Fonterra to receive $90 million Government subsidy to transition away from burning coal

Fonterra, the country’s largest dairy producer, and exporter, has committed to reducing coal use across six manufacturing locations.

The Government will give $90 million to Fonterra, one of New Zealand’s largest greenhouse gas emitters, to help reduce the use of coal in its dairy operations.

Prime Minister Chris Hipkins is due to formally announce the subsidy alongside Minister of Energy and Resources Megan Woods, and the Minister of Climate Change James Shaw at Fonterra’s Hautapu site today.

Fonterra, the country’s largest dairy producer and exporter, has committed to reducing coal use across six manufacturing locations, which is estimated to see an earlier CO2e reduction of about 2.1 million tonnes - the equivalent of removing about 120,000 cars from the road.

As part of the agreement, Fonterra will implement an emissions reduction campaign across its entire organisation with a special emphasis on coal processing units for dairy. The Government will co-finance the project up to $90m, from the Investment in Decarbonising Industry (GIDI) Fund which is funded by the Emissions Trading Scheme.

Fonterra, a publicly traded dairy co-operative responsible for about 30 per cent of global dairy exports, has a total investment budget of about $790m to reach the updated decarbonisation goal.

In a statement, Hipkins said it was a “hugely significant commitment” and means the dairy sector will dramatically cut its coal use quicker.

“This is not just critical for our environment, but for our economy too.”

It comes after a similar deal saw the Government announce a subsidy of up to $140m for NZ Steel - one of the country’s biggest greenhouse gas emitters - to transition away from burning coal.

The Glenbrook-based company, owned by multinational company Bluescope, makes up about 2 per cent of the country’s entire greenhouse gas emissions.

National Party leader Chris Luxon criticised the NZ Steel announcement at the time and called it “corporate welfare at its worst”.

Luxon said National supported the country’s climate change commitments but did not think Bluescope, which made billions of dollars in profit last year, should be receiving a taxpayer handout.

National, Luxon said, would focus more on increasing renewable energy supply.

New Zealand has a net zero 2050 emissions target, with the aim of keeping global warming below 1.5C.

The Fonterra deal is anticipated to 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).

Energy and Resources Minister Megan Woods, Prime Minister Chris Hipkins, and Climate Change Minister James Shaw at Glenbrook Steel. Photo / Alex Burton

Hipkins said during his recent trade mission he had “heard first-hand” the importance of New Zealand’s climate credentials to its exports.

“This partnership [with Fonterra] is an investment in our future economic prosperity.

“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,” Hipkins said.

Shaw called the agreement historic for the dairy sector.

“This is a decarbonisation deal of national significance. It is expected to deliver over 7 per cent of the targeted cuts to pollution from the energy and industrial sectors, in our second emissions budget, and over 4 per cent of our third emissions budget,” Shaw said.

“I congratulate Fonterra, one of New Zealand’s largest emitters, for showing what can be done, what must be done.”

Woods said the deal will help to meet New Zealand’s domestic and international emissions reduction obligations by 2030.

“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,” Woods said.

“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.”

Woods said New Zealand doesn’t “have to de-industrialise to decarbonise” and noted that Fonterra is anticipating “a combination of energy efficiency, biomass, existing heat pump technology, and newer innovative solutions will deliver these reductions”.

But, despite the public money subsidy, she admitted 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.”

Rachel Maher is an Auckland-based reporter who covers breaking news. She has worked for the Herald since 2022.