NZ dairy giant Fonterra to phase out “insane” use of coal power to dry milk

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New Zealand’s largest company Fonterra will to phase out use of coal power to dry milk, a practise that has been labelled ‘insane’.

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New Zealand’s largest company, and the world’s biggest dairy exporter, Fonterra is to finally shift away from using coal in the processing of milk, announcing it will immediately abandon plans to expand coal use at its factories.

Fonterra is New Zealand’s second-largest user of coal, with the company predominantly using coal for heat in the production of milk powders and formula.

Fonterra had previously announced it would not increase its coal use at its factories, but drew that deadline at 2030. Now it has decided “put a stop” to installing any new coal boilers or increasing capacity to burn coal.

Emissions from agricultural production are a big deal in New Zealand, with around half of the country’s emissions coming from the agriculture sector, with most being released in the form of methane from the burps of cattle and sheep and likely to receive special treatment under otherwise stringent emissions limits being considered in New Zealand’s parliament.

However, coal is still in heavy use in dairy production, with around a third of Fonterra’s milk processing facilities still reliant on the process of using thermal coal to dry milk, predominantly at facilities on New Zealand’s south island, in the production of milk powders and formulas.

Demand for milk powders from Australia and New Zealand has grown exponentially following a contamination scandal that rocked Chinese milk formula supplies in 2008. Ever since, many Chinese consumers have preferred to import formula from countries with more stringent quality control measures.

Fonterra has been under mounting pressure to commit to phasing out the use of coal at their facilities, including from the founder of Bloomberg New Energy Finance, Michael Liebriech, who labelled the idea that coal was being used to dry milk as ‘insane’.

Fonterra has set itself the goal of reducing emissions across its operations by 30% by 2030, with a long-term goal of zero net emissions by 2050.

To shift away from using thermal coal for its milk processing operations, Fonterra intends to electrify its manufacturing facilities. Around 40% of the energy used for milk processing it sourced directly from coal, with the rest being sourced from gas, electricity and biomass.

“One of the emerging themes in our strategy review is that sustainability will be at the heart of everything we do. As part of this, we want to step up our efforts to help New Zealand transition to a zero-carbon economy,” Fonterra’s COO for global operations Robert Spurway said.

“Our farmer owners are already some of the most efficient producers of milk in the world. We need to match them in making sure our manufacturing operations and wider supply chain are as efficient as possible.”

As New Zealand’s largest agricultural producer, Fonterra controls around a third of the world’s dairy exports and has established a set of targets for reducing emissions and shifting to renewable energy sources.

To supply its operations, Fonterra has operated its own coal mines, but it has started the process of divesting itself from its coal facilities, including the Mangatangi mine, and the Kopako 3 mine with rehabilitation works commencing at the site.

Fonterra has a significant presence in Australia, but does not use coal for milk processing outside of New Zealand.

Fonterra’s announcement was welcomed by the New Zealand climate change minister, James Shaw, who has been leading the New Zealand Government’s efforts to introduce a set of policies to drive down greenhouse emissions.

“To have this commitment from Fonterra, on top of the recent commitment by them and other primary sector organisations to farm-level emissions pricing, shows that business and Government working together can result in serious action to tackle climate change,” Shaw said.

“Fonterra is one of the largest users of coal in New Zealand, after the Huntly Power Station, so moving to immediately stop installing new coal boilers and start to convert existing boilers to renewable energy sources is a great step.”

There are infrastructure constraints that limit Fonterra’s ability to transition to using electricity, with further investment needed in boosting electricity supplies and network infrastructure to power Fonterra’s substantial operations.

“Transitioning Fonterra’s sites away from coal requires a staged approach. We’re determined to go as fast as we can but there are a number of practical challenges we have to overcome,” Spurway said.

“For example, right now New Zealand’s energy infrastructure in some parts of the country simply isn’t set up to handle our requirements. Either there aren’t alternatives to coal available or, if there are, they are not at the scale needed.”

“There are also cost challenges. Transitioning to cleaner fuels will require additional investment and we need to balance this with remaining competitive. It’s right to take a staged approach.”

Under prime minister Jacinda Ardern, and with NZ Greens MP James Shaw appointed as the country’s climate change minister, New Zealand has made strong progress towards legislating targets to achieve zero emissions by 2050.

The targets have not been without caveats, however, with New Zealand’s policies likely to take a softer approach on the agricultural sector, which represents around half of the country’s greenhouse gas emissions.

A bill to legislate a target for zero carbon dioxide emissions was tabled in the New Zealand parliament in May, which will also establish an independent climate commission to advise the government on appropriate policies and targets.

The legislation is currently being considered by the NZ parliament, with the bill expected to be passed before the end of the year.

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