In the wake of recent setbacks for Australia’s green hydrogen projects, Simon Nicholas, Lead Analyst for Global Steel at the Institute for Energy Economics and Financial Analysis (IEEFA), has urged the nation to adopt a more strategic approach to its green hydrogen ambitions — especially as they relate to the critical iron and steel sectors.
Australia’s vision of producing green iron, which uses green hydrogen made from renewable energy to process iron ore into steel, faces significant challenges.
Following Prime Minister Anthony Albanese’s recent discussions on green iron during his China visit, two major green hydrogen projects by BP and Fortescue were cancelled in late July.
Despite this, Fortescue confirmed that its green iron pilot plant remains under construction and on track.
Nicholas emphasised the need for Australia to rethink its subsidies and policy focus.
“Australia needs green hydrogen to fulfill its green iron ambition,” he stated.
“Smarter subsidies are required that forget targeting green hydrogen exports and instead support realistic, domestic use in sectors that already use hydrogen, including direct reduced iron (DRI).”
He noted that the current hype around green hydrogen has fostered unrealistic expectations and proposals, including its use for household heating and cars — areas where alternatives like electric vehicles have become dominant.
Furthermore, subsidies have often been agnostic regarding the use of hydrogen, supporting exports as readily as domestic consumption, which may not effectively catalyse demand where it could be most impactful.
Direct reduced iron (DRI) making, a mature technology integral to steel production, is a key sector that already uses hydrogen — primarily grey hydrogen derived from gas.
Transitioning this process to green hydrogen is central to Australia’s objective of becoming a leader in green iron exports. Nicholas warned of the risks if Australia does not prioritise this transition: “Without green hydrogen for iron and steel, there is a risk that gas fills the gap permanently, meaning Australia can only produce ‘grey iron’.”
Other countries, including Oman, Brazil, and Canada, are advancing green hydrogen initiatives linked to their iron and steel industries, posing a competitive threat to Australia.
Nicholas also highlighted that cheaper renewable energy is essential for lowering green hydrogen production costs to make it competitive.
Recent government efforts like the $60 million R&D program aimed at ultra-low-cost solar power are steps in the right direction but will need to be significantly expanded to secure Australia’s position.
He also pointed out the need to refocus subsidies away from exports toward domestic industries already using grey hydrogen, such as fertilisers and explosives production.
One example is the Good Earth Green Hydrogen and Ammonia (GEGHA) project which recently reached financial close and will use green hydrogen for domestic fertiliser production.
Adding perspective on subsidy policy, he quoted Alison Reeve of the Grattan Institute: “At present, the federal government’s Hydrogen Headstart program and the hydrogen tax credit are agnostic as to how the hydrogen is used, which does little to help demand emerge in the right places.”
The approach taken in South Australia is a critical test case.
While the state has world-class renewable resources and high-grade iron ore reserves, recent moves toward gas-enabling infrastructure threaten to undermine its Green Iron and Steel Strategy.
Nicholas stated that “Australia needs smarter subsidies and ultra-low-cost renewables if it wants to realise its growing green iron ambition”.
If Australia fails to act decisively and wisely on green hydrogen production and subsidy allocation, it risks falling behind in the emerging global green steel market and locking in carbon-intensive ‘grey iron’ production.
This analysis underscores Australia’s need to strategically align its green hydrogen development with industrial realities to capitalise on its renewable resources and iron ore strengths while avoiding costly missteps in policy and investment.
