Revealed: Government unveils massive emissions reduction project in partnership with NZ Steel

The Government has unveiled what it is calling New Zealand's "biggest ever emissions reduction project".

It would see half of the coal being used at the New Zealand Steel site in Glenbrook, Auckland, replaced with a $300 million electric arc furnace to recycle scrap steel. This would remove at least 800,000 tonnes of pollution each year, the Government said in its announcement, which is the equivalent of taking approximately 300,000 cars off the road.

Prime Minister Chris Hipkins made the announcement alongside Energy and Resources Minister Megan Woods and Climate Change Minister James Shaw at the Glenbrook steel factory in Auckland on Sunday.

Hipkins said the size of the project "dwarfs anything" the Government has done so far and shows how serious it is about reducing New Zealand's emissions as fast as possible. The plan alone will eliminate one percent of the country's annual emissions, he added.

"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," Hipkins said.

"Partnering on this project with New Zealand Steel makes sense because it delivers such huge benefits for our environment. Without Government investment this wouldn't have happened, so it's fantastic to see what working together can deliver."

The conditional deal with NZ Steel to build the electric arc furnace will be part-funded up to $140 million from the $650 million Government Investment in Decarbonising Industry (GIDI) Fund, which enables partnerships with industry to reduce their emissions. The remaining $160 million will be funded directly by NZ Steel.

Minister Woods said the furnace will replace the existing steelmaking furnace and two of the four coal-fueled kilns. 

The supply of electricity required for the new furnace will also include a demand response arrangement in partnership with Contact Energy, where NZ Steel can scale down power supply from the electricity grid when needed to secure electricity supply in the region at peak times.

The installation of the furnace at the Glenbrook site means NZ Steel will cut its emissions by more than 45 percent and will produce 100 percent of its annual steel production as lower carbon steel.

Woods said this project on its own reduces more emissions than all the other 66 GIDI projects the Government has approved to date.

"Steel is critical to our economy for manufacturing and construction. Lower carbon steel production at Glenbrook has massive wins for our materials supply chain. It also helps retain a significant local source of employment," Woods said.

"We are proving once again that decarbonisation does not mean de-industrialisation. It demonstrates how the transition to a low emissions economy can not only be good for the climate, but also a win for minimising waste, retaining jobs, and improving New Zealand's economic resilience."

NZ Steel chief executive Robin Davies said 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. 

"A reliable supply of firmed renewable energy is critical to this initiative and we're delighted by the pioneering and creative partnership with Contact Energy to provide a competitive and innovative supply agreement," Davies said. 

"The electric arc furnace provides New Zealand Steel with significantly more production flexibility which means we can scale down production at times of peak demand or supply shortages."

He added NZ Steel's immediate focus is to move at pace over the coming months to confirm the remaining critical aspects of the new operation, including the relevant regulatory approvals.

Chris Hipkins.
Chris Hipkins. Photo credit: Getty Images

Melting scrap steel using electricity, instead of converting iron sands into steel using coal, will "substantially reduce" the emissions generated from NZ Steel's current activities, Minister Shaw said. It will also build a more circular and resilient economy, putting New Zealand in a "much better" position to meet its climate target of net-zero carbon by 2050.

The deal is estimated to contribute 5.3 percent of the emissions reductions needed under New Zealand's second emissions budget (2026-2030), and 3.4 percent within the third emissions budget (2031-2035), Shaw said.

"The economics of this really stack up, especially compared to current carbon prices. 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," he said.

"We must reduce our reliance on fossil fuels to help avoid the worst of climate change. Switching to cleaner ways of generating process heat is one of the biggest opportunities we have to reduce our domestic emissions and meet our international climate commitments."

The managing director and CEO of NZ Steel's parent company, BlueScope, Mark Vassella said the co-investment is a landmark deal that shows the power of well-constructed public/private partnership or investment.

"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.

"This project is a partnership that would never have happened without the support of the Government and the other key contributor Contact Energy who recognised the potential and had the commitment to help make it happen.

"This is a pragmatic response that not only sustains our critical domestic steel supply, but also provides a collaborative approach with government and industry to be world leaders in lower emissions steel." 

Having the flexible off-peak electricity deal is "hugely significant" for New Zealand to help meet its climate change goals, Contact Energy CEO Mike Fuge said, and it will help the industry decarbonise at pace.

"Today's announcement is hugely significant, not just because it is a massive step towards decarbonisation but also because together Contact and NZ Steel can make a meaningful impact in our fight against climate change. This is our watershed moment," he said.

"This is the biggest example we have in New Zealand of the move towards electrification and is tangible evidence of the demand for renewable energy as well as supporting our renewable development pipeline."

GIDI, the fund the Government is using to part-fund this project, was first introduced in 2020 to ramp up the decarbonisation of New Zealand's industrial process heat while stimulating the economic recovery after the COVID-19 pandemic.

The fund means there can be partnerships between the Government and businesses to accelerate emission reductions by supporting energy efficiency and fuel-switching projects.