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Meeting between Ministers on NZ Steel and
industrial allocation updates
Purpose
1. This aide memoire supports discussion between Ministers on NZ Steel and industrial
allocation updates.
Background
2. NZ Steel receive roughly two million emission units per year under industrial allocation
for producing iron and steel from iron sand. Due to a 2010 Ministerial decision on
emissions accounting for electricity from their co-generation plant, NZ Steel have been
over-allocated approximately 244,000 emission units ($14 million1) every year since
then.
3. The Crown has a funding agreement with NZ Steel for the installation of an electric arc
furnace. Considerable resources have been put into that project from the Crown and NZ
Steel to date. The project is currently under-budget, running ahead of schedule, is
expected to over-deliver. Original estimates were for 800,000 tonnes of emission
reductions per year from mid-2026. Current estimates are one million tonnes from the
end of 2025.
4. NZ Steel has written to the Ministry for the Environment linking the future of that project
with changes to the industrial allocation treatment of their cogeneration electricity use.
5. The wider reform of industrial allocation is nearing its end. Regulations for industrial
allocations will be updated this year to avoid over- and under-allocation. Those updates
are expected to reduce the industrial allocation expense by $9 million per year.
6. The Minister for Energy and Minister of Climate Change have agreed to remove NZ
Steel’s over-allocation from using co-generated electricity and proposed the following
stages for implementing the updates:
i.
NZ Steel’s allocation for using cogenerated electricity wil be updated from 1
January 2025.
ii.
All other new rates of allocations will come into effect as soon as possible, being
from 1 January 2024. The Minister for Climate Change will issue drafting instructions
in due course.
7. The delay in applying NZ Steel’s change is due to the importance of the electric arc
furnace project to New Zealand’s climate policy. That decision was informed by the
attached briefing, which include a copy of NZ Steel’s letter to the Ministry for the
Environment.
1 At $58.35 per emission unit, the value used for Budget 2024 forecasts.
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Next steps
8. Following this meeting, the Minister of Climate Change will provide an oral update to
Cabinet on his implementation plan outlined above.
9. NZ Steel will be informed of the decision through a subsequent meeting with Ministers.
10. Ministry for the Environment officials will contact firms receiving industrial allocation to
inform them of their prospective rates of allocation and the implementation date.
11. The Minister of Climate Change will seek Cabinet policy decisions on NZ Steel’s use of
cogenerated electricity in due course.
Signatures
Mark Vink
General Manager
Markets, Climate Change Mitigation and Resource Efficiency
Date 13 June 2024
Hon Simon WATTS
Minister of Climate Change
Date
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