Climate Energy Finance warns Australia must act now or risk $120bn iron ore export market

Australia must act urgently to build a domestic green steel industry or could risk losing its $120 billion iron ore export market, a report has found.

Climate Energy Finance issued the warning on Thursday in a 69-page report into the sector that recommended greater support to take the risk out of early projects and changes to put green metals on a level playing field with imports.

The findings come more than a year after the federal government launched a $1 billion Green Iron Investment Fund to support early projects and the Whyalla steelworks transformation, but also as large-scale green iron facilities failed to reach a final investment decision.

The group’s study, called Arc of Ambition, analysed Australian and international efforts to produce and use green steel and iron.

It found making green steel was the second-largest decarbonisation opportunity in the world and one in which Australia, as the world’s largest iron ore exporter, could play a major role.

But Australian industry had yet to embrace the opportunity, lead author and Climate Energy Finance research head Matt Pollard said, due to several hurdles that made producing green steel challenging.

“When we talked to steelmakers we noticed that steel had fallen through the cracks of the Future Made in Australia policy,” he told AAP.

“Australia has an opportunity to learn by doing in the domestic context.”

Green iron production had stalled due to difficulties producing hydrogen, the report found, but electric arc furnaces powered by renewable energy could be used to produce green steel in Australia.

The technology presented a commercially proven, low-risk method of green steel production that could be built within a year at facilities in Western Australia, South Australia and Queensland.

But the federal government would need a fresh strategy to support their introduction, Mr Pollard said, as Australia’s major steel producers were unlikely to lead the change.

“None of these projects have got any cornerstone equity investor... a lot of these electric arc furnace companies, they are essentially start-ups,” he said.

“We need to see that decarbonisation of steelmaking come from those start-ups, but there’s a big challenge (for them to reach) financial close.”

To address barriers, the report recommended introducing a national iron and steel decarbonisation strategy with grants and loans, and a carbon border adjustment mechanism to ensure locally produced green steel could compete with high-emission imports.

Removing emissions from steel could help secure the future of Australian iron ore exports and create new jobs, Climate Energy Finance director Tim Buckley said.

“Steel has long been excused from accountability for its massive carbon pollution as being hard to abate,” he said.

“Electric arc furnaces powered by renewable energy and fed with scrap steel and (direct reduced iron) are proof that that is an excuse, not a plan.”