Green Steel Edges Closer To An Economic Reality
The management of a fundamental source of Australia´s economic prosperity should – and will – change in the very near future, according to two eminent Australians. Renowned economist, Professor Ross Garnaut, and economic public policy expert, Professor Rod Sims, presented their ideas for a Carbon Solutions Levy (CSL) to the National Press Club last week. If adopted, the CSL will have a profound impact on all aspects of steelmaking in Australia. In essence, Garnaut and Sims have proposed that, from 2030-31, the Australian government apply a price on carbon to be paid on all emissions from fossil carbon wherever they occur in the world. The price should be about $90 per tonne of carbon dioxide. They say the fee would be administratively simple and would only impose transaction costs on just over 100 Australian companies. However, the levy would raise about $100 billion per year and would unlock significant macroeconomic benefits. It would help fund innovation and rapid decarbonisation, as well as leaving money over for budget repair and tax reform. The scheme would also assist early movers in green exports with grants covering up to 50% of their capital costs. The CSL envisions Australia
as a major manufacturer and exporter of metals and fuels made with renewable energy, including green iron, green aluminium, green polysilicon, green transport fuels and green urea.
The levy is one of a suite of proposals from The Superpower Institute (TSI), an independent Australian think tank which declares its purpose as “to help Australia seize the extraordinary economic opportunities of the post-carbon world”. Garnaut is TSI´s founder and Sims is its Chair. Both men were economics advisers to the 1980s government of Bob Hawke, which launched a wave of market reforms widely credited with reviving Australia’s prosperity after the stagflation of the 1970s. Garnaut and Sims say a carbon price must also include Scope Three emissions – those created when Australian coal and gas are burned overseas – so as to provide a “green premium” for commodity exports and to avoid Europe’s carbon border tax. At the Press Club address, Sims said the implementation of Europe´s CBAM (Carbon Border Adjustment Mechanism) provides both the urgency and economic imperative for Australia to embrace a carbon solutions levy. Europe´s CBAM will come into effect in 2026 and will impose a levy on imports of carbon intensive products including aluminium, iron, steel, cement and fertilisers. As the acclaimed economics journalist, Ross Gittins, said in support of the need for a CSL, “If we don´t tax our fossil fuel exports, the Europeans or some other government will do it for us – and keep the proceeds”. Professor Sims said “green iron will be more competitive than black iron” in the European market from 2026. He argues China will also need to import “green iron”, due to its limited capacity to transition its own industry. So, it is entirely in Australia´s economic interests to move strategically towards a green future, TSI argues.
Garnaut and Sims readily admit their CSL plan is likely to be opposed by the resources industry and rejected by both sides of government – despite the fact that, among its many uses, the money will be earmarked to bring down household electricity bills and to fund green energy innovation. Putting a direct levy on carbon has been a political no-go zone in Australia since Tony Abbott’s infamous “axe the tax” campaign, which succeeded in repealing the Gillard government’s carbon pricing scheme in July 2014, barely two years after it had come into effect. Since then, the Labor government has actively distanced itself from any policies remotely resembling a carbon tax. Nevertheless, Sims insisted that “the future is coming” and that changes which have already occurred to the economic landscape make it a logical decision to adopt the carbon solutions levy and to realise its benefits.
Hydrogen is a case in point. Steelmaking currently generates 2.7 billion tonnes of CO2 every year, which represents 7% of yearly global emissions. Sims said the economic argument in favour of using green hydrogen in the steelmaking process is now compelling and will be part of Australia´s future if we are bold enough. In coal-based steelmaking, the first step of turning iron ore into iron is by far the most energy and carbon-intensive stage, accounting for roughly 80% of the carbon emissions. By reacting hydrogen directly with iron ore, the result is iron and water: and virtually no CO2. This process is called Direct Reduced Iron (DRI). Sims said it will soon become economic folly to send all our iron ore to China to make steel when we have abundant opportunity to mix that iron ore with our own green hydrogen to make the steel ourselves. Sims admitted that the cost of creating and transporting hydrogen is uneconomical at present. But that´s where the $100 billion a year comes in.
“Australia’s advantages in the emerging zero-carbon world economy are so large that they define the most credible path to restoration of growth in Australian living standards,” Professor Garnaut said. “Export of zero-carbon goods can underpin a long period of high investment, rising productivity, full employment and rising incomes in Australia”.