In a recent Briefing Room event, Climateworks Chair John Thwaites spoke with an expert panel to discuss some of the challenges and opportunities within this critical pillar of our export economy.
Following are a few highlights from the discussion with Rob Kelly, Industry Lead and Program Director of the Australian Industry Energy Transitions Initiative (ETI) at Climateworks, Dr Chen Ji, a Principal in Rocky Mountain Institute’s China Program, and Hannah McCaughey, Group Executive Transformation and Technology at APA Group.
To begin, John offered some context:
Australia is currently the world’s 19th biggest export country, with iron ore, coal, gas and aluminium amongst the largest contributors. Collectively, the mining and manufacturing sectors are worth almost $300 billion to our economy.
But there is also a cost.
Australia is the 14th largest greenhouse gas emitter in the world and the highest emitter per capita – and industry accounts for nearly half of these emissions. Many come from industrial supply chains which have traditionally been considered hard to abate, including iron and steel, aluminium, LNG, chemicals and other metals key to global decarbonisation, such as copper, nickel and lithium.
Globally, while we’re seeing huge investments in the transition to net zero emissions, industry in Australia is still grappling with when and how to move forward.
Appreciating this landscape, event Panellists were asked to discuss some of the opportunities – and challenges – our industrial sector now faces.
Referring to findings from the Australian Industry ETI’s recent Phase 1 Highlights Report, Setting up industry for net zero, Rob Kelly highlighted that Australia already has existing and emerging technology solutions to address almost all emissions across key industry supply chains.
Source: Australian Industry Energy Transitions Initiative, Setting up industry for net zero Phase 1 Highlights Report: current state and future possibilities, released June 2021
These come largely off the back of significant breakthroughs in industrial processes and hydrogen where, for instance, green metals production uses hydrogen as a feedstock for steel production, rather than using coal. We’re also seeing renewables become the cheapest new form of electricity generation.
While much more action is needed, there are some notable shifts in the sector, with half our largest resources and industry companies adopting Paris aligned targets for their scope 1 and 2 emissions. And a growing number of large-scale renewable energy developments are now in train, such as the Pilbara region’s Asian Renewable Energy Hub which will generate renewable energy for large-scale production of green hydrogen to supply both local and export markets. Rob observed, ‘So (the Hub) is not only looking for decarbonisation of Australia’s economy, it’s looking for Australia to play a role in decarbonising our trade partners.’
Source: Net Zero Momentum Tracker Resources Sector Report released December 2020
Talk then turned to some challenges faced by our industrial sector.
Dr Chen Ji was invited to discuss China’s decarbonisation target and what it could mean to the future of Australian heavy metal exports.
China is Australia’s biggest trading partner, purchasing 80 percent of our iron ore exports. China has also committed to net zero emissions by 2060, and has announced a raft of measures to get there including a carbon peaking plan that will target specific industrial sectors including steel. The nation is also set to introduce a carbon trading scheme that will expand beyond the power sector to include heavy industries like steel, aluminium, cement, petrochemicals and other chemicals. It adds up to a decarbonisation plan that, in Chen Ji’s words, ‘…will fundamentally transform China’s industrial structure.’ He added they are almost certain to increase current levels of ambition by updating their Nationally Determined Contribution (NDC) at the next global COP26 Conference in Glasgow.
Source: Energy Transitions Commission, Representatives Meeting – May 2021
All this will undoubtedly increase the spotlight on Australia as one of few developed countries without a net zero commitment – a stance that reduces our international trade and negotiating power and harms our ability to compete in a decarbonised world.
If China’s projected need for steel, cement or other raw materials peaks more quickly while their coal consumption decreases faster as a result of strengthened carbon reduction targets, Australian exports will be accordingly impacted. It’s of further concern that, although China’s need for steel will continue to grow in the mid-term, it is expected that demand will shift to secondary rather than primary steel – currently 90 per cent of China’s steel production comes from iron ore, but this is predicted to drop to 40 per cent by 2050. That means less need for iron ore as China increasingly sources scrapped steel from Europe.
On the other hand, Chen Ji highlighted a significant opportunity for Australian trade: While zero carbon steel is viewed by China as a critical to their carbon neutral goal, they’re challenged by the enormous distance between regions where their own green hydrogen and iron ore are located. If Australia can draw on its natural advantage of easy access to cheap, renewable energy and export ‘sponge iron’ produced through using green hydrogen as feedstock, a decarbonised China will pay attention.
And though both China and Australia currently remain heavily reliant on fossil fuels, we have another advantage in our relative size: Australia has already proven it can generate energy from solar and wind very cheaply, and our smaller economy means we could more easily pivot, to make clean energy the backbone of a new economy.
Panellist Hannah McCaughey next pointed out that Australia’s opportunities don’t end there: We also have natural competitive advantages when it comes to hydrogen. Namely, an abundance of land and resources, a highly skilled industrial sector and high-quality existing infrastructure which, together, could support the development of Australia as a clean hydrogen superpower.
And this is where our gas heritage comes into play: A world-leading project southwest of Perth is now converting a section of pipeline originally built to carry gas, to be 100 per cent hydrogen ready. With enormous work on standards and safety already embedded in this infrastructure, project testing can focus on technological challenges around the effective and safe transmission of hydrogen.
Hydrogen transmission, however, is just one facet of the puzzle. The net zero transition will take significant and co-ordinated work, to join all the dots. Hannah acknowledged the essential role of the Australian Industry Energy Transitions Initiative in co-ordinating industry’s response. ‘…it truly is going to require an ecosystem approach – that’s going to be very important. Or else each industry is going to do little policies separately in their own little silos and not come together and try and solve the challenge together.’
The need for a harmonised approach extends to government policy across the states, as well as in Government initiatives such as the NSW Renewable Energy Zones (REZs). As with all net zero transition initiatives, these rely on cohesive collaboration across renewable energy generation, transmission, firming and storage, all supported by investment and community partnerships.
And that may have been the webinar’s strongest message: If Australian industry is to remain competitive and relevant on a global stage, it must achieve net zero emissions right across critical supply chains of our economy. A transition that is only possible if we work together.
Watch the full webinar or read the Phase 1 Highlight Report from the Australian Industry Energy Transitions Initiative.