Exporting Net Zero - Considering Australia’s Potential
Australia is the world's largest supplier of coal, liquefied natural gas, iron ore, and alumina, and has played an important role in meeting the Asia-Pacific region's energy and resource needs, resulting in significant emissions at the point of consumption or processing, accounting for approximately 8.6% of the region's total emissions. In the run-up to COP26 in 2021, many Asian-Pacific leaders committed to net-zero targets, including Japan (net zero by 2050), China (net zero by 2060), and India (net zero by 2070). To meet these objectives, there will be a high demand for zero-carbon commodities, as well as relevant policy and trade model adjustments, all of which will have a direct impact on Australia's current and future commodity export models.
A recent study published by the Crawford School of the Australian National University provides insights on how Australia could adopt a new commodity export model focussed on renewable energy and zero-carbon processed metals, providing Australia opportunity to make a sizeable contribution to decarbonization of the Asia-Pacific region. The report explores three export pathways through which Australia could become an exporter of zero-carbon energy, and is summarised below.
Scenario 1 - Renewable Electricity directly exported via sub-sea cables
Scenario overview: Australia’s multi-gigawatt solar and wind power plants are in the most promising locations of northern Australia that could provide cheap electricity using technology that is readily available and improving over time. The proximity and cost differentials found Indonesia and Singapore as the two most attractive markets for direct electricity exports from Australia. The proposed Australia-Asia PowerLink project, a multibillion-dollar project would send power from Australia's Northern Territory to Singapore and possibly Indonesia via subsea cables stretching over 4200 kilometres.
Scenario 2 - Exports of zero-carbon fuels such as green hydrogen
Scenario overview: Electrolysis fuelled by renewable electricity is used to create green hydrogen. Unlike exporting renewable electricity, hydrogen offers the advantage of flexibility in transportation because it can be delivered by ship without relying on fixed cable infrastructure. Demand for green hydrogen is growing rapidly as Japan, South Korea and China explore the use hydrogen for transportation, industrial and other applications. Australia would be well positioned to meet this demand as it has the world's second-largest pipeline of green hydrogen projects.
Scenario 3 - Exports of products processed in Australia using renewable energy.
Scenario overview: Australia has large reserves of iron and bauxite making it suitable for processing ores and production of steel and aluminium. These deposits are near to solar and wind resources, presenting prospects for new local processing plants to produce green steel and green aluminium for export to Asia-Pacific markets.
Realising The Vision: Not So Fast
While the above three scenarios paint a nice picture of a transitioned export commodity model for Australia, their realisation is contingent on rising demand in the Asia-Pacific region tied to meeting emission targets, cross-border frameworks for clean energy trade, and significant investment by Australian industry in technology innovation and upskilling the workforce to support decarbonisation. Exporting electricity using undersea cables, while plausible and an investment focus of Chinese funds such as GEIDCO and the Silk Road Fund, is not without difficulty, at both ends of the connection points and in the construction of the cables themselves which require enormous amounts of copper and materials. Transmission network infrastructure of destination countries in Southeast Asia also places limits on how much of the electricity can be imported.
The role of hydrogen as an export commodity is increasingly a focus for State Governments, with large number of investments being made in Queensland, with Gladstone identified as the central hub for the future hydrogen industry. Under this export scenario, the study concluded that the energy, land, and water requirements would be enormous due to the electricity-intensive nature of the electrolysis and liquefaction processes. In terms of energy demand, about 7000 TWh of solar PV and wind energy would be needed, which is nearly 27 times Australia's current annual electricity generation of 264 TWh. Water will be required in the amount of 865 GL, which is around 80% of the present water usage of the whole Australian mining industry.
Climate change and variations in the water cycle are increasing the frequency of major drought in Australia, putting a strain on water reserves, particularly in the Rockhampton and Gladstone regions. Given the limits around existing water infrastructure in the region, the government and industry will need to think through the scale and timing of hydrogen production, which will rely on vast amounts of water to be provided to the region for hydrogen production.
The recently published China’s domestic hydrogen strategy includes plans for mastering technologies and manufacturing processes, coordinating the construction of hydrogen energy infrastructure, and improving policy and industry standards. The strategy suggests that there will be high degree of competition from China in the global hydrogen market and Australia must ensure that its investment in hydrogen export is not solely based on demand from India. Suggestions that Australia will export 510Mt (vs 6Mt now) of green steel and 18Mt (vs 2Mt now) of green aluminium are significant and will require a substantial ramping up of Australian production capacity. The key to the success of this scenario will be highly dependent on the cost of production which is mainly driven by labour cost.
India’s demand for steel is expected to quadruple in the coming decades as a result of increased urbanisation and industrial boom. To meet this growing demand and reduce emissions, India will try to maximise the use of renewable energy and hydrogen to produce green steel. The main challenge to this scenario is the extent to which India can realise this goal, which will require massive research and development on their part, and the potential for targets at COP27.
This comprehensive study demonstrates that Australia has a lot of potential to play a key role in the Asia-Pacific region's decarbonisation. However, many factors must be considered, including how demand is linked to these countries' commitment to their net zero targets, the availability of resources (energy, land, and water), and abundant labour supply in Australia in order to make the shift to this new commodities export model.