Even before COVID, Australia’s steel and aluminium manufacturing industries were at an interesting crossroads. Aluminium smelters in Australia currently operate at a massive financial loss and require significant government subsidies. Australian steel-making produces a relatively expensive product that often struggles for relevance in a crowded market. And, both have suffered from long-term uncertainty over climate and energy policy. COVID has hit the metals manufacturing sector hard, but the need to develop a clear, future-proof strategy has been a nagging issue for some time.
The significant carbon footprint of Australian aluminium increases the urgency to make structural, long-term changes. Aluminium smelters account for nearly 15% of Australia’s total electricity demand, essentially acting as a guarantor for coal-fired power – some smelters even have direct power purchase contracts with coal power stations. Australia’s four smelters employ more than 2,600 workers, and around 80% of the AUD$5 billion industry revenue comes from export. In a world moving towards carbon pricing and tariffs on carbon-intensive products, Australia’s 15-20 tonnes of carbon emissions per tonne of aluminium produced is – put simply – a liability. Luckily, the technology exists to retrofit aluminium smelters so they become flexible users of renewable energy: almost like giant batteries! Demonstrated at a production level already in Europe, the Australian aluminium industry needs government financial help and a dose of willpower to make the necessary changes.
Australia steel-making uses much less electricity and primarily utilises the relatively low-emission Electric Arc Furnace technology. The AUD$11 billion industry employs more than 16,000 workers and has been modernising for some time, including new plans to revamp the old Whyalla steelworks to run completely on renewable energy. Steel’s potential to redeploy thousands of carbon-intensive workers in Australia’s coal heartland post-COVID has been outlined in a new report by The Australia Institute: with a switch to the Direct Reduction method using renewable-produced hydrogen gas, steel can transform itself into a zero-emissions industry and massively expand its workforce. Steel-makers in Europe and the US are already constructing new trial plants for zero-emissions steel, with industry insiders confident the technology will be mature and scalable well before 2030. The steel industry is moving in the right direction in Australia and globally, but government assistance will be needed to realize the massive potential of hydrogen-produced steel.
Activity Rating: *Falling Behind
Current manufacturing bailout focused on natural gas expansion, not zero-emissions technologies
Whistle-blowers and union reps consulting with Australia’s National COVID Commission report that discussions are completely dominated by gas: new extraction, new infrastructure for gas transport and new industries (such as fertiliser production) that can utilise gas. Zero-emissions steel and transforming Australia’s four aluminium smelters to help capitalise on a renewables-dominated electricity grid are simply not at the forefront of bailout plans. The solution to transforming Australia’s manufacturing sector, according to Commission member Andrew Liveris (and current fossil fuel board executive at Saudi Aramco), is low-cost gas – despite warnings that the Commission’s favoured extraction projects will actually raise the price of gas in Australia and have a net-negative effect on local employment! The Australian Council of Trade Unions warns that anything other than a focus on zero or low-emissions manufacturing will push the sector (and particularly metals manufacturing) into terminal decline.
Dear Mrs. Andrews,
We’re looking forward to getting Australian manufacturing back on track post-COVID. In the 1960s the sector accounted for one in every four $ of Australia’s national output, but it is now less than one in eight – and dropping. A sector in decline is no better exemplified than by the aluminium smelting and steel-making industries: two Australian products that struggle for relevance in a crowded market and face significant long-term challenges to retain their revenues and Australian workforces.
Luckily, proven technology already exists to revolutionise the two industries and take significant climate action: win-win! Retrofitting aluminium smelters to become flexible users of electricity takes advantage of huge renewable energy resources and stabilises our electricity grid. Australian aluminium can switch from becoming an emissions-intensive product liable to future carbon tariffs to a net-gain for our electricity grid – with the right government direction. Currently the industry is subsidised beyond belief and, in some cases, guarantees the output of coal power plants by directly buying their power. This is not a sustainable situation long-term.
Steel produced from green hydrogen represents a massive potential boom industry that can utilise the skills of thousands of workers in Australia’s coal heartland. Green, zero-emissions steel is already a reality in Europe, and Australia would do well to take advantage of a burgeoning industry that takes advantage of our plentiful renewable resources and existing infrastructure.
It’s concerning to see the focus of the National COVID Commission focused laser-like on gas when so many other opportunities present themselves. A booming, sustainable and relevant Australian manufacturing industry is not contingent on new gas exploration – in fact it appears new gas exploration will cost jobs and not lower domestic prices. As Industry and Science Minister we urge you to present alternative, achievable options for a post-COVID boom like flexible aluminium smelting and zero-emissions steel. These industries have the potential to be around for decades to come: unlike gas, which will most likely be a stranded asset inside the decade.
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This Post was submitted by Climate Scorecard Australia Country Manager Julian Atchison