Australia combines strong assets to make the country an important player in the emerging green iron market: a vast potential of iron ore, favourable conditions for boosting renewable energy and hydrogen production and a supportive policy environment, including a broadly shared focus on green iron production as part of Australia’s wider industrial policy and national and global decarbonisation efforts. At the same time, there are significant challenges, both domestically and internationally. ‘At home’, for the considerable ambitions to be realised, policy efforts to enable and incentivise green iron efforts would need to be intensified and executed in a pragmatic and coordinated way across levels of government, in particular in relation to renewable energy and hydrogen availability and infrastructure. This intensification could also include more emphasis on ‘carrots’, stepping up direct support for consortia of companies entering the green iron space, including foreign investors. But such support measures directly focused on companies should be treated with care. They are not likely to be successful by themselves and would need to be combined with measures that further incentivise actors along the steel value chain. Moreover, it is unlikely that Australia would match the size of policy support offered at other potential green iron locations.
Challenges also exist abroad. A successful green iron strategy in Australia would likely require investment from steel companies outside Australia. While various examples exist of foreign investors exploring the green iron space in Australia, such investment would need to be scaled up and move beyond feasibility stage. This requires effective investment acquisition strategies by both federal and state governments and the strengthening of partnerships with potential investors in Australian green iron production. While Australia has strong relations with countries in the region and an active diplomatic outreach to countries such as Japan, Korea and ASEAN, such efforts could be more concretely tailored to finding customers for green iron, next to enhancing cooperation on decarbonisation and climate. Since uncertainties about demand for Australian green iron in Europe or elsewhere may even be larger, it is important for Australia’s green iron strategy to be both ambitious in finding customers as well as realistic. The gap between projections and expectations on the growth of Australian green iron production and expected demand developments currently seems large.
The analysis leads to the following considerations for policy:
a) Continue and further strengthen the policy focus on green iron: Australia offers strong advantages for green iron production. It is important for these to be approached with ambition and pragmatism, focusing on those areas where progress is most needed such as ensuring demand for, as well as domestic and foreign investment in, green iron production.
b) Scale up private investment in a targeted way: The opportunity in the green iron market is substantial, but Australia's current level of private investment is insufficient to grow a competitive industry. Countries in the MENA region, Europe and Brazil are advancing rapidly, securing funding and infrastructure at a scale that could make them dominant suppliers of green iron in the future. It is important for Australia to accelerate investment in green iron production and hydrogen infrastructure to play a pivotal role in this market. This includes expanding financial incentives, de-risking private investment, and fostering industry-led innovation to position Australian green iron competitively on the global stage. Further, financial support is likely to be more effective if targeted towards a smaller number of well-positioned projects. This is because the required capital is high, and if funds are spread out too thinly, it is possible that no projects will have the critical mass of investment to succeed.
c) Ensure customer demand to drive investment confidence: For green iron investments to succeed, they must be backed by clear market demand and long-term commitments from buyers. The global steel industry is undergoing a major geographical realignment, and Australia risks losing ground if it does not align its production capacity with future demand centres. It is important for the government and industry to continue to actively engage with global steelmakers and major industrial offtakers to secure export shares, sending strong signals to investors. Future customers will likely be more receptive to economic diplomacy than to climate diplomacy.
d) Accompany investors and emerging players administratively and through coordination of infrastructure: Foreign investors and actors will most likely be necessary for a future Australian green iron industry. A more active approach in bringing these actors in and accompanying them through approvals processes may be needed.
e) Prepare the ground for green iron to be truly green: It is likely that natural gas will have a transitional role to play in many green iron projects as hydrogen projects take longer to get off the ground. Nevertheless, it is essential to note that while DRI made using natural gas is lower in emissions than the blast furnace route, it is not a near-zero carbon product, in contrast to H2-DRI. To avoid locking the industry into natural gas usage, the government can make their support contingent on projects being hydrogen-ready (including in regard to their location) and requiring assurances from recipients that they are actively pursuing a transition to green hydrogen as soon as is feasible.
f) Drive forward the green iron and steel conversation internationally: As discussed, green iron demand is partly contingent on global decarbonisation efforts including for example carbon pricing and green steel standards. The Australian federal government can help move these forward by being a leader in this area.
g) Scale up renewable energy generation in key areas: The necessity of islanded renewable energy systems for green iron production means that renewable resource availability and energy system design become decisive location factors. Only regions where it is economically viable to set up large-scale, off-grid renewable systems will be able to support competitive green iron production. Policymakers must recognise this shift and proactively identify and support the development of these green industrial zones. This includes providing regulatory certainty, targeted infrastructure investment, and long-term planning aligned with Australia’s broader decarbonisation and export goals. Choosing key areas with high green iron potential and committing to ensuring the necessary renewable energy generation is built there would provide energy security to investors— green hydrogen plants require renewable energy generation, not renewables potential.
h) Incentivise value-adding in the Pilbara: Iron ore producers in the Pilbara currently have too comfortable a business model to take any risks in moving towards green iron production, other than Fortescue who have not yet illustrated how they plan to scale up their Christmas Creek demonstration plant. Iron ore producers will likely not change course unless there are both carrots and sticks from government.
i) Ensure an effective and efficient multilevel governance approach: In Australia, both the federal government and state governments are active in the green iron space. Some states, such as South Australia, can be considered frontrunners in this area with relevant lessons being learnt for other states. It is important that policies towards green iron are well coordinated across government levels to ensure effective and efficient outcomes.