Australia, explained.
Improving domestic settings is key to expanding opportunities for international industrial partnerships (Getty Images)
Without anchoring domestic green industries to external demand, these goals are wishful thinking.
Subscribe to The Informer for monthly expert analysis, and to Events for advance notice of visiting world leaders and distinguished guests.
You may unsubscribe from Lowy Institute newsletters at any time. For information on our privacy practices and how to unsubscribe, see our Privacy Policy.
Green trade partnerships will make or break Australia’s renewable superpower strategyGreen trade partnerships will make or break Australia’s renewable superpower strategy
Australia is attempting to become a renewable energy superpower. Blessed with abundant renewable energy potential and a vast endowment of natural resources, Australia should be well placed to benefit from the emerging green economy.
That is lucky.
But luck will only carry so far. While industrial policy and government support matter, without green trade partnerships with foreign governments to anchor external demand and private sector buy-in across both Australia and its trading partners, these efforts will fall short.
Global demand for Australia’s major commodity exports is expected to decline substantially. Fossil fuels will face a structural and permanent decline as renewable energy scales globally. Iron ore faces waning demand as the fast-growing economies of Asia – particularly China – slow and steel recycling becomes more practical and profitable. Combined, fossil fuel and iron ore exports account for almost half of Australia’s total goods exports – making a loss of demand a long-term vulnerability to Australia’s economy.
Australia also needs to align its green industrial ambitions with those of its trading partners.
Challenges are beginning to coalesce into a reputation that Australia cannot stand up projects fast enough to be a viable green commodity producer.
The Albanese government plan to transform Australia involves leveraging vast, high-quality renewable resources to build “green” industries that produce energy intensive commodities without burning fossil fuels. This ties with the government’s efforts to build Australia into a much larger exporter of critical minerals – key inputs to many clean energy technologies.
The Superpower Institute, a think tank dedicated to exploring the “economic opportunities of the post-carbon world” for Australia, has presented a detailed exploration of green trade and industrial opportunities. Australia could produce green commodities ranging from iron, steel, aluminium and fertilisers, as well as green fuels for global shipping, aviation, and trucking. According to these projections, the export potential of these commodities more than offsets the decline in iron ore and fossil fuel exports.
Green iron holds the greatest potential. An Organisation for Economic Cooperation and Development (OECD) report has assessed that estimates for future export values vary considerably and are based on optimistic scenarios. Australia only holds a small fraction of the green iron and steel projects globally. Trade in direct-reduced iron – the potentially green product of processed iron ore – is only a small fraction of total global production. Both need to change if Australia wants to credibly advance the superpower strategy. The OECD spells it out plainly: “Australia’s success depends on scaling up infrastructure, improving policy coordination, and forging international industrial alliances.” (emphasis added)
Securing long-term demand through stable trading relationships must be a priority.
The most straightforward way to do this is by attracting foreign investment. Multinational firms bring the necessary financing alongside the technology and skills Australia needs. They also create linkages between Australia and the industries in their home countries that depend on Australia’s resource exports.
Gumboots and work uniforms on shelving (The Asahi Shimbun via Getty Images)
The Albanese government has committed billions to supporting green commodities, as well as critical minerals. This includes project financing, subsidies, strategic reserve offtakes, and research and development funding.
Some projects receiving government support are less promising than others. Industrial policy interventions are also not driving competitive firm behaviour. Other obstacles include high domestic energy costs, inadequate common-use infrastructure, and lengthy permitting and construction timelines. These challenges are beginning to coalesce into a reputation that Australia cannot stand up projects fast enough to be a viable green commodity producer.
Greater efforts to expand infrastructure and energy grid investments, optimise and improve policy interventions, and streamline regulatory processes are needed.
Improving domestic settings is key to expanding opportunities for international industrial partnerships.
Looking abroad, Australia has made some headway. The government has signed critical mineral deals with the United States and Canada, is supportive of every US-led initiative on critical minerals, and finalised the Australia-European Union free trade agreement, which could boost critical mineral and green iron exports.
More will be needed, particularly in Asia, where the bulk of Australia’s exports are likely to end up.
A framework proposal for decarbonising trade between Australia and Japan provides one such approach. It is deep, bilateral initiatives like this that could meaningfully expand green trade opportunities for Australia. More work is needed on other relationships – South Korea, Southeast Asia, and India are obvious contenders. China also warrants consideration as a key partner.
Given Australia’s role as President of Negotiations at the COP31 global climate summit, the government has influence over consultations and the final draft text. The Government’s Climate Change Authority has proposed a Decarbonisation Deals Platform initiative for the Australian COP Presidency. The goal: “to make bilateral and plurilateral initiatives easier to scale by developing shared rules, trusted accounting approaches … building confidence among partners and investors, and accelerating uptake beyond first movers.”
Championing this initiative would be worthwhile. Linking domestic decarbonisation efforts with trade policy and building international cooperative frameworks will be central to the global net-zero transition. Getting a deals platform off the ground would help operationalise Australia’s own green industrial trade partnerships, and help others to do the same.
The superpower strategy will be a multi-decade effort. More work is needed on domestic policy settings. Ultimately, however, Australia cannot realise this vision alone.
About the author
Robert Walker
Robert Walker is a Research Fellow at the Lowy Institute and works as an economist in the Institute’s Indo-Pacific Development Centre.
The most-pressing world events explained by Lowy Institute experts and global contributors, in your inbox, every Thursday.
You may unsubscribe from The Interpreter at any time. For information on our privacy practices and how to unsubscribe, see our Privacy Policy.
