Labour and the Greens just donated an enormous sum to a dodgy Australian corporate. Duncan Greive says the move is horrible but entirely necessary.

On Sunday, PM Chris Hipkins flew to Auckland and headed to a steel plant at Glenbrook, just south of the city, to announce a corporate gift of $140,000,000 (sometimes you have to write it out to really feel the number) to NZ Steel. The money is to help the company buy a shiny new arc furnace which will help it achieve what you’d think it should have been morally and legislatively bound to do anyway: start the process of making its business less catastrophic for the planet.

On the face of it, this is a very tough sell for a Labour government, and worse for the Green Party. Glenbrook cranks out a significant proportion of New Zealand’s emissions thanks to being run on coal, the dirtiest fuel of all. Despite the name, NZ Steel is not in fact a New Zealand company – it’s an asset owned by BlueScope, a highly profitable, publicly listed Australian corporation, one that recently saw an executive jailed for his part in attempted price fixing. It also made around $3bn in profit last year. Yes, that’s three billion dollars – meaning this $140m investment from the government amounts to less than 5% of last year’s earnings.

Yet there were Hipkins and Greens co-leader James Shaw, the minister for climate change himself, proudly announcing they were picking up almost half the cost of the furnace. The optics were so bizarre that National – the party of business, which might be expected to grumble and wave it through – condemned the move in surprisingly stark language. “Just this week, this budget couldn’t find money to actually help support Kiwis going through a tough cost of living crisis,” said leader Christopher Luxon. “But all of a sudden they can find $140 million as a subsidy paid for by Kiwi taxpayers and give it to a large foreign, multinational, profitable company.”

A new age of climate pragmatism dawns

The situation seems entirely upside down politically, yet can also be seen as the beginning of a new climate pragmatism, one that prizes impact on emissions above any other metric. 

It sheds new light on a situation Stuff reported a month ago, when environment minister David Parker refused to intervene to stop NZ Steel getting ahead of a new law that would have allowed Auckland Council to consider climate change when assessing the company’s new application for a 25-year consent. Parker was harshly critiqued by Lawyers for Climate Action for his decision, but the weekend’s news gives context to that somewhat puzzling story – talks were likely already under way. 

Glenbrook is one of a small number of uniquely power-hungry industrial plants. NZ Steel was already exempt from the Emissions Trading Scheme (ETS), having baldly stated that it would have shut the factory were it to have to pay the cost of its emissions. It’s easy to imagine some climate activists viewing that as a necessary or even desirable outcome – as the ETS operating exactly as intended. Yet the factory does not exist in a vacuum, and runs hard into the realities of industrial policy. 

New Zealand has a need for steel one way or another, and any not manufactured domestically would need to be imported, with us as a small nation having a limited ability to influence the carbon emitted. Hipkins underlined that yesterday, noting that along with reducing emissions, the spending will “ensure that we are creating new jobs and protecting existing jobs, whilst also protecting vital supply chains for our overall economy”.

A new subsidy rising?

Beyond its immediate impact, there is also an implicit danger of perverse incentives. Will other big emitters look at this deal and start to imagine that large proportions of the cost of their own carbon reduction efforts will be matched by the government? It would be irrational not to. While there are persistent complaints about tax rebates within the film industry, this looks a clear precedent for large emitters to have around half the cost of their future investments paid by the government.

That might not be what we want, but it’s inevitable, and exactly what was intended with the Climate Emergency Response Fund, the $4.5bn contestable money bag set up in 2021. While to date much of the spending has been on government initiatives like half-price public transport, for which the cost-benefit is much less clear, this is a major step towards involving the private sector in emissions reductions.

There is a number that neatly captures the value of this deal to New Zealand: $16.20. That’s the cost per tonne of emissions saved, which cannot be read as anything other than a screaming bargain. Currently our Emissions Trading Scheme, nascent and imperfect as it is, prices the right to emit carbon at around $55 per tonne. The Climate Change Commission recommended a much higher rate, closer to $200, but cabinet rejected that last year – a decision that is now subject to legal action. At either price point, $16.20 represents extraordinary value.

The scope of Glenbrook’s carbon footprint is vast. The annual emissions saved are roughly analogous to all the car use in Christchurch, equal to 1% of our total emissions and greater than 5% of the total we need to cut between 2026 and 2030. To achieve that scale of cuts cannot be done without embracing head on the moral complexity of the calculus. It will necessarily involve deals that can be read as rewarding polluters, and taxpayers writing cheques to companies with chequered histories locally and internationally. 

Some will find that repugnant, and view it as a failure of conviction on the part of our elected leaders. That perspective is valid, but also misguided. The catastrophic weather events of earlier this year were more proof than we could ever need that purity must give way to practicality when it comes to decarbonisation. It will involve dirty deals with major industrial conglomerates whose behaviour is morally bankrupt at times. That is unfortunate. It is also entirely necessary.