A big phasedown of ironsand-based steel production is on the cards at New Zealand Steel.
The company will also incur a sharp reduction in its use of free carbon credits that the Government gives to trade-exposed industries to deter them from relocating to less environmentally aware countries.
This is the result of a conditional three-way environmental agreement between NZ Steel, the Government and Contact Energy.
At the heart of the deal is a plan to replace much of NZ Steel's coal use with electricity to provide heat for melting scrap steel for manufacture into a new, recycled product.
To make this happen, the Government will pay up to $140 million dollars of capital cost to build an electric arc furnace at its steelworks at Glenbrook, south of Auckland. An extra $160 million will be paid by NZ Steel.
The capital costs are only part of the real costs of this sort of transformation. Operating costs are also higher, since energy from electricity costs more than energy from coal. This cost is being offset by a special deal to use off-peak electricity from Contact Energy.
NZ Steel's Chief Executive Robin Davies says this agreement will reduce Glenbrook’s carbon emissions by 800,000 tonnes of carbon, or 45%, which is 1% of New Zealand's total emissions.
"These reductions will come from replacing Glenbrook’s existing oxygen steelmaking furnace and two of its four coal-fuelled kilns," Davies says.
“An electric arc furnace makes sense when there’s enough affordable renewable energy and scrap steel available, a way to get that scrap steel to site, and the right policy settings," he says.
"We’ll firm up the details of the different aspects of the project over the coming months but crucially, New Zealand has all these essential enablers in place."
The scheme was announced at Glenbrook on Sunday by a range of business and political leaders including Prime Minister Chris Hipkins.
The money is coming from the $650 million Government Investment for Decarbonising Industry (GIDI) fund. The Government says this scheme will do more to reduce emissions than the existing 66 GIDI contributions combined.
Davies says this move is a necessary step to securing steelmaking in New Zealand for many years to come.
And he says the deal will increase steel recycling.
"Currently it's around 20% (of steel production). With the introduction of the electric arc furnace it will move to 50% and beyond.....within three years we will be hopefully transitioning from what we do today to 50% scrap and 50% ironsand."
The deal will also see NZ Steel slipping down the rankings of companies whose carbon costs are met by the Government. This scheme is aimed at companies which are emission-intensive and trade-exposed, or EITE. This plan is intended to deter trans-national companies from quitting New Zealand for less rigorous countries and emitting CO2 into the same atmosphere from a different location.
"(Our current allocation under EITE) is 90% on a declining basis, "Davies says.
"We are working with the Government to understand what our new allocation profile will look like in the new world.
"But clearly there is a significant reduction in industrial allocations required (under the new system)."
Davies was reluctant to put a precise figure on this, but said it would correspond to the 800,000 tonnes of carbon emissions that would be saved by replacing coal furnaces with the Electric Arc Furnace.
This development would also shield the Government from costs, since it faces the final liability under the EITE system.
NZ Steel is calling the deal a "win for all parties."
NZ Steel makes several common products in NZ including Colorsteel and Axxis steel framing.
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