Green iron didn't dominate headlines during Albanese's China trip, but it was a key discussion with Xi

Australia Broadcast Center

12 hours ago

Prime Minister Anthony Albanese was trying to do a Bob Hawke with his trip to China last week.
In 1984, Hawke became the second Australian prime minister to visit China, after Whitlam in 1973, and planted the seed that became the Australia-China iron ore joint venture. It resulted in the Channar iron mine in the Pilbara three years later.
Liberal prime minister Sir Robert Menzies was actually called "Pig Iron Bob", but not because he went to China to drum up business.
It was because in 1938 the wharfies at Port Kembla went on strike to stop the SS Dalfram loading pig iron destined for Japan, and which workers argued could be used to make weapons. Menzies, then attorney general, tried to stop the strike, arguing wharfies should not be running Australia's foreign policy.
Perhaps today's prime minister wouldn't mind being known as "Green Pig Iron Ant" because he is trying to get Chinese funding for the crucial next phase of Australia's iron ore industry: green iron.
Most of the past week's publicity blaze for Albanese's China trip was understandably about Australia's place in the contest between America and China, as well as some inevitable pandas, but an event last Monday was arguably the most important.
It was a "Steel Decarbonisation Roundtable", with Australia's big four iron ore producers and all the big Chinese steel mills.
The focus on green iron and steel decarbonisation on this China trip may have been influenced by Ross Garnaut, Hawke's economic adviser in 1984, and Rod Sims, former head of the ACCC. The think tank they started, called The Superpower Institute, produced a report in May called "A Green Iron Plan for Australia".
The report tells the government how to build a green iron industry in Australia — that is, one that uses renewable energy and hydrogen rather than fossil fuels like coal or natural gas, and reduces carbon dioxide emissions.
Garnaut and Sims point out that "most major economies have committed to achieving net-zero between 2045 and 2070. The timeline and trajectory of global decarbonisation may be uncertain, but the direction is clear: fossil fuel demand will contract in the coming decades."
They say that if green iron replaces iron ore, it could generate "up to $386 billion a year" in export income for Australia, as well as providing a hedge against the decline of fossil fuel exports. To do it, tax credits worth $170 per tonne are needed to offset the "market failure" caused by the lack of an international carbon price.
The core proposition of the Garnaut-Sims report is that Australia can be a renewable energy superpower, but it can't be traded in the way fossil fuels are — it needs to be converted into zero carbon products that are exported, and they focused on green iron because they think it should be first cab off the rank.
The iron used to make steel is now made by removing the oxygen from iron ore, which is ferrous oxide (iron and oxygen). That's done by heating the ore with coal (carbon) in a blast furnace; the carbon binds with the oxygen to form carbon dioxide, which goes into the atmosphere, leaving behind pig iron.
The pig iron is then smelted to get the carbon content down from about 4 per cent, which makes it brittle, to between 0.02 per cent and 2.1 per cent, which is steel.
To make "green iron" out of iron ore, hydrogen is used instead of coal. It combines with the oxygen to form water.
You can't use the same blast furnaces, so a process called direct reduction iron (DRI) must be used instead.
DRI can use gases to remove the oxygen from the iron ore, but the temperatures aren't hot enough to remove the other impurities in iron ore, called gangue, so they have to augment the process with electric smelting.
Bluescope, BHP, Rio Tinto, Mitsui, and Woodside are currently in a joint venture project called NeoSmelt, funded by the Australian Renewable Energy Agency (ARENA), to develop an electric smelting process that will remove the gangue.
In the Future Made in Australia package in the 2024-25 Federal budget, the government introduced a Hydrogen Production Tax Incentive (HPTI) of $2 per kilogram — that is, hydrogen producers would get a tax credit of $2 for every kilogram of hydrogen they made. Each tonne of pig iron requires 55kg of hydrogen, so the HPTI would give a tax credit of $110 per tonne for the iron.
The Garnaut-Sims team at The Superpower Institute has calculated that to create a green iron industry, the "subsidy" needs to be $170 per tonne. They say that figure represents the cost to the planet of the carbon dioxide released by the usual method of making iron with coal, and it's based on the European carbon price.
Basically, it's a reverse carbon price — instead of taxing iron made with coal, you subsidise iron made with hydrogen.
The way The Superpower Institute put it in the green iron paper published in May is that the lack of a carbon price is a market failure that disadvantages Australian iron producers: "This distorts the international market for iron products and creates an inefficient advantage for fossil-fuel-based products.
"This market failure is a major reason that there is a cost gap between the international price of carbon-intensive iron products and the estimated production costs of Australian green iron. The cost gap for most producers is substantial."
The 2024-25 budget provides $6.7 billion over 10 years for the Hydrogen Production Tax Incentive, which, at $110 per tonne, would do 6 million tonnes of iron ore a year.
Last year, Australia exported 898 million tonnes of iron ore, of which 758 million went to China.
If all of that was replaced by green iron that was given a tax credit worth $170 a tonne, it would cost more than $100 billion and completely blow up the government finances.
Obviously, by estimating a cost of $6.7 billion, the government doesn't think there'll be much of a green iron industry in the first 10 years, which is probably true.
This is a long-term project, but you have to start somewhere, and Albanese is starting in Shanghai with the Chinese steel mills.
After the Steel Decarbonisation Roundtable, Albanese held a press conference alongside Andrew Forrest of Fortescue Metals, Geraldine Slattery of BHP Australia, Kellie Parker of Rio Tinto Australia, and Gerhard Veldsman of Gina Reinhart's Hancock Iron Ore.
There was just one question about steel decarbonisation about halfway through the press conference before the journalists got back to the four Ts — Trump, tariffs, trade, and Taiwan.
Someone asked the prime minister how much money his government was prepared to put into building a green iron industry in Australia.
In reply, he waffled and didn't answer, for the obvious reason that the money budgeted for is an embarrassing fraction of what's going to be needed, and no more is available.
Which is why he was in Shanghai trying to get the Chinese steel mills to pay for it.
Alan Kohler is a finance presenter and columnist with ABC News and also writes for Intelligent Investor.