Hydrogen has huge potential for onshore green iron production in Australia

Steelmakers around the world are focusing on ways to reduce their significant carbon emissions in response to growing investor pressure and the implications of the EU’s Carbon Border Adjustment Mechanism (CBAM), which is likely to be replicated around the world. The industry will need to move away from fossil fuels and towards alternative ways of reducing iron ore. Directly Reduced Iron (DRI)-based steelmaking using green hydrogen is the most promising near-term alternative. With excellent renewable energy sources available for relatively cheap green hydrogen production, there is Growing interest for Australia to process iron ore onshore into “green iron” for export to steelmakers seeking to reduce emissions.

Two key strategic plans announced recently will shape the industrial and energy landscape for green iron and steel in Australia. The future is made in Australia an initiative to harness the domestic benefits of renewable energy and support Australian manufacturing in the face of the energy transition, and Future Gas Strategywhich argues that gas will remain a key part of the energy framework, including for iron and steel. These strategies present divergent and conflicting paths for the future of iron production in Australia. Continued reliance on gas poses risks to Australian production in a world that is moving away from fossil fuels.

As part of the Future Made in Australia initiative, the Australian Government announced a hydrogen production tax incentive of $2 per kilogram of green hydrogen produced between 2027-28 and 2039-40, for up to 10 years per project, and a further A$1.3 billion over the next decade under the Hydrogen Headstart funding program to support the development of green hydrogen production. As hydrogen exports appear to be prohibitively expensive, Australian green hydrogen should be used domestically, with iron production being a key potential offshoot.

The Future Gas Strategy states that “Gas will support our economy as we transition to net zero emissions and will remain a critical part of the energy landscape in 2050 and beyond”, highlighting the use of gas in the steel sector. Analytical Report on Future Gas Strategy also addressed the steel sector, stating: “Similarly, for coal users in heavy industry (such as steelmaking), gas could provide an intermediary step towards the future use of hydrogen in manufacturing, while also reducing emissions.”

The key to truly low-emission iron and steel production in Australia is to resolve this inconsistency and choose a development path that takes into account the country’s competitiveness, while other countries also consider the opportunities associated with green iron and steel production.

Read the full briefing here.