Policy pace emerges as deciding factor in green iron race
A new Climate Energy Finance report finds Australia’s opportunity to build a green iron export industry is tightening as global investment shifts, cost pressures persist and competing regions accelerate project delivery, placing greater weight on policy speed, coordination and early project execution.
A new report titled Green Metal Statecraft: Policy, Investment and Technology Trends in the Green Iron Evolution from Climate Energy Finance (CEF) finds the transition to lower-emissions iron and steel production is moving more slowly and unevenly than previously expected, with investment patterns changing in response to cost and market realities.
The sector, responsible for between 7 and 9 percent of global emissions, is moving away from coal-based blast furnace production toward direct reduced iron and electric arc furnace pathways. However, the report notes that high capital costs, uncertain returns, and limited pricing mechanisms for carbon have created what it describes as a “bankability gap” for new projects.
While demand for direct reduced iron is forecast to increase, much of the capacity under development is still expected to rely on fossil fuels unless policy and energy settings change.
Report author and CEF net zero transformation analyst Matt Pollard said: “The global iron and steel decarbonisation landscape is undergoing a systematic reorientation away from transformational investments into hydrogen-based green iron and into a measured, phased, and evolutionary decarbonisation trajectory.”
Competing regions gain momentum
The report identifies the Middle East and North Africa as an emerging centre for new iron production, driven by lower energy costs, favourable capital conditions and faster approvals processes.
At the same time, China continues to expand electric arc furnace capacity and is progressing demonstration projects linked to hydrogen and electrification, supported by lower manufacturing costs and large-scale infrastructure development.
These developments are shifting investment flows away from higher-cost jurisdictions and into regions able to deliver projects more quickly and at lower cost.
Australia’s position under pressure
Climate Energy Finance warns that Australia’s comparative advantages, including its iron ore reserves, renewable energy potential and trade relationships, are not being fully converted into project outcomes.
The report notes that no commercial-scale low-emissions iron project in Australia has reached a final investment decision, while competing regions are progressing multiple proposals.
“Australia’s window of comparative advantage in supplying green iron to the Asian steel corridor is real, with our iron ore endowment, renewable energy potential, low geopolitical risk, established trade relationships, and a large capital base of strategic, long-term capital that could be deployed into enabling infrastructure," Pollard said.
He added that the same window is narrowing as investment pipelines shift and competing jurisdictions move ahead with delivery.
Policy pace and project delivery
The report calls for faster policy execution, clearer coordination across government, and early investment in demonstration projects to move from planning to construction.
It also highlights the need for long-term offtake agreements that recognise the value of lower-emissions production, alongside mechanisms that price carbon more effectively.
Tim Buckley, co-author and director at Climate Energy Finance, said: “Australia needs to get 1-3 First-of-a-kind (FOAK) demonstration plants at commercial scale beyond a final investment decision and into construction. Long term demand offtake at a price that recognises the embodied decarbonisation of DRI and green iron produced using clean energy is key.”
Investment signals and industrial implications
The report links current investment trends to broader industrial shifts, including supply chain security concerns and the role of international partnerships in supporting new production pathways.
It points to the need for coordinated public and private investment, drawing comparisons with the long-term development of Australia’s LNG export industry, which relied on sustained collaboration and early infrastructure funding.
For NSW, where existing expertise in mining, heavy industry and energy infrastructure already exists, the pace at which new projects move from concept to construction is likely to shape how much of the value chain remains local as steelmaking transitions away from coal-based processes.
