Globally, the iron and steel industry’s decarbonisation trajectory – key to tackling climate change, given the sector generated close to 10% of emissions – is advancing. But it is doing so haltingly, and at a pace that remains misaligned with the rate required to meet global emissions reduction obligations.
Steelmakers across Asia-Pacific are experiencing low returns on capital and margin compression as a result of overcapacity, and insufficient demand from lack of consumer willingness to pay clean commodity premiums.
The international lesson is that while there is a clear long-term path toward near-zero carbon iron production, capital flows into decarbonisation across the iron and steel value chain must be supported by strategic government policies that enable technologies to progress up the commercialisation curve.
Australia’s Future Made in Australia (FMIA) re-industrialisation policy was a landmark inflection point of the Albanese government’s recognition of the role government can play in kickstarting new value-added opportunities in a decarbonising economy – such as green iron and steel.
However, to do this, FMIA needs to get money out the door.
More than two years since FMIA was introduced, the largest and most ambitious project that has reached final investment decision is Orica’s 50MW Hunter Valley Hydrogen Hub – a $245-283m investment to displace a small volume of methane gas in Orica’s ammonia facility.
The Hub received a combined $115 million in state and federal grant funding, plus a massive $432 million in production-linked credits over the coming decade.
In the 2026-27 budget, the federal government clawed back $1.3 billion from Solar Sunshot, Hydrogen Headstart, and the Battery Breakthrough Initiative.
While this reversal presents opportunities for critics of the government’s role in clean manufacturing and developing future-facing industries, abandoning public and private capital coordination is directionally wrong.
Australia has not been immune to global pressures. The economic realities of rising infrastructure costs, slower-than-anticipated deflation of electrolyser cost curves besetting plans for green iron, incoherent and unstable global policy architecture, volatile and high fossil fuel prices and rising geopolitical tensions have necessitated a more considered approach to investment.
Against this backdrop, Climate Energy Finance’s latest report, Arc of Ambition: Decarbonising and Safeguarding Australia’s Steel Industry makes the case that Australia has a time-critical opportunity to accelerate its ambition to position itself in emerging low- and zero-emissions steel value chains, scale sovereign capability in critical manufacturing, and build a future made in Australia.
In steelmaking, electric arc furnaces (EAFs) provide a proven, viable pathway for Australia’s FMIA ambition to get runs on the board this decade by providing the foundation of a green steel industry, and potentially advance Australian green iron by providing domestic demand for early movers.
As our report outlines, Australia has scope to construct EAFs in Collie, Western Australia; Whyalla, South Australia; and greater Brisbane, Queensland, as soon as next year.
This could unlock billions in investment, support large-scale new firmed renewable-energy capacity and create new regional employment opportunities. (We note Greensteel’s Newcastle, NSW, proposal does not include an EAF in its initial phase.)
While green iron is the single largest opportunity for the future economic prosperity of Australia in a decarbonising economy its emergence will require the government to play a critical strategic coordinating and market forming role that mitigates an array of developmental risks.
Before aiming to catalyse a highly capital-intensive, technologically complex, and globally competitive green iron industry, Australia has an opportunity to learn-by-doing in developing institutional capabilities in smaller, more manageable sectors – including low-emissions steel production.
This can be a critical institutional development ground for intergovernmental and intragovernmental coordination through special investment vehicles, deploying public capital up to the point of minimum viable concessionality, and connecting strategic public investment to performance against clearly defined targets and standards.
CEF also advocates for ASIC to evaluate the ‘going concern’ of InfraBuild. This strategically valuable business employing 4,600 workers needs to be returned to financially stable, ideally Australian ownership.
Australia’s industrial sector is vital to the nation’s economic strength and resilience, and central to its FMIA plan is the securing and strengthening of existing industrial capability and seizing emerging opportunities in the clean economy.
The existing foundation of manufacturing and value-adding industries provides immense value to the Australian economy, with 120,000 businesses generating $206bn in gross value-added (GVA), equivalent to 7.7% of national gross domestic product (GDP).
CEF estimates Australia’s existing manufacturing sector emits 93MtCO2-e in operational emissions annually. The decarbonisation of the existing industrial base, let alone the facilitation of new clean energy industry growth, represents a mammoth challenge for industry, government, consumers, and the environment. Safeguard Mechanism reform is needed to incentivise action, not inaction, in trade exposed industries.
Active participation of policymakers and patient, strategic public capital will be vital to achieve the Federal Government’s objective to revitalise Australia’s industrial base and ensure it is globally competitive, while directing industry to meaningfully reduce emissions and delivering an equitable transition for the more than 1 million employed in Australia’s industrial sector.
While most international steelmaking counterparts’ industrial policy packages have largely involved the erection of trade barriers and the provision of domestic production subsidies, we argue that Australia should take a different approach.
An effective green energy statecraft policy architecture starting domestically would create government initiatives and channels of strategic public capital deployment that de-risk key project development through coordinated planning, enabling infrastructure, and efficient allocation and alleviation of project development risks.
This is key to addressing structural challenges to the economic viability of decarbonised value-add for proponents.
A coordinated strategy for the decarbonisation of the steel industry, as well as mobilising private capital in new low-emissions steelmaking, is critical to drive emissions reduction from the industrial sector. It is also critical to safeguard the tens of thousands of downstream jobs dependent on primary steel manufacturing, and progress the pipeline of FMIA proposals, demonstrating the viability of the entrepreneurial state in Australia.
Matt Pollard is Head of Research at think tank Climate Energy Finance and lead author of Arc of Ambition: Decarbonising and Safeguarding Australia’s Steel Industry.
