Govt announce NZ Steel plan to reduce emissions by 800,000 tonnes

The Government has unveiled its biggest ever emissions reduction project — the installation of an Electric Arc Furnace at NZ Steel's Glenbrook mill.

The project, the largest in the Government Investment in Decarbonising Industry (GIDI) initiative, will reduce New Zealand's emissions by 1% or 800,000 tonnes annually.

That's equivalent to removing all 300,000 passenger cars in Christchurch. It "dwarfs anything we have done to date" in emissions reduction, Prime Minister Chris Hipkins said.

"This size of this project demonstrates how serious the Government is about reducing New Zealand's emissions as fast as possible."

He announced the project today alongside Energy and Resources Minister Megan Woods and Climate Change Minister James Shaw at the Glenbrook steel factory in South Auckland.

The deal is that the Government will partly fund an electric arc furnace with $140 million of the $650 million in the GIDI fund, set up in 2020 and intended to enable partnerships with industry to help them transition to cleaner production methods.

NZ Steel will fund the rest of the new furnace, which will cost around $300 million in total and will replace their existing steelmaking furnace as well as two of their four coal-fuelled kilns.

Rather than convert ironsands into steel using coal, the new electric furnace will melt scrap, a conversion that will cut 45% of NZ Steel's annual emissions and will mean it's producing 100% lower carbon steel, the Government said.

The Glenbrook plant, around 60km south of Auckland, produces around 670,000 tonnes of steel a year, mostly for domestic use. It's the country's only producer of flat rolled steel products for building, construction, manufacturing and agriculture.

NZ Steel chief executive Robin Davies said they're confident all the "essential enablers" are in place to make the transition in production method viable.

"Steel is infinitely recyclable and this model will make New Zealand as close to self-sufficient as possible using renewable energy to recycle domestic scrap steel, rather than shipping it offshore," he said.

Hipkins said: "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."

Woods said: "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."

GIDI is a contestable co-funding programme. It's helped pay for decarbonisation efforts in industries such as wool scouring, low-carbon produce and transitions away from coal in meat processing.

Woods said the initiative with NZ Steel shows decarbonising can be done even in the "hardest to abate and largest emitting industries".

“Steel is critical to our economy for manufacturing and construction," she said.

"Lower carbon steel production at Glenbrook has massive wins for our materials supply chain. It also helps retain a significant local source of employment."

Shaw added it will "also build a more circular, resilient economy".

Contact Energy has agreed to provide 30MW of renewable generated electricity to NZ Steel in a flexible, off-peak arrangement "that will enable the industry leader to scale down production in times of peak demand or supply shortages", Contact said in a statement.

"This is an outstanding example of how we in industry can, with smart thinking and a partnership mindset, work together for the good of the planet," the statement read.

National party leader Christopher Luxon said the project is emblematic of a government that has "got its priorities all wrong".

He took issue with the Government not devoting enough money in the Budget towards addressing the cost-of-living crisis when "all of a sudden it can find $140 million as a subsidy" for a "large, foreign, multinational company".

NZ Steel is owned by Australian parent company BlueScope Group.

The Government estimates it will reduce emissions by 5.3% of what's needed under New Zealand's second emissions budget (2026-2030), and 3.4% within the third emissions budget (2031-2035).

"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," Shaw said.