Australia’s abundance of wind and solar resources could create a multi-billion dollar, export-focused manufacturing sector in regions where jobs are threatened by the move to the green economy.

The Grattan Institute believes the key is to use renewable energy sources to power the notoriously energy intensive process of manufacturing steel.

Steel production using renewable energy is expected to be more economical than simply exporting clean energy.

In its Start with steel: A practical plan to support carbon workers and cut emissions, the institute noted that capturing about 6.5 per cent of the global steel market would generate about $65bn in annual export revenue and could create 25,000 manufacturing jobs in Queensland and New South Wales.

“Climate change is a wicked conundrum for Australia,” Grattan’s Energy Program director and report lead author Tony Wood said.

“It’s a threat to our health and to our agriculture and tourism industries – but tens of thousands of Australians work in industries that rely on fossil fuels.”

The report examines the use of hydrogen, produced from renewable energy, to replace metallurgical coal to reduce iron ore to iron metal.

Doing this at a global scale will require big industrial workforces — such as those found in the coal mining regions of central Queensland and the Hunter Valley in NSW that currently support the thermal coal sector.

The future of the thermal coal industry is highly uncertain as demand continues to be eroded while financers back away from the polluting fossil fuel.

Locating the proposed steel projects where the labour is available and affordable is also cheaper than placing than in the Pilbara despite the cost of shipping iron ore to the east coast.

Grattan also flagged the potential for the federal government to either fund a low-emissions flagship project that would use Western Australia’s low-cost gas to make steel with lower emissions than coal or modernise existing steel plants at Port Kembla and Whyalla.

The report also suggested the potential for Australia to export its renewable resources through the use of hydrogen as an ‘energy carrier’.

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While this will allow Australia to leverage its renewable energy sources such as solar and wind power, the market for large-scale hydrogen exports does not currently exist.

Additionally, hydrogen is hard to transport, requiring either liquefaction by cooling it to minus 253 degrees Celsius, which is far lower than required for natural gas, or conversion into a chemical such as ammonia.

Hydrogen produced here will also need to be substantially cheaper than that made in other countries.

Grattan also considered the creation of a new, sustainable biofuels industry that uses non-food biomass sources.

It said the federal government should consider mandating that a set share of domestic aviation fuel comes from such biofuels as it could create hundreds of jobs in centres such as Collie, Portland, and Victoria’s Latrobe Valley.

Wood concluded that while adding value to Australia’s energy and minerals resources through manufacturing and exporting had long been the stuff of dreams, there was an opportunity to create jobs while resolving the great climate conundrum.