Australia’s industrial sector faces transformative change to meet global and domestic emission-reduction targets. A 21st Century industry policy to deal with a 21st Century problem could underpin Australia’s successful transformation to a world-leading energy superpower. Done well, such policy could underpin the development of an Australian green metals industry focused on steel and aluminium.
Global and domestic demand for Australia’s coal and gas will decline over the next few decades as the rest of the world implements its commitments to achieve the goals of the Paris Agreement. Now is the time for Australia to build export-oriented industries based on its extensive renewable energy and mineral resources, to thrive in a net-zero global economy.
Meeting global and domestic emission-reduction targets will impose transformative change on Australia’s heavy manufacturing and mining sectors, change for which we are only just beginning to prepare. We have an opportunity, based on our comparative advantage in globally competitive renewable energy, to add value to globally significant mineral resources, and support employment in the regions of Australia where carbon-intensive industries will decline. The challenge is to act to seize this opportunity.
The production of already important commodities such as steel and aluminium will need to be transformed to low-emission alternatives. Extracting and processing minerals critical in a low-emissions world and materially present in Australia holds the prospect of new export growth and job creation. And developing green hydrogen is likely to be a key factor in the supply chain to deliver green metals.
The commercial realisation of green metals and hydrogen faces a ‘green premium’ challenge – the gap between the cost of zero- emissions production and the cost of conventional production.
Three things can close that gap. First is cheaper electricity. Metals processing is energy-intensive, and the future of energy is electric, whether used directly or to produce hydrogen as a fuel.
Second is higher carbon prices. Heavy industry is covered by the Safeguard Mechanism, which imposes a carbon price to drive down emissions. But under the Safeguard’s current settings, this price isn’t likely to be high enough to close the cost gap before 2040.
Third is support for ‘green’ versions of these commodities. The best support at this time would be an industry policy that evolves from the federal government’s Hydrogen Headstart program and uses contracts-for-difference – contracts designed to support investment by underwriting part of the additional cost of production – to help industry grow. Later, a broad-based carbon standard could drive demand for green commodities in construction.
This program now fits within the broader framework of the government’s Future Made in Australia initiative, although that initiative and associated funds and mechanisms are still at an early stage of implementation. Renewable hydrogen and green metals have been identified as sectors aligned with the national interest framework announced by Federal Treasury at the time of the 2024 Budget.
The federal government has a once-in-a-century opportunity. Despite the very real challenges, the opportunity should be taken – the downside is too ugly to be contemplated and the upside too great to be missed.