A long straight road stretches into the distance

The energy superpower opportunity: Can Australia seize the advantage in a net zero world?

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4 minute read 01 May 2023
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Sustainability

By harnessing the global shift to net zero emissions, Australia’s heavy industry could lift national income by $40 billion by 2050.

In brief

  • The global shift towards net zero creates new actionable and investible opportunities for Australia.
  • Heavy industry can leverage highly competitive renewable energy and mineral resources to create a new competitive advantage.
  • But urgent effort is required to seize this opportunity – and coordination, clarity and courage will be essential.

The world has ‘bent the curve’ of global emissions, reducing the rate of growth. But limiting climate change to well below 2°C remains very challenging, especially for materials- and energy-intensive sectors.

Global emissions must fall by around 70% by 2050, as the world’s population grows by 20% and the economy doubles. Heavy industry, more than other sectors, must solve multiple problems. It must reduce fossil fuel use and non-combustion emissions, replace chemical contributions currently met by fossil fuels, and respond to growing demand for materials essential to the new energy transition.

This makes the challenge for heavy industry particularly difficult ‒ and an immense opportunity for businesses and countries that can solve it.

Australia has all the ingredients required to crack this conundrum and become a new energy superpower. We have cost-competitive large-scale renewable energy, abundant minerals and natural resources, a highly skilled workforce, and deep access to capital.

But what must Australia do today to become an energy superpower tomorrow?

The EY Net Zero Centre’s latest report ‘Seizing Australia’s energy superpower opportunities’, set out to ask and answer this question with a robust multi-faceted assessment of the global net zero transition in the context of Australian heavy industry and mining.

Heavyweight opportunities for heavy industry
of today’s global emissions come from heavy industry.
reduction in emissions intensity must occur while heavy industry output value doubles.

How EY can help

  • EY Net Zero Centre

    The EY Net Zero Centre brings together EY’s intellectual property, strategic insight, expertise and deep knowledge in energy and climate change leadership to solve the big problems ahead as we move towards net zero emissions by 2050.

    Read more

The Energy Superpower advantage

To quantify opportunities for Australia, EY modelled two scenarios: Energy Superpower and Lost Opportunity. Both scenarios assume a world on track to reach net zero emissions, globally, by around 2070.

 

In the Energy Superpower scenario, Australia rolls out cost-competitive firmed renewable energy at scale to grow its share of global materials- and energy-intensive production – particularly in iron and steel. New energy generation and storage is positioned close to raw materials for primary ore processing and early-stage metal-making. Australia creates flexible and efficient industrial ecologies that service key destination markets, particularly in Asia.

 

In the Lost Opportunity Scenario, policy settings and business strategies do not support the required development of cost-competitive renewables, or wider low-carbon innovations, making investment less attractive. In this scenario, Australia falls behind countries and regions that have coordinated new energy strategies. Instead of becoming an energy superpower, our market share falls and our future opportunities fade.
 

A $65 billion economic dividend

We find the energy superpower dividend adds around AUD$40 billion to national income, equal to $1,100 per person, and around $65 billion to the value of economic activity (GDP) by 2050 (in real 2021 dollars). This represents a 1.4% boost to national income and a 2.3% boost to GDP, relative to the Lost Opportunity scenario.

Economic activity and national income dividend chart

Real wages are up by 1.5%, around the same as national income. This reflects the higher productivity of advantaged Australian heavy industry sectors, driving higher margins and returns to Australian workers and investors.

We consider these numbers to be a conservative estimate of the value of Australia’s opportunity.

From polluter to solution provider

The report also assesses a wide range of potential opportunities across metals production, minerals processing, new energy carriers, and technology-based carbon dioxide removals.

We assessed opportunities across four dimensions: the energy intensity of the product; its operational flexibility; resource input availability; and proximity to other inputs and destination markets.

This granular analysis identified three highly prospective opportunities:

  1. Clean heavy industry, particularly green iron and steel – including first stage iron processing for input to electric arc furnace (EAF) steel production. Green iron requires vast quantities of renewable energy and suitable iron ore. Australia is in the box seat on both.
  2. Critical ‘new economy’ minerals, metals and rare earths, such as lithium, copper, nickel and manganese. Australia produces almost all of these transition minerals, and in many cases accounts for one-tenth to one quarter of global reserves.
  3. Hydrogen for use within Australia, allowing further value adding. Australia’s abundant renewable energy resources make it well-suited to large-scale production of green hydrogen – and this will act as an ‘opportunity multiplier’ over time.
Project global requirements in 2040 and Australian reserves for selected minerals

Coordination, clarity and courage

Australia can’t be good at everything, and so will need to make choices and set priorities to get the best results.

Business must embrace a dual-track strategy, competing under current conditions while positioning for agile adaptation.

Government must lean in heavily. Government support is most likely to deliver benefits where a location has pre-existing advantages, such as natural resources, internationally competitive energy, a supportive local ecosystem, and proximity to key markets.

The EY Net Zero Centre finds the global shift to net zero emissions will create multiple competitive advantages for Australian heavy industry, but effort is required to capture these opportunities.

Some of this effort is already planned – such as the delivery of secure and reliable low carbon electricity. Other additional efforts are required to coordinate export-related energy supply and demand, leverage sentiment in favour of friendly supply chains, and – perhaps most importantly – to support world-class low carbon industrial innovation in areas aligned to Australia’s economic interests.

Seizing Australia’s energy superpower benefits could deliver enormous economic benefits.

                                

Download the full report

Summary

Seizing Australia’s energy superpower benefits could deliver enormous economic benefits. But dollars are only part of what is at stake. Australia can make a distinctive contribution to global demand for heavy industry inputs, while supporting the transition to net zero emissions. We can do well while doing good.

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