Green iron fund will lay foundations for Australia to become renewable energy superpower

The Albanese government has announced a landmark package to salvage the beating heart of South Australia’s steel industry and provide the necessary, strategic public intervention to future-proof and catalyse the region’s transition to a nation-leading green iron and steel hub.

Building on the federal government’s $2 billiion Aluminium Production Tax Credit announcement to decarbonise the energy demand of the nation’s aluminium smelters – the largest source of emissions in the aluminium supply chain – the $1bn Green Iron Investment Fund leverages strategic public capital to crowd in private investment into value-added green iron projects.

Comparatively, iron is the largest source of emissions in the steel value chain, with blast furnaces accounting for up to 87% of traditional, coal-based steel emissions.

CEF has continued to emphasise the critical importance of getting moving and supporting first-of-a-kind (FOAK) capital deployments to learn-by-doing in the domestic context. The rescue and re-industrialisation package announced on Thursday is exactly that.

Whyalla is strategically important for Australia for its manufacturing capacity and highly skilled workforce. It is imperative that we protect and build upon our sovereign capabilities, and massive investment, employment and export potential to lead the world in shifting to green steel supply chains.

As Climate Energy Finance (CEF) emphasised in its submission to the Senate Inquiry into the Future Made in Australia’s (FMIA) Production Tax Credits Bill, Australia’s iron ore exports generated $138 billion in revenues in 2023-24, the largest fuel and resource industry in Australia by volume and value.

The introduction of the FMIA’s critical mineral and hydrogen tax incentives were a result of the government’s recognition that public intervention to alleviate the cost premium of value-adding was vital to addressing market failures and developing industrial capabilities critical to the economic resilience and security of Australia.

However, failure to extend such measures to facilitate the creation of a domestic green iron industry would be the single biggest risk to Australia in the global transition to a decarbonised economy, and would be the single biggest opportunity of Australia this century if Australia captured this value.

As such, CEF applauds and celebrates the ambition of the federal and South Australian (SA) governments to introduce an intergenerational industry policy that supports the long-term future of Australia’s economic prosperity, and the long-term future of the planet.

The announcement of a joint industrial policy package from the federal and SA government, including the commitment to invest into the necessary enabling infrastructure to support the transition to low-emission iron and steel production, can lay the foundation and blueprint for the development of Renewable Energy Industrial Zones (REIZ) for green iron production.

The success of onshoring a large-scale green iron industry will, in part, be dependent on leveraging economies of scale and public-private partnerships in enabling infrastructure, including high-voltage transmission corridors, energy firming capacity, port facilities and hydrogen pipelines.

The Whyalla Steelworks is perfectly positioned to develop a REIZ, with high-grade magnetite reserves, a deep-water port, high renewable penetration in the existing electricity grid, and an established, skilled workforce.

This presents a massive opportunity to learn-by-doing in order to support the development of other future-facing resource hubs in Australia, including Gladstone, the Oakajee Strategic Industrial Area (SIA), Port Hedland SIA, and so on.

As Springmount Advisory also emphasised in its advocacy for the creation of a green iron industrial package: Despite the natural advantages, Australia is lagging significantly behind other regions in terms of supportive policy settings and is suffering from significant under-investment relative to our potential compared to other regions.

The federal government urgently needs to send a clear signal to industry and investors that the FMIA program will help establish a large-scale green iron industry.

This week’s announcements have introduced the price signals required to industry, and to new entrants that the state and federal governments recognise the scope and scale of this immense opportunity.

The announcements build on the critically important supply-side incentives introduced via the more than $22bn Future Made in Australia legislation and other industrial packages to kickstart value-adding of strategic metals and minerals, including:

– The legislated $2/kg clean hydrogen production tax incentive to scale the production of renewable-powered hydrogen to embed decarbonisation in value-added resources onshore;

– The 10% critical minerals production tax incentive, providing a tax offset in proportion to the level of expenditure of value-adding key, future-facing minerals for the energy transition, including lithium, nickel, rare earths, etc;

– $3.4bn investment into Geoscience Australia to accelerate the discovery of resources;

– The doubling of Hydrogen Headstart to $4bn, bridging the commercial gap between market prices and the green premium for early movers in hydrogen production and clean energy industries.

CEF also recognises the strength and long-term vision of the SA government to force the GFG Alliance’s Whyalla Steelworks intro administration this week.

CEF, national and international media have continued to highlight the increasingly dire financial situation of the global GFG Alliance portfolio, and the risk to Australia’s future as a sovereign steel producer that would be realised with the continued governance and operation under Sanjeev Gupta.

CEF endorses the move by SA Premier Peter Malinauskas, and supports his Government’s commitment to the long-term prosperity of the Upper Spencer Gulf as the first mover for green iron, and the positive impact it will have on accelerating investments in the broader national landscape.

Now that the Steelworks is no longer under the control of GFG, the state government can partner with the federal government and make the long-term investments necessary to secure the future of Whyalla and Australian steelmaking.

As CEF formulated in its recent Green Metal Statecraft: Forging Australia’s Green Iron Industry report, there are key, interconnected pillars required to be jointly developed by the federal and state governments to develop a globally competitive Australian green metals industry.

The deployment of a complementary mix of financing and budgetary measures for supply-push and demand-pull market mechanisms, deployed as a coherent strategy can form the basis of Australia’s green metal statecraft, including:

– A national green iron and steel strategy with clear, measurable targets.

– Demand-side incentives, including: Development of a trilateral, government owned Clean Commodities Trading Company; Australiasian Green Iron Corporation JV between Australia and key trading partners like China – Australia’s largest iron and steel trading ally; public procurement for green metals to create a national demand signal, and; contracts for difference (CfDs) to bridge the gap between market prices and the green premium for early movers.

– Supply-side incentives, including: $20bn Future Fund mandate for renewables-powered green metals processing. The $1bn Green Iron Investment Fund is a positive first start; Production tax credits for green iron, and; exclusion of state investment in fossil fuel-powered onshore strategic metals refining.

– Measures to address technical challenges, including: $500m over 10-years to the CSIRO for RD&D to accelerate commercialisation of
green iron technologies.

– Measures to improvise international collaboration and foreign policy, including: A DFAT & Austrade mandate to build collaboration on an Asian Carbon Border Adjustment Mechanism, creating a premium price signal for green iron; A focus on Australian/Asian steel supply chain decarbonisation collaboration to champion Asia-Pacific’s opportunities leading up to COP31.

– Accelerating renewables deployment, including: Overriding Public Interest Test to speed renewable energy project approvals; industrial demand response mechanisms to optimise renewables supply/demand; renewables investment conditional on community benefit/First Nations benefit
sharing, and; accelerated development of Renewable Energy Industrial Precincts.

As the Smart Energy Council has put it, Thursday’s announcements mark the moment Australia’s mining, manufacturing and renewable energy industry enter the global race towards decarbonisation.

A Green Iron Investment Fund is exactly what Australia needs to lay the foundations for Australia becoming a Renewable Energy Superpower.

Matt Pollard is net zero transformation analyst at Clean Energy Finance. Tim Buckley is director, Clean Energy Finance.