would depend on the carbon price from 2026 onwards.
The steel is used for roofing, beams and other things.
The government's investment happened under a now-defunct scheme to subsidies big polluters to transition to cleaner fuels.