Is the Government's $1b decarbonising fund working?
NZ Steel got attention with a $140 million Government funding agreement to make greener metal. Yet 60 other companies have had their own, smaller-scale deals to cut their carbon footprints under the same programme. So are these grants turning the environmental heat down? Coal is the most-polluting type of fossil fuel. But corporations up and down the country shovel it into industrial boilers to dry milk into powder, heat buildings and create hot water. Electric and wood boilers, and even heat pumps, can do these tasks for a fraction of the emissions. So to encourage businesses to make the switch, Energy Minister Megan Woods launched the $70m Government Investment in Decarbonising Industry often shorted to GIDI (pronounced giddy) fund in late 2020 . Since then, companies have received funding for the extra cost of green tech when they are replacing a fossil-fuelled system, whether coal, gas or diesel. The Governments Energy Efficiency and Conservation Agency (EECA) contributes up to 50% of the difference if the business provides evidence the project will significantly cut carbon but that it cant afford the cleaner upgrade by itself. In todays announcement, 13 businesses were allocated a total of $33m. New equipment will reduce emissions by more than 67,000 tonnes a year. Coca-Cola, Lion NZ and Talleys will get cash towards their conversion plans. All up, 61 businesses have received GIDI funding. Some including Fonterra, Open Country Dairy and meat company Alliance received multiple grants. Governments contributions predominantly come from proceeds of the Emissions Trading Scheme (or ETS) which requires many large emitters to purchase and surrender one carbon unit for every tonne of emissions they produce. The scheme makes petrol, diesel, natural gas and coal-fired electricity slightly more expensive. In recent years, the manufacturing industrys footprint has started to shrink. Quarterly emissions fell 19% between December 2021 and 2022. A large share of that will be caused by the end of oil refining operations at Marsden Point , though reductions have also been recorded in other parts of the industry, according to Statistics NZ. While the Government says the scheme is working, opposition MPs have derided it as handouts for wealthy companies who can afford their own decarbonising. Yet the scheme is growing. In last years Budget, the Labour Government gave the GIDI fund $1b over seven years and an extended remit, EECAs Nicki Sutherland said. As part of the expansion, NZ Steel and Fonterra received bespoke deals. Government will contribute up to $140m to help the metal maker buy an electric-powered furnace and retire half its coal-burning kilns from 2027. Fonterra will receive $90m for the cost of converting its remaining coal-fired, milk-drying boilers. In exchange, the dairy giant will need to achieve emissions-cutting targets that should see its coal use drop significantly before 2030, Sutherland said. In addition, commercial building owners can now apply for funding to ditch their fossil-fuelled systems, she added. Businesses can access grants for technology such as hot water heat pumps. Projects that were once too small to be eligible will have a dedicated pool of money. Another pot of cash will support electrical infrastructure and biomass distribution. Grants for industrial boiler conversions will continue, Sutherland said, though businesses no longer have to compete against each other for a limited pool of funding. While 50% remains the cut-off, companies are increasingly applying for 5-10% of the extra cost of green tech, she added. Minister Woods said last years expansion reflected that GIDI was achieving its goals and had plenty of room to do more. It was a programme that was really working to cut emissions. The funding helped companies to install green tech sooner sometimes by a decade that makes it easier for the country to meet its climate targets, she added. She expected GIDI to have a noticeable effect on national emissions in the second half of the decade. Thats when things like the NZ Steel deal will start to show up. Asked whether multinational Coca-Cola Europacific Partners with an income of nearly NZ$2.8 billion last year, according to Yahoo News could not afford another $300,000 to switch to electric tech, Woods said the company hadnt made the transition. She said GIDI acted as a carrot, while other Government policies provided the stick. This isnt about Coca-Cola. Its about New Zealand having to meet its emissions budgets. Drury-based Rainbow Park Nurseries received $800,000 in todays announcement, to help swap a natural gas boiler for heat pumps to warm the glasshouses growing its young trees, shrubs and vegetable plants. General manager Andrew Tayler said the fossil-fuelled system, first installed in the 1980s, produced 1200 tonnes of carbon dioxide a year. That disappears with this heat pump solution. While others might be converting to wood boilers, Taylers nursery would be the first in the country to use highly efficient heat pump tech to warm the water that runs through the glasshouses. Its never been used in this application before. Its pretty exciting, he said. If the equipment arrives and electrical upgrades occur on schedule, Tayler hoped the first stage would be complete in the middle of 2024. The GIDI funding brought forward the green upgrade, he added. It would be off our radar for at least four or five years. The National Party is one of the schemes biggest critics. Energy spokesperson Stuart Smith likened the grants to corporate welfare. Minister Woods rejected the criticism, noting that many of the businesses switching away from fossil fuels had paid ETS carbon penalties on the coal, oil and gas theyd purchased. Some of these carbon penalties were being recycled back to the companies as GIDI grants, she said. But Smith said New Zealand consumers were ultimately providing the proceeds of the ETS. We believe the money should go back to them, he added. The Government shouldnt be funding projects to lower emissions that would happen anyway. If elected to Government in October, the National Party would consider the future of the GIDI scheme, Smith said. Minister Woods said the policys critics needed to be upfront about what they thought should replace it, saying: Are they seriously suggesting that were better positioned to go and buy credits off other countries... rather than backing Kiwi businesses?. Woods was alluding to New Zealands international climate pledge, which requires the Government to buy carbon credits if it cant make enough emissions savings onshore. The Sustainable Business Council which represents environmentally concerned companies, including those that have received GIDI grants strongly supported the scheme. Climate and nature head Antonia Burbidge said, with the help of the funding, businesses could take climate action sooner: We really welcome the step-change in the size of the funding pool thats available. Swapping out industrial-sized fossil-fuelled boilers was a good opportunity for the country to significantly reduce its carbon footprint, she added. We need bold mitigation action from any incoming Government if were to achieve the goals that weve set. Business needs to have that certainty and we cant afford to lose the momentum that we have here. However, climate experts provided fainter praise. Massey University emeritus professor Ralph Sims said the fund has had a commendable impact. The millions of tonnes prevented came at a relatively low cost, around $26 per tonne, he added. Most of the technologies installed have been commercially available and well proven for many years. It is therefore surprising that many of the successful GIDI applicants have not invested in them some years ago, Sims said. If successive governments had not fiddled with the ETS to keep the carbon price relatively low... then investment in low-carbon technologies directly by many of these companies would have made a stronger commercial business case some years ago, thus not needing the GIDI investments policy at all. Minister Woods said the carbon price would need to double or triple from where it is today to make some of the GIDI projects economically feasible. But since allowing that could put another 21 cents onto a litre of petrol, and raise gas and electricity bills, she considered the financial consequences for families would be too harsh. Climate activist Cindy Baxter backed a tougher ETS. She noted that many companies including AFFCO, Alliance, Fonterra, NZ Steel and Oji that received the funding were classed as trade exposed businesses. The Government gives these emitters free carbon units every year, meaning they do not face the full financial penalty of the ETS. Consequently, the companies make a comparatively minor contribution to the ETS revenue collected by Government, which has so far funded the boiler-swapping programme. (This is not a factor considered by the GIDI vetting team.) The Government is planning to tighten the rules around the carbon credits provided to companies at no cost. With fewer free units and a higher carbon cost, Baxter said the GIDI fund particularly if it focused on the tougher challenges such as decarbonising steel would make more sense. I dont think we should get rid of GIDI altogether. But we need to be careful about who were giving money and whether they really need it. Here are the grants announced today: AFFCO. The meat processing business will install an electric boiler to replace its coal-fired tech and optimise the energy efficiency of its system. Funding: $2,229,157 to prevent 5450 tonnes of emissions per year. Alliance. The meat processor received five grants. In Mataura, it will replace a coal boiler with an electric one. In Dannevirke, it will install a high-temperature heat pump to reduce gas use. In Timaru and Pukeuri, Otago, heat pumps will decrease the need for coal. And in Invercargill, an upgrade to the hot water system will decrease coal use. Total funding: $5,230,000 to save 10,940 tonnes annually. Alsco. The textile company will swap a coal boiler for a wood-burning version. Funding: $1,072,470 to save 1930 tonnes annually. Coca-Cola Europacific Partners. The Christchurch site will install an electric boiler and purchase new forklifts to reduce LPG use. Funding: $300,000 to save 560 tonnes. Cedenco Foods. The ingredients business will boost the energy efficiency of its heat systems to reduce gas use. Funding: $150,000 to save 370 tonnes. Hewvan Timber. A coal system will be swapped for a wood boiler. Funding: $1,159,602 to save 700 tonnes annually. Lion NZ. The Speights Brewery will install an electric boiler. Funding: $1,600,000 to save 580 tonnes. Oceana Gold. The mining company will replace LPG furnaces with electric versions. Funding: $220,000 to save 610 tonnes annually. Open Country Dairy. To replace coal systems, a large electric boiler and three high-temperature heat pumps will be installed. Funding: $17,696,150 to save 41,110 tonnes annually. Preens ApparelMaster. The drycleaning business will use high-temperature heat pumps and electric boiler in place of its current diesel-fuelled tech. Funding: $1,108,010 to save 630 tonnes annually. Rainbow Park Nurseries. High-temperature heat pumps will replace a natural gas system. Funding: $800,000 to save 1190 tonnes annually. Talleys. Heat recovery units will reduce the Ashburton factorys coal use. Funding: $1,600,000 to save 2860 tonnes annually. Topuni Timber. A diesel generator will be replaced with electric motors. Funding: $145,000 to save 400 tonnes annually. Correction: The original article gave the income of The Coca-Cola Company. The company that received the government funding is Coca-Cola Europacific Partners, the bottling and distribution partner of The Coca-Cola Company in New Zealand. Coca-Cola Europacific Partners' income has been corrected. Stuff regrets this error. (Story updated August 14, 4pm). 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