Costing Australia’s green iron export ambitions

Australia's nascent green iron industry, poised to capitalize on the global shift towards low-carbon steelmaking, faces significant investment requirements and government backing according to a recent briefing note. By 2040, green iron export revenue could soar to AU$96 billion annually, based on government forecasts. Achieving this goal would necessitate an annual investment of AU$170 billion over the next 14 years, comparable to the peak of Australia's 2000s mining boom, reveals the note titled Scale of investment needed for Australia’s green iron ambition.

Energy finance analyst, Lachlan Wright of IEEFA, notes that green iron production is capital-intensive, requiring an ironmaking furnace, electrolysers, along with solar, wind, batteries, and transmission infrastructure to power clean electricity. Moreover, additional rail and port facilities are required for both bulk iron ore supply and green iron export.

As the global steel industry decarbonizes, demand for green iron is growing, just as Australia's coal and gas exports, traditionally key exports, are forecast to decline. Despite commanding a price premium, green iron remains non-cost competitive due to its energy-intensive production process. Wright emphasizes that Australia seeks to establish a green iron export industry, which would both support global emissions reductions and serve as a safeguard against potential future declines in Australia's traditional fossil fuel exports.

The government's figure of AU$96 billion by 2040, announced in the Green Iron Investment Fund, is based on replacing metallurgical coal exports with an equivalent volume of green iron. Australia currently exports around 150 million tonnes per annum of metallurgical coal, which is equivalent to approximately 270 million tonnes of green iron.

This is because it takes roughly 0.55 tonnes of metallurgical coal to produce 1 tonne of iron. At current prices, establishing 1 million tonnes of green iron capacity in Australia would require capital investment ranging from AU$7-10 billion for ironmaking, electrolysers, solar, wind, and batteries. Renewable energy, essential for green iron production, accounts for half of the capital investment required for any project in the country.

Even South Australia, the nation's renewable energy powerhouse, would need to more than double its utility solar and battery capacity to power the proposed Whyalla green iron project. However, Australia's abundant natural resources can be leveraged to stimulate investment in green iron by capitalizing on its successful renewable energy initiatives, including renewable portfolio standards, contracts-for-difference, and feed-in tariffs.

Wright suggests that such policies could be adapted to green iron production, emphasizing the need for a green premium in exports. Crucially, any such policy must possess sufficient scale and funding assurance to provide the necessary investment certainty. Without this, Australia is unlikely to attract the substantial capital required to fulfill its green iron ambitions.