The Government is partnering with Fonterra to cut coal use at its dairy factories, delivering massive emissions reductions, and future-proofing New Zealand trade and exports.
Fonterra has committed to undertaking a complex range of projects to cut coal use across six manufacturing sites – resulting in approximately 2.1 million tonnes of earlier CO2e reductions. The reductions are the same as taking approximately 120,000 cars off the road.
Prime Minister Chris Hipkins announced the plans alongside Minister of Energy and Resources, Megan Woods, and the Minister of Climate Change, James Shaw at Fonterra’s Hautapu site today.
Three points were highlighted in their press statement:
- The deal is forecast to cut coal use at six Fonterra dairy factories, halving its manufacturing emissions by 2030
- It will deliver 2.69 per cent of all New Zealand’s required emission reductions between 2026-2030
- These emissions reductions are equivalent to taking 120,000 cars off the road
“This hugely significant commitment means the dairy sector will dramatically cut its coal use quicker – this is not just critical for our environment, but for our economy too,” Chris Hipkins said.
“By partnering with Fonterra to reduce emissions we’re helping to maintain New Zealand dairy’s competitive edge, as international consumers and food manufacturers demand further climate commitments.
“In my recent trade missions, I’ve heard first-hand the importance of New Zealand’s climate credentials to our exports. This partnership is an investment in our future economic prosperity.
“This investment enables Fonterra to accelerate their emissions reductions, with an expected halving of their coal use by 2030, and delivers a big chunk of New Zealand’s overall pollution cuts.
“The current international environment is challenging for Fonterra and farmers, so we are teaming up to reduce more emissions faster.
“The Government is getting runs on the board with our Emissions Reduction Plan. These partnerships with big emitters are reducing pollution, helping build momentum and ensuring we are keeping up with our international competitors.
“It demonstrates our Government’s commitment to climate action now, and how much further and faster we can go if we make investments sooner, rather than later,” Chris Hipkins said.
Under the partnership Fonterra, New Zealand’s largest dairy producer and exporter, will undertake an emissions reduction programme across its entire business, with a particular focus on the remaining coal sites used to process dairy.
The Government will co-fund up to $90 million from the Government Investment in Decarbonising Industry (GIDI) Fund, which is paid for through the Emissions Trading Scheme.
Fonterra has approximately $790m in investment planned in total, to meet the revised decarbonisation target.
“Government backing has unlocked a revised and critical new target – achieving a 50 per cent reduction in carbon emissions by 2030 – which is an increase on its original target of 30 per cent, measured from a 2018 baseline,” Megan Woods said.
“This will help to meet our domestic and international emissions reduction obligations by 2030.
“This approach sees the Government investing in New Zealand to help businesses cut their emissions, rather than sending that money offshore to buy overseas offsets – expected to cost into the billions – in a few years’ time.
“This agreement, second in magnitude to the cuts secured at NZ Steel, delivers 1.17 million tonnes of CO2e cuts, 2.69 per cent of the total emissions reductions required in New Zealand’s second emissions budget between 2026 and 2030.
“Fonterra is anticipating a combination of energy efficiency, biomass, existing heat pump technology and newer innovative solutions will deliver these reductions.
“What is clear again today is that our energy choices and the technologies involved are going to play a central role in transitioning to a low-emissions economy, and we don’t have to de-industrialise to decarbonise.
“The private sector will do much of the heavy lifting. And in fact – already is. However, we too – as Government – have a role to play.
“This is about accelerating change at scale – in a way that will also strengthen our economy and retain jobs,” Megan Woods said.
Climate Change Minister James Shaw described the deal as momentous for the sector.
“This is a decarbonisation deal of national significance. It is expected to deliver over seven per cent of the targeted cuts to pollution from the energy and industrial sectors, in our second emissions budget, and over four per cent of our third emissions budget,” James Shaw said.
“I congratulate Fonterra, one of New Zealand’s largest emitters, for showing what can be done, what must be done.
“With a programme spanning multiple Fonterra sites, this will put New Zealand in a better position to reach net zero by 2050. But we cannot be complacent. We have to do everything we can to radically reduce our reliance on fossil fuels, in order to avoid the worst of climate crisis,” James Shaw said.
The press statement is accompanied by these Notes for editors:
- EECA, who administer the Government Investment in Decarbonising Industry (GIDI) Fund, will work alongside Fonterra as they determine and deliver the best opportunities for reducing their reliance on fossil fuels – both from a technical and economic perspective in the coming years.
- Coal boilers are still used at six of Fonterra’s sites across the country and account for around half of Fonterra’s total scope 1 and 2 emissions in New Zealand
- Almost all of Fonterra’s manufacturing facilities targeted by this agreement are in the South Island.
- The projects are forecast to have an abatement cost to government of around $43 per tonne. The abatement cost per tonne is the cost of removing one tonne of carbon dioxide equivalent pollution. For context, the average Marginal Abatement Curve (MAC) from the yet to be announced Round 5 is also around $43 per tonne. The MAC represents good value for money and is in line with the Crown’s more recent co-funding of industrial decarbonisation.
- This deal is the second in a number of bespoke opportunities that the Government is exploring, through the expanded GIDI Fund, to deliberately target appropriate support for New Zealand’s largest emitters. The first partnership was the conditional funding agreement with NZ Steel, announced in May 2023.
- Emissions budgets set the amount of emissions New Zealand can produce in order to meet its climate change goals. These are described in New Zealand’s first emissions reduction plan, published in May 2022.
- The project will achieve 2.69 per cent of the total emissions reductions required in Emissions Budget 2 (2026-2030) and 1.13 per cent of Emissions Budget 3 (2031 -2035)
- Delivers 7.27 per cent of the Energy & Industry sector sub target in Emissions Budget 2 and 4.34 per cent in Emissions Budget 3.
- Fonterra is a publicly traded dairy co-operative owned by more than 9,000 New Zealand dairy farmers and is our largest exporter. It is responsible for approximately 30 per cent of global dairy exports.
- EECA – which delivers projects under GIDI – has a programme dedicated to ‘Partnerships with Very Large Emitters’ as part of the funding allocated.
Source: Prime Minister, Minister of Energy and Resources, and Minister of Climate Change