The energy superpower opportunity: Can Australia seize the advantage in a net zero world?

By harnessing the global shift to net zero emissions, Australia’s heavy industry could lift national income by $40 billion by 2050.

The world has ‘bent the curve’ of global emissions, reducing the rate of growth. But limiting climate change to well below 2°C remains very challenging, especially for materials- and energy-intensive sectors.

Global emissions must fall by around 70% by 2050, as the world’s population grows by 20% and the economy doubles. Heavy industry, more than other sectors, must solve multiple problems. It must reduce fossil fuel use and non-combustion emissions, replace chemical contributions currently met by fossil fuels, and respond to growing demand for materials essential to the new energy transition.

This makes the challenge for heavy industry particularly difficult ‒ and an immense opportunity for businesses and countries that can solve it.

Australia has all the ingredients required to crack this conundrum and become a new energy superpower. We have cost-competitive large-scale renewable energy, abundant minerals and natural resources, a highly skilled workforce, and deep access to capital.

But what must Australia do today to become an energy superpower tomorrow?

The EY Net Zero Centre’s latest report ‘Seizing Australia’s energy superpower opportunities’, set out to ask and answer this question with a robust multi-faceted assessment of the global net zero transition in the context of Australian heavy industry and mining.

Real wages are up by 1.5%, around the same as national income. This reflects the higher productivity of advantaged Australian heavy industry sectors, driving higher margins and returns to Australian workers and investors.

We consider these numbers to be a conservative estimate of the value of Australia’s opportunity.

From polluter to solution provider

The report also assesses a wide range of potential opportunities across metals production, minerals processing, new energy carriers, and technology-based carbon dioxide removals.

We assessed opportunities across four dimensions: the energy intensity of the product; its operational flexibility; resource input availability; and proximity to other inputs and destination markets.

This granular analysis identified three highly prospective opportunities:

1. Clean heavy industry, particularly green iron and steel – including first stage iron processing for input to electric arc furnace (EAF) steel production. Green iron requires vast quantities of renewable energy and suitable iron ore. Australia is in the box seat on both.
2. Critical ‘new economy’ minerals, metals and rare earths, such as lithium, copper, nickel and manganese. Australia produces almost all of these transition minerals, and in many cases accounts for one-tenth to one quarter of global reserves.
3. Hydrogen for use within Australia, allowing further value adding. Australia’s abundant renewable energy resources make it well-suited to large-scale production of green hydrogen – and this will act as an ‘opportunity multiplier’ over time.
    

Coordination, clarity and courage

Australia can’t be good at everything, and so will need to make choices and set priorities to get the best results.

Business must embrace a dual-track strategy, competing under current conditions while positioning for agile adaptation.

Government must lean in heavily. Government support is most likely to deliver benefits where a location has pre-existing advantages, such as natural resources, internationally competitive energy, a supportive local ecosystem, and proximity to key markets.

The EY Net Zero Centre finds the global shift to net zero emissions will create multiple competitive advantages for Australian heavy industry, but effort is required to capture these opportunities.

Some of this effort is already planned – such as the delivery of secure and reliable low carbon electricity. Other additional efforts are required to coordinate export-related energy supply and demand, leverage sentiment in favour of friendly supply chains, and – perhaps most importantly – to support world-class low carbon industrial innovation in areas aligned to Australia’s economic interests.