Tasman Steel posts $340m profit with benefit of $117m of free carbon credits

Tuesday, 10 January 2023

NZ Steel’s Glenbrook steel mill has been largely shielded from the impact of the emissions trading scheme up to now.

New Zealand Steel’s holding company Tasman Steel increased its profit by 153% to a bumper $340 million in the year to June while receiving free carbon credits worth $117m from the Government, according to accounts filed with the Companies Office.

The Government provides carbon credits to other large industrial emitters that compete with overseas firms and the steel business’ chief executive, Robin Davies, said they essentially “neutralised” carbon costs that were passed through to the company in its electricity bills.

“Electricity providers pass through the cost of carbon to businesses like ours.”

The rationale for large industrial exporters being reimbursed was that production could otherwise move overseas at no gain the environment, he suggested.

* Free carbon credits worth billions will continue being allocated for decades

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NZ Steel is ultimately owned by Australian listed company Bluescope.

The New Zealand subsidiary told the Productivity Commission in 2017 that steel-making at its Auckland mill would be imperilled if its net carbon cost increased even marginally.

NZ Steel also warned a select committee in 2019 there was a “very real risk” the Zero Carbon Act, which is intended to reduce the country’s net carbon emissions to zero by 2050, could force it to pull out of Auckland.

Davies said those risks had not gone despite the company’s “strong” performance last year, which had been driven by very high international steel prices and strong demand from the domestic construction industry.

The Environment Ministry is currently reviewing the free allocations of carbon credits to companies such as NZ Steel.

Davies said the steel business expected to see some changes in the way the Government allocated credits and “a potential acceleration” in the reduction of free credits, but did not yet know exactly what to expect from the review.

The Government announced in March that it would cease allocating free carbon credits worth about $60m a year to the Tiwai Point aluminium smelter.

But Davies said it had no indication the Government would take a similar approach with NZ Steel and suggested the aluminium smelter was in a different position given the different arrangements under which it sourced its electricity.

NZ Steel had been reducing its emissions and was working with Victoria University to investigate new technologies, he said.

Usually, iron oxide is first fed into coal furnaces to produce pig iron, which is later converted into steel by removing carbon from the pig iron.

Victoria University, along with other researchers around the world, has been developing a zero-carbon technique that uses hydrogen instead of coal as the reactant, but Davies said that work was “a longer term process” that would take some time.

NZ Steel could have more incentive to invest in such technologies if it had to pay a higher price for carbon emissions, he agreed.

But if carbon prices moved quickly “it just becomes easier to offshore carbon exposure and just import everything”, he said.

Tasman Steel’s revenues grew 27% to $1.17b in the year to June.

While the majority of its output is sold in New Zealand, exports to the United States roughly quadrupled to $107m.

Davies said that increase was accounted for by exports of pig iron to the US, which were helping plug a supply shortage caused by Russia’s war on Ukraine.

The US government imposed a 25% tariff on imports of steel from New Zealand in 2018, but Davies said the tariff did not apply to pig iron.