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'Very real risk' NZ Steel could be forced to pull out of Auckland

2019-08-15

NZ Steel has told MPs it may be forced to close with the loss of thousands of jobs if changes aren't made to the Climate Change Response Bill which is being considered by Parliament.

The proposed law change, commonly known as the "Zero Carbon Bill", aims to ensure "net zero" emissions for most greenhouse gases by 2050.

NZ Steel's New Zealand holding company Tasman Steel reported a 40 per cent increase in its net profit to $74m in the year to June, despite a 2 per cent drop in sales to $880m.

But NZ Steel said in a submission to Parliament's Environment select committee that by failing to adequately recognise the issue of "competitiveness", the legislation could kill the industry.

"There is a very real prospect ... we may set up policy decisions that could result in the closure of steel-making in New Zealand," it warned.

The company employs more than 1400 staff at its steel mill in Glenbrook and at Pacific Steel in Otahuhu in South Auckland, and estimated it provided work indirectly for another 2500 people.

The Glenbrook mill consumes about 800,000 tonnes of coal to manufacture about 650,000 tonnes of steel each year, mostly for domestic use.

"The Glenbrook community is built around the mill. It cannot be overstated what the closure will mean to our community," NZ Steel said in its submission.

If the Glenbrook mill was to close, the significant capital cost of restarting production meant the likelihood of steel-making returning to New Zealand "would be close to zero", it added.

It is not the first time the Australian-owned company – a division of Melbourne-based Bluescope Steel – has threatened closure.

The company warned the Productivity Commission in 2017 that if its net carbon cost increased even marginally, "steel making in New Zealand would be imperilled".

NZ Steel also told the Electricity Authority in 2016 that proposed changes to electricity transmission pricing created a "material risk of a partial close down".

The company currently receives about 90 per cent of the carbon credits it need for free from the Government, under an arrangement designed to assist highly emissions-intensive businesses that are exposed to world trade.

NZ Steel acknowledged the Zero Carbon Bill would not "directly impact" the provision of those credits, which are instead governed by the Emissions Trading Scheme.

But it said the legislation should be amended to remove proposed new restrictions on the use of carbon credits purchased from overseas.

There has been controversy over where the company has purchased such credits from previously.

Gareth Morgan's Morgan Foundation named NZ Steel as the country's fifth-largest buyer of "fraudulent carbon credits" in a 2016 report.

That report said New Zealand as a country was highly-reliant on cheap credits bought from Russia and the Ukraine, the vast majority of which had not been generated by any actual reduction in emissions.

NZ Steel responded that it had always complied with "all the conditions on carbon credits set by the New Zealand government".

"It's important to us that any units we do purchase are environmentally credible going forward as well," it said.

Its submission to the select committee said that the legislation should be "more supportive" of international trading in "credible" carbon credits.

"NZ Steel considers that once that credibility has been established, there is no justification to impose additional barriers to the usage of offshore mitigation."

The company also said it should continue to receive its free allocation of carbon credits until the time came when at least 70 per cent of its overseas competitors faced "a similar effective price of carbon".

NZ Steel chief executive Gretta Stephens said in a letter to the committee that it would be counterproductive if the company had to close.

"If domestically-produced steel is unable to compete with imported steel due to emissions policy, the effects are significant: thousands of job losses, major industrial plant closure, increased reliance on imports.

"Perversely, these potential adverse social effects, although triggered by emission reduction regulation, are unlikely to result in any material global emission reduction benefit.

"In fact, they may overall result in a worse environmental outcome by shifting steel production to states with lax emissions and environmental regulation."

NZ Steel said it had reduced the volume of carbon emissions it created, per tonne of steel produced, by more than 1 per cent last year and was working on "many fronts" to reduce its carbon footprint through "recycling, process optimisation, and utilising waste gases to generate electricity".

But it said its ability to substantially lower emissions was constrained by the fact that coal was an "essential ingredient" in the chemical reaction to extract iron from iron ore.

"There is no conceivable future in which the world does not continue to need steel. In fact, demand is forecast to increase 55 per cent between now and 2050."

Source: Stuff