Smart spending or corporate welfare?

THE Government’s decision to contribute up to $140 million towards an electricarc furnace in Auckland is polarising.

It was praised enthusiastically by Climate Minister James Shaw, Prime Minister Chris Hipkins and Energy Minister Megan Woods. National leader Christopher Luxon called it corporate welfare.

Many households under intense costofliving stress might wonder why the Government can spend such money on a large multinational company but not on them?

Australianbased BlueScope owns New Zealand Steel’s Glenbrook Plant. BlueScope made a $A2.7 billion profit after tax in 2022.

NZ Steel employs 4000 people in its New Zealand Pacific operations and is the country’s only producer of flatrolled steel products for the building construction, manufacturing and agricultural industries.

The arc furnace is to replace two old existing coalfired blast furnaces, halving the site’s coal use and achieving 5% of New Zealand’s required emissions reductions for between 2026 and 2030.

The money comes from the Government Investment in Decarbonising Industry Fund. This one project amounts to more emissions reductions than all the fund’s 66 other approved projects combined. Many have been for replacing coal as a heat source. Dunedinbased Silver Fern Farms is one of many companies that have had projects ‘‘cofunded’’.

While the fund’s money comes from emissions trading levies, these levies increase costs to businesses and therefore are indirectly paid by consumers. Some of the worst ‘‘polluters’’, such as NZ Steel, at present receive a free Emissions Trading

Scheme allocation as an ‘‘emissionsintensive, tradeexposed’’ business.

Companies, of course, seek government subsidies if they can. More support equates to more profits at the taxpayer’s expense. We in the South are familiar with the way Tiwai aluminium smelter owners Rio Tinto negotiated cheap power deals and cash support.

The film industry convinced National that government backing was imperative, and last week’s Budget saw the gaming industry win up to $160 million over the next four years in rebates. This was seen as essential to slow the decimation of a growing sector by generous Australian subsidies.

Purists would have none of this. Interfering in the market causes distortions. One company is given advantages over others. Governments have been poor at picking winners.

Believers in state support, and what is being described as a privatepublic partnership, see an important role for governments in saving and growing jobs and, in this case, reducing carbon emissions.

Agricultural SMPs (supplementary minimum prices) proved an egregious example of subsidies: farmers were protected from market pressures at high costs. This also led to poor decisions, such as grazing sheep on steep marginal hill country.

Subsidies become addictive. Facing the real world for farmers in the 1980s was brutal.

The parties to the NZ Steel agreement all say, as they would, that the planned change would not have occurred without the agreement. There have been rumblings about the Glenbrook plant closing, especially if it was exposed to its ETS liabilities.

Closure would be at the expense of many wellpaid jobs and what remains of New Zealand’s industrial base. It would be harder, also, to recycle steel.

Meanwhile, New Zealand could well have imported steel from plants overseas that are run on coal. This country would have cut its emissions, as it has with cement, but the world is no better off.

The Government is struggling to cut emissions and is facing large liabilities for its likely failure to meet targets. The ‘‘investment’’ in Glenbrook helps from that point of view.

The agreement includes performance incentives of $30 million, a positive feature. So, too, is the arrangement in principle with Contact Energy whereby the plant reduces its electricity needs at peak times as necessary.

The default position should be that the government stays out of ‘‘corporate welfare’’. Any bars should be high, any justifications strict.

But there is still a place for hardheaded realism and pragmatism. The NZ Steel deal fits that approach.