CEF report calls for a national iron and steel decarbonisation strategy

A report from Climate Energy Finance (CEF) calls for a National Iron and Steel Decarbonisation Strategy, a Carbon Border Adjustment Mechanism, and timely strategic investment in green onshore steelmaking as urgent national policy priorities.

The think tank says this would position regional Australia in global iron and steel supply chains, as the steel sector irreversibly transitions away from highly-polluting fossil fuel-based production.

Australia is the world’s number 1 iron ore exporter, and supplies half the world’s exports of iron ore and coking coal used to make steel. As major North Asian partners including China decarbonise their steel industries however, Australia’s higher-impurity, lower-grade Pilbara ore — which is less readily suited to steel decarbonisation — is increasingly exposed. This puts at risk Australia’s $120bn per annum in iron ore exports.

At the same time, the transition presents a major near-term opportunity for Australia under the federal government’s Future Made in Australia (FMIA) vision for green manufacturing: to build electric arc furnaces (EAFs) that use electricity powered by renewables to produce steel at a fraction of the emissions of coal-fired blast furnaces, also creating potential demand for future green iron production.

Australia has scope to construct EAFs in Collie, Western Australia; Whyalla, South Australia; and greater Brisbane, Queensland, as soon as next year, according to the CEF. This could unlock billions in investment, support large-scale new firmed renewable-energy capacity and create new regional employment opportunities. The CEF says that Greensteel’s Newcastle, NSW, proposal does not include an EAF in its initial phase.

The report calls for an ambitious, government-led and market-forming Green Energy Statecraft industrial policy architecture, embodied in a National Iron and Steel Decarbonisation Strategy within FMIA, and a Carbon Border Adjustment Mechanism to price carbon in emissions-intensive, trade-exposed industries such as steel. These measures are needed to address the structural barriers to the current economic viability of green and low-carbon steel for project proponents and to catalyse low-emissions steel supply chain capacities.

Currently, steel decarbonisation is the world’s largest emissions-reduction opportunity outside electricity.

“The ambitious FMIA re-industrialisation package is 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,” said lead report author Matt Pollard, CEF Head of Research. “Reversing the hollowing out of manufacturing in Australia is a monumental task, involving coordination of planning, the build-out of critical enabling infrastructure, targeted budgetary measures and strategic interventions to alleviate key development risks that future-facing industries face.

“Australia has an opportunity to ‘learn by doing’ in developing institutional capabilities in smaller, more manageable sectors before aiming to catalyse a highly capital-intensive, technologically complex and globally competitive green iron industry.”

“Steel has long been excused from accountability for its massive carbon pollution as being hard to abate. EAFs powered by renewable energy and fed with scrap steel and DRI are proof that that is an excuse, not a plan,” said report co-author Tim Buckley, CEF Director. “We need to phase out the exemption for emissions-intensive trade-exposed industry in the Safeguard Mechanism, to require polluters to pay a price for their carbon pollution, and provide the patient public capital support to enable our domestic industries to invest in sustainable, low emissions facilities of the future, such as EAFs for green steel. Externalising the cost of carbon pollution onto everyone else is no longer an acceptable ‘strategy’; it is an abrogation of leadership.”

The full report can be found here.

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