Climate change: Simon Wilson - Christopher Luxon gets it right and terribly wrong on NZ Steel deal
Reminder, this is a Premium article and requires a subscription to read. OPINION Christopher Luxon is right! He says Government should not be paying multinational corporates to reduce their carbon emissions when theyre perfectly capable of doing it themselves. But Luxon is also ridiculously wrong. Heres why. NZ Steel, which is owned by the Australian company BlueScope, will receive up to $140 million from the Government to install an electric arc furnace at its Glenbrook plant. This will reduce its carbon emissions by 45 per cent. BlueScope made a record A$2.81 billion ($2.97b) profit last year. It doesnt need the bribe. Sorry, subsidy. But NZ Steel boss Robin Davies blithely told RNZ yesterday it would not have taken this step on its own because there would be no direct financial benefit. In the next breath, he had the nerve to add insult to injury by declaring that everybody is committed to fighting climate change. Of course NZ Steel should not have to be bribed. Luxon got that right. Its outrageous that major emitters in this country, of which NZ Steel is one, expect to be paid before they will act responsibly. But thats the reality and it gives every Government a choice. Carrot or stick? Either they incentivise companies to do the right thing, or they force them to do it with regulations. Or both. And thats where Luxon has gone wrong. If hes horrified at the idea of using a carrot, then he has to get out the big stick. But is he going to do that? Nope. Ive gone and met with the CEO and the management teams [of NZ Steel] and saw the site myself last year, he said yesterday. I really like the direction of where theyre going. But they are quite capable of ... fronting up that $140 million themselves. He trusts the company to do the right thing on its own, after they did a snow job on him last year. Its absurdly naive and Davies has frankly admitted as much. Or perhaps Luxon is pinning his hopes elsewhere - on some marvellous invention that offers the benefits of carrots and sticks without the need for direct government intervention. It does exist. Its called the market, otherwise known, in emissions economics, as the Emissions Trading Scheme (ETS). Just a reminder about that. The only way the ETS can drive our emissions even remotely close to zero on its own is by forcing up the cost of fossil fuels: Petrol, coal and gas. Making it too expensive for emitters to emit, so they find alternatives. As the cost of emissions rises, so will the cost of your petrol, food, clothes and all the other goods you buy. Also, the cost of construction roads as well as buildings. The fertiliser that goes on farms, the gas in your home, every bit of plastic you touch, the list goes on. But for decades now, no Government here or anywhere in the world has been prepared to let that happen. The price of petrol is never allowed to climb anywhere near the cost of the damage it does. The ETS has a role, but it will not lead us to a low-emissions future because its inconceivable that National or Labour or any other party would allow that to happen in practice. Dont get me wrong. Keeping the cost of living even roughly manageable is a social good and a necessary role of any Government. But if we agree on that, it becomes essential to use other levers to reduce emissions. Subsidies and penalties. The NZ Steel subsidy will mean power for making steel is produced by renewable electricity, not coal. In many ways, its a model for how we can move away from fossil fuels. One is scale. The deal is the single largest decarbonisation project in the countrys history, said Climate Change Minister James Shaw. It will be the equivalent, as Energy Minister Megan Woods said, of taking 300,000 cars off the road. A second advantage is that its not long since NZ Steel was in a standoff with the Government, threatening to abandon its operations here because of the ETS. This deal wipes out that rather nasty dispute. The company has been brought into the tent, where we need it to be. Which points to the third advantage: The role the company will now play in the economy. Instead of making steel from iron sands, the electric arc furnace will allow scrap steel to be melted and reused. Dead cars wont be shipped overseas but will become the raw material for other products perhaps, one day, including new electric cars. As Shaw said, this will help build a more circular, resilient economy. And create skilled jobs. And theres a fourth benefit: This can happen quickly. All four of these things reduced emissions, a circular economy, good jobs and speedy results are climate filters through which all Government planning should pass. This is real-world decision-making: The Government doing a deal that serves the countrys strategic interest, both short- and long-term, even if it has to hold its nose a little. Youd think a businessperson would understand that. I, for one, look forward to buying a bicycle made from the carcasses of old utes. The marketing potential is strong. But lets not over-egg it. The deal will reduce our greenhouse gas emissions by about 1 per cent. If its a model for progress, it also has to be used as a just getting started exercise. And while the Government will offer incentives to other companies, it cant bribe them all. Luxon didnt put it like this, but taxpayers cannot keep paying for corporate greed. So tougher emissions regulations are needed. Lets force Fonterra to move far more quickly to lower both carbon and methane emissions: Its hardly going to shut up shop and move offshore. Lets have limits on the number and type of vehicles that can be imported. If the car companies threaten to disappear, we can laugh in their faces. Because this is where the national emissions strategy should be focused: When it comes to carbon, corporate emitters, not private citizens, do most of the damage. M eanwhile last weeks Budget produced a predictably disappointing response from another sector of the corporate world, the Employers and Manufacturers Association (EMA). When are they going to try sounding like they live in the 21st century? Budget 2023 ... really only leaves the crusts for business, declared chief executive Brett ORiley. We didnt expect much and we didnt get much ... Its appropriate that there is more support for core services and our communities, but business is what makes the economy go around. Actually, Brett, people make the economy go around. And while the Budget wasnt great, it did contain several measures that, being good for people, will be good for business. Take the extension of subsidies for early childhood education. If youre an EMA member, better access to childcare means your workers can return to work more easily, keep their skillsets up to date more easily and be happier in their own lives. Which will make them more productive for you. Its a convenient fiction that childcare support is not a valuable business policy. If our so-called business leaders were not so overwhelmingly men of a certain age, they might grasp that. Childcare support is also a social policy. We know the immense importance of the preschool years. We know children who have been in good childcare are less likely to start school behind their peers in educational and social development and more likely to keep those advantages alive. This means social values are also business values. Such kids are less likely to ram-raid your shop and more likely to become the productive, skilled, literate and numerate workers business groups keep telling us we need more of. This is what wellbeing budget means. Its time business leaders became champions of childcare. Mealy-mouthed mumbling about whats appropriate, buried in a chorus of complaints, isnt good enough. And its time the National Party stepped off the sidelines of the climate debate. Luxon said yesterday he was on the side of Kiwi battlers. Its an insidious form of climate denialism to suggest Kiwi battlers dont need climate action and/or dont need a Government prepared to force, cajole and when necessary bribe the big emitters into it. Reminder, this is a Premium article and requires a subscription to read. While Hipkins got his teeth checked today, Luxon was tucking into a mince pie.