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Accelerating deployment of priority low emissions technologies

The government has examined possible deployment pathways for the priority low emissions technologies, focusing on:

  • identifying investments with the greatest impact on cost reduction
  • estimating timeframes for when the economic stretch goals are likely to be met.[36]

Achieving our economic stretch goals

The government’s ambition is to reduce the costs of priority low emissions technologies to meet the economic stretch goals as soon as possible.

We have assessed when the stretch goals may be achieved under a ‘high technology scenario’, recognising that the pace of reaching these goals will depend on a range of factors, including:

  • technological advances
  • capital and financing requirements
  • approval and construction timeframes
  • global uptake.

The ‘high technology scenario’ assumes accelerated global uptake of new and emerging low emissions technologies, driven by:

  • public investments and policies that reduce risk for private investors
  • a shift in consumer preferences towards low emissions supply chains
  • private investments consistent with an average global temperature rise of no more than 2°C.

A range is given for the estimated timeframe of achieving each economic stretch goal, starting with the earliest date it could be met. Confidence of reaching the stretch goal increases towards the end of the range (Figure 7).

Figure 7: Projected timeline for achieving economic stretch goals

Graphic showing when each priority technology’s stretch goal will likely be achieved. Text description provided immediately after image

Clean hydrogen

Stretch goal: Clean hydrogen production under $2 per kilogram.

When stretch goal may be achieved:

  • Steam methane reforming with carbon capture and storage: 2025 to 2030. Clean hydrogen produced from natural gas with emissions captured and stored permanently underground is technically and economically feasible, but subject to offtake agreements, development approvals and the adoption of a hydrogen Guarantee of Origin scheme
  • Renewable electrolysis: earliest date for achieving stretch goal is 2028. Higher confidence of achieving stretch goal by 2035.

Ultra low-cost solar

Stretch goal: Solar electricity generation at $15 per MWh.

The earliest date for achieving this stretch goal for large scale solar is 2030. Higher confidence of achieving stretch goal by 2035.

Price assumptions for the other priority technologies don't yet include the reduction in electricity prices expected from ultra low-cost solar, or the associated upside benefits for meeting the stretch goals. 

Energy storage

Stretch goal: Electricity from storage for firming under $100 per MWh.

This stretch goal may be achieved using lithium-ion batteries. Earliest date for achieving stretch goal is 2025. Higher confidence of achieving stretch goal by 2030.

Low emissions steel

Stretch goal: Low emissions steel production under $700 per tonne (based on the marginal cost).

This stretch goal may be achieved using hydrogen and direct reduction of iron. Earliest date for achieving stretch goal is 2030. Higher confidence of achieving stretch goal by 2040. It will be economically viable in the late 2020s, but subject to capital development cycles.

Low emissions aluminium

Stretch goal: Low emissions aluminium under $2,200 per tonne (based on the marginal cost).

This stretch goal may be achieved using renewable electricity and inert anodes. Earliest date for achieving stretch goal is 2035. Higher confidence of achieving stretch goal by 2040.

Carbon capture and storage

Stretch goal: CO₂ compression, hub transport and storage for under $20 per tonne of CO₂

Earliest date of expected deployment to achieve this stretch goal is 2025. Higher confidence of achieving stretch goal by 2030. This is subject to offtake agreements and development approvals.

Soil carbon

Stretch goal: Soil organic carbon measurement under $3 per hectare per year.

The earliest date for achieving this stretch goal is 2025 and there is a higher confidence of achieving stretch goal by 2030 through advancement in proximal sensing, modelling and remote sensing technologies.

Emissions reduction through deployment of priority low emissions technology

The Technology Investment Roadmap is the cornerstone of Australia’s Long-Term Emissions Reduction Plan. Technology will be key to reducing emissions while ensuring the economy grows and jobs are created (Figure 8).

    Figure 8: Priority technology contribution to meeting Australia’s net zero by 2050 target

    Diagram showing how Australia will reduce net emissions by 100% on 2005 levels by 2050. Text description follows

    20% of emissions reductions stem from between 2005 and 2020.

    The Technology Investment Roadmap is forecast to reduce emissions by 40%.

    Global technology trends are forecast to reduce emissions by 15%.

    International and domestic offsets are forecast to reduce emissions by 10% to 20%.

    Further technology breakthroughs are forecast to reduce emissions by 15%.

    The priority technologies (identified in the 2020 and 2021 Low Emissions Technology Statements) could contribute around 40% of the annual emissions reductions needed to achieve net zero emissions by 2050.

    Global technology trends, such as electrification of transport, could deliver at least a further 15% of the annual reductions required.

    Offsets will play a crucial role in closing the gap towards net zero. Modelling for the Long-Term Emissions Reduction Plan shows that modest contributions from land sector sequestration and targeted purchases of international offsets allow Australia to reduce its net emissions to around 85% below 2005 levels.

    There are a range of ways that Australia can close the remaining gap to net zero emissions by 2050. Future technology developments and markets are inherently uncertain, and it is possible that technology costs will fall faster than anticipated for some technologies, and new and disruptive technologies may emerge. The roadmap will monitor low emissions technology developments through annual statements.

    In addition to actions to support low emissions technologies, the government is also driving emissions reductions through other initiatives, including the Emissions Reduction Fund and Climate Active. The government’s Long-Term Emissions Reduction Plan sets out our actions for reducing emissions across the economy.

    As well as reducing our own emissions, meeting the stretch goals for our priority technologies will contribute to the global task of reducing emissions through low emissions exports and advancing innovation.

    Clean hydrogen

    Stretch goal: clean hydrogen production under $2 per kg

    Potential for clean hydrogen in Australia

    Australia has the opportunity to become a world-leading clean hydrogen producer and exporter. 

    Clean hydrogen will help decarbonise ‘hard-to-abate’ sectors through applications like:

    • heavy haulage fuel cell electric vehicles
    • clean ammonia as a chemical feedstock for making fertiliser, fuel for shipping, and co-firing for electricity generation in countries like Japan.
    • thermal energy for industrial applications
    • chemical reduction of iron ore to hot briquetted iron.

    Clean hydrogen for fuel cell electric vehicles is likely to be one of the earliest applications to reach breakeven cost with conventional fuels, on the basis of kilometres driven. Production of clean ammonia is likely to reach cost parity with fossil-fuel based ammonia production before clean hydrogen will reach cost parity against natural gas for industrial heating, on a gigajoule equivalent basis.

    Clean hydrogen blending into natural gas has the important benefit of building early production scale that can then support demand from other use cases. Gas customers may welcome the opportunity to purchase zero emissions gas at a small premium. 

    Clean hydrogen can also help firm the electricity grid. Electrolysers for production are a flexible load, which can be ramped up and down to match renewable electricity supply and provide other grid-support services, including potential for frequency regulation. This facilitates the incorporation of ever larger quantities of distributed and variable renewable electricity in the grid, while maintaining system security.

    Countries across the world recognise that reducing the cost of clean hydrogen production is essential for widespread uptake.[37],[38] The US government is aiming to reduce the costs of clean hydrogen production by 80% to US$1 per kg in one decade.

    The Australian Government is providing significant investment to unlock hydrogen for key sectors and support the growth of our hydrogen industry.

    A key focus of the government is to build domestic demand and export opportunities through the development of regional hydrogen hubs. This will help the industry build scale, which is critical for bringing costs down and becoming a globally competitive supplier. Hubs will also help the industry to reduce infrastructure costs, encourage innovation, and enhance skills and training efforts.  

    To activate these opportunities, the Australian Government is investing $464 million into the first steps for the development of up to seven hydrogen hubs in regional Australia.

    Deployment pathways and cost drivers

    A variety of methods are being explored for the production of clean hydrogen. The three main methods under consideration are (Figure 9):

    • renewable electrolysis
    • steam methane reforming with carbon capture and storage (CCS)
    • coal gasification with CCS.

    Figure 9: Clean hydrogen production methods 

    Graphic showing the inputs and outputs of each method for producing clean hydrogen. Text description provided immediately after image

    Three pathways are shown.

    Pathway 1: electrolysis. The conversion of water and renewable electricity, via an electrolyser, into hydrogen and oxygen

    Pathway 2: steam methane reforming + CCS. The conversion of natural gas and water, via a steam methane reformer, into hydrogen and CO₂. The CO₂ is captured using CCS (carbon capture and storage).

    Pathway 3: coal gasification + CCS. Coal and water are converted to hydrogen and CO₂, via a gasifier. The CO₂ is captured using CCS.

    Guarantee of Origin scheme

    A domestic Hydrogen Guarantee of Origin scheme will be established to measure and track important characteristics of how and where hydrogen is produced, including direct and upstream carbon dioxide and methane emissions, and the production energy source and technology. All technologies to produce clean hydrogen will be considered under the scheme. This will enable customers who buy clean hydrogen in the future to have the information they need to choose the product best suited to their needs.

    Renewable electrolysis

    Steep reductions in the costs of renewable electricity and electrolysers could make electrolysis the cheapest way to produce clean hydrogen as soon as 2028 (Figure 10).

    While renewable electricity costs are projected to fall, the government will drive accelerated cost reduction through the newly prioritised technology, ultra low-cost solar, supported by the Solar 30 30 30 initiative. Cheaper and more efficient electrolysers will primarily be driven by industry, with government providing support for early projects to establish supply chains and drive scale.

     Figure 10: Electrolytic hydrogen production cost breakdown under a high technology scenario

    Bar graph showing a reduction in hydrogen production costs from 2021 to 2050. Text description provided immediately after image

    Bar graph showing reduction in production costs per kilogram of hydrogen, under the high technology scenario. The production cost in 2021 is over $4 per kilogram. This production cost is reduced to below $1.50 per kilogram by 2050.  

    The renewable electricity generation required to produce hydrogen for export will be much larger than Australia’s current electricity production capacity and require significant investment. For example, a hydrogen export industry supplying the same amount of energy as Australia’s current liquefied natural gas exports would need approximately 2,200 TWh of electricity. This is eight times Australia’s total electricity generation for 2019.[39]

    Steam methane reforming with CCS and coal gasification with CCS

    Our analysis shows that clean hydrogen from natural gas with emissions captured and permanently stored underground could achieve the stretch goal now.

    Deployment of hydrogen production from steam methane reforming with CCS in Australia is subject to development of CCS basins, securing low-cost gas, offtake agreements, development approvals and the adoption of the Hydrogen Guarantee of Origin certification scheme. Should these be achieved, the clean hydrogen stretch goal could be met as early as 2025.

    Natural gas prices have the largest impact on the cost of clean hydrogen produced from steam methane reforming and CCS. While Figure 11 assumes $5 per gigajoule of gas (that is, gas available at the cost of production, from low cost sources), for every additional $1 per gigajoule in gas costs, we estimate the cost of producing clean hydrogen increases by around 13 cents per kg. For example, if gas costs a producer $5 per gigajoule in 2050, the cost of producing clean hydrogen from gas would be approximately $1.40 per kg. If gas costs $7 per gigajoule in the same year, the cost of producing clean hydrogen from gas would be approximately $1.70 per kg, still below the $2 per kg stretch goal.

    The distance from the hydrogen production site to a suitable CCS reservoir will also affect costs. Other cost drivers are the high level of carbon dioxide capture required to meet customer expectations for clean hydrogen and the cost of minimising sources of upstream emissions.

    Practically, clean hydrogen produced from coal or gas will support the development of early demand opportunities and position Australia to be an early global leader in hydrogen production. While clean hydrogen produced through electrolysis is significantly more expensive in 2021, its costs are expected to fall rapidly and will likely achieve parity with clean hydrogen from coal with CCS in the late 2020s or gas with CCS around 2030.

    Consistent with the principles outlined in Australia’s Long Term Emissions Reduction Plan, the government will support all forms of clean hydrogen production and leave it up to customers, whether domestic or international, to choose their preferred production source. To inform customer choice, the government is developing a Guarantee of Origin scheme for hydrogen. The scheme will provide hydrogen customers with data on how and where the hydrogen they purchase is produced. Most importantly, it will document the quantity of carbon dioxide emissions associated with the production of each tonne of hydrogen.

    Figure 11: Cost breakdown of hydrogen production from steam methane reforming with CCS under a high technology scenario

    Bar graph showing a reduction in hydrogen production costs from 2021 to 2050. The production cost in 2021 is approximately $1.60 per kilogram. This production cost is reduced to approximately $1.40 per kilogram by 2050.

    Hydrogen Energy Supply Chain Project

    The Hydrogen Energy Supply Chain (HESC) Project is a world-first collaboration between Australia and Japan.

    This innovative project will produce and transport liquefied hydrogen from the Latrobe Valley in Victoria to Kobe in Japan. This is the first time that liquefied hydrogen will be transported between continents.

    The pilot involves:

    • creating hydrogen gas by gasifying Latrobe Valley brown coal
    • transporting the gas to the Port of Hastings, where it is liquefied
    • shipping the liquefied hydrogen to Kobe.

    The pilot started operations in March 2021. The first shipment of hydrogen to Japan is expected to occur between October 2021 and March 2022. 

    If the pilot is successful, then, subject to establishing an offtake agreement, the next phase of HESC will be a commercial-scale facility. This facility will use carbon capture (at a high capture rate) and storage to produce clean, economically viable hydrogen from coal. HESC is supported by industry partners and governments in both countries.

    As the most advanced coal gasification with CCS project in Australia, HESC is likely to be the first able to meet the stretch goal for this type of hydrogen production.

    Ultra low-cost solar

    Stretch goal: solar electricity generation at $15 per MWh

    Potential for ultra low-cost solar in Australia

    Ultra low-cost solar is likely to deliver significant cost reductions for clean electricity. This will be necessary to unlock the economic, employment and abatement potential for clean hydrogen, low emissions steel and aluminium, and electrical energy storage for firming. Low-cost electricity will also be important for operating compressors used in CCS.

    Ultra low-cost solar will also reduce costs for electrification of other sectors such as transport, buildings and industry. Driving the price of clean electricity lower will help Australian industry, manufacturers and other businesses stay internationally competitive while reducing emissions and supporting the wider economy. 

    Deployment pathways and cost drivers

    Solar module technology has exhibited the most rapid cost decline of any low emissions technology in recent times, from an average wholesale module selling price of US$4.12 per watt in 2008 to US$0.17 per watt in 2020. This represents a 96% cost reduction over 12 years.[40]

    Enhancing the module efficiency from the current value of about 22% to about 30% over the next decade will be essential for driving down the cost of solar electricity generation (Figure 12). Assuming continuation of the current low financing costs, and 25-year service life of the modules, higher efficiency will directly contribute to lower levelised costs of electricity (LCOE).

    Achieving improved module efficiency will require further R&D into many aspects of solar cell design. This includes the type of doping of the silicon in the cells, the cell structure, and the development of tandem solar cells in which the use of two or more photovoltaic layers better matches the spectrum of sunlight. Candidates for the additional photovoltaic layers include perovskites and kesterites.

    Further reductions in the installed cost of solar will come from reducing the balance of system costs. Over the past 10 years, as module costs have declined, the fraction represented by the balance of system costs has increased from about 50% of the installed cost in 2010 to about 70%, and thus is a key target for further reductions.

     Figure 12: Installed cost of solar electricity generation

    Bar graph showing cost breakdown for solar electricity in 2010, 2020 and 2030. Text description provided immediately after image

    A bar graph showing installed cost of solar electricity generation in dollars per watt. In 2010, the installed cost of solar electricity was $4 per watt. In 2020 it was $1 per watt, a 75% reduction. Reaching $0.30 per watt by 2030 will require another 70% reduction.

    Key opportunities for bringing down balance of system costs include:

    • lowering the cost of construction materials by using less or using cheaper materials
    • increasing the solar module size
    • increasing the cell and module efficiency
    • increasing the scale of solar farms
    • lower cost inverters
    • high throughput deployment methodologies.

    Achievement of the $15 per MWh stretch goal will be underpinned by the Australian Renewable Energy Agency (ARENA) Solar 30 30 30 initiative’s goal to achieve 30% module efficiency and 30 cents per installed watt by 2030.

    ARENA will build on its historic investment in Australian solar technology development and deployment to shape the R&D push, through funding strategic project initiatives.

    Energy storage

    Stretch goal: electricity from storage for firming (available on demand for eight hours) at under $100 per MWh.

    Potential for energy storage in Australia

    Emissions from electricity in Australia have been falling since 2016 as more renewable generation enters the market.

    Almost all new electricity generation capacity in the past few years has come from solar and wind. Australia has the highest solar capacity per person (686 watts) in the world.[41] It also has the highest combined wind and solar capacity per person (1054 watts) of any country outside Europe.[42]

    Capturing the full potential of Australia’s renewable energy resources requires energy storage technologies. These technologies store electrical energy during times of peak supply and dispatch it on demand. Depending on the technology, they may also provide a range of essential system security services.

    Increased electricity generation from solar and wind, combined with grid-scale energy storage, is essential for decarbonising other emissions-intensive sectors like transport, industrial processes and building heating.

    Electrical energy storage is one of several approaches for balancing electricity supply and demand. Other possible approaches are:

    • overbuilding variable renewable electricity capacity (with excess energy ‘spilled’ or used to produce clean hydrogen)
    • building more transmission between states and renewable energy zones
    • building peaking capacity, used to fill generation gaps, such as gas peaking generation with potential hydrogen fuel blending ahead of 100% hydrogen fuel
    • demand response, where energy users are incentivised to reduce their energy use during peak demand periods
    • building low-emissions dispatchable capacity, for example, Allam Cycle generation with CCS, or small modular reactors.

    A combination of these approaches is expected to result in the lowest system cost, with the optimal mix determining how much storage is required. Australia’s existing thermal generation fleet will continue to play an essential role in providing affordable and reliable power in the decades ahead.

    The most pressing need for storage is for durations of several hours, such as for storing solar energy in the middle of the day to use in the evening.[43] Grid-scale batteries are the most cost-effective storage technology on this timescale and will be the main storage technology used.

    In the longer term, as more solar and wind is added to the grid, longer duration storage, known as ‘deep storage’, will be needed for on-demand dispatch for intervals of days or weeks, to:

    • manage infrequent weather events that last for days or weeks
    • cover seasonal shortfalls.

    The government is already investing in pumped hydro projects, including Snowy Hydro 2.0 and Battery of the Nation, which will provide deep storage at high capacity and long duration.

    Coordinated investment from the Australian Renewable Energy Agency (ARENA) and the Clean Energy Finance Corporation (CEFC) will unlock new and emerging deep storage technologies. An example is hydrogen storage, where electricity is used to make hydrogen when renewables are abundant. The hydrogen, is then stored for weeks or months and used to generate electricity when renewable electricity is scarce.

    Deploying deep storage technologies could:

    • complement hydrogen hub infrastructure
    • provide energy security for high-use industrial and regional areas (as well as supporting the National Electricity Market)
    • provide dual-purpose storage facilities for hydrogen export.

    The right regulatory and market landscape will encourage investment in deep storage. As part of its post-2025 electricity market design, the Energy Security Board has provided advice on changes to the National Electricity Market to facilitate investment in the right mix of resources, including dispatchable storage capacity. To a large extent this will be achieved through the Retailer Reliability Obligation.

    Deep storage will be examined further in the 2022 Low Emissions Technology Statement.

    Deployment pathways and cost drivers

    An evolving mix of storage technologies could be integrated into the market to provide system security and reliability (Figure 13). These technologies provide dispatchable clean electricity over different durations.

    Lithium-ion batteries will likely be the main storage technology to manage daily shortfalls in an electricity system dominated by solar and wind generation.

    Figure 13: Utility-scale energy storage technologies 

    Diagram showing how different storage technologies work with the electricity grid. Text version provided immediately after image

    Diagram showing how different energy storage technologies work with renewable sources of electricity. Inverter and converters are required for storing and discharging electricity.

    The electricity can be stored using a number of technologies, including:
    •    lithium-ion batteries
    •    hydrogen storage
    •    pumped hydro
    •    flow batteries.

    Lithium-ion batteries

    Lithium-ion batteries are the cheapest form of grid-scale battery storage currently available. Costs are expected to fall further thanks to manufacturing scale up driven by the rapidly growing electric vehicles market.

    Under a high technology scenario, the cost of electricity from storage for lithium-ion batteries is expected to decline from $170 per MWh in 2021 to below $100 per MWh over an eight-hour duration as early as 2025.

    This cost reduction is due to improved cell chemistries. The cost of battery cells is mainly driven by overseas developments. However, domestic engineering, procurement and construction costs depend on local demand. Australia can reduce these costs by supporting scale up of battery installations and learning by doing.

    Other storage technologies

    As the need for deep storage grows, other battery technologies like zinc bromide batteries may play a more important role. Clean hydrogen may become a viable option for seasonal storage to balance renewable generation. Hydrogen can be used in fuel cells, or in turbines to generate electricity.

    Solar thermal energy is another storage technology that can provide deep storage or be used for high-temperature industrial process heat applications. These technologies will complement existing pumped-hydro energy storage and gas-fired electricity generation, and could become cheaper as their scale and efficiency increases. Future statements will monitor the development of emerging storage technologies.

    Innovative battery technologies

    Zinc bromide batteries offer a number of advantages over other storage technologies. They can be discharged completely, are long-lasting and they are fireproof. In addition, unlike some other battery materials, zinc and bromine are cheap and readily available throughout the world.

    Australian innovators are positioning Australia to play an important role in a battery-powered world.

    In 2021 Australia’s Redflow made its biggest ever flow battery sale to a bioenergy plant in California. The deal is worth around US$1.2 million to the Queensland company.

    Anaergia’s Rialto Bioenergy Facility in San Bernadino will install nearly 200 of Redflow’s 10 kWh zinc bromide batteries in a microgrid to store bioenergy from the Rialto plant and discharge it into the electricity grid when demand peaks in the afternoon and evening.

    Sydney’s Gelion Technologies has re-imagined the internal chemistry of the zinc bromide battery to implement a non-flow format. Based on research at the University of Sydney, Gelion’s batteries store energy using a patented gel. The gel enables greater efficiency through enhanced ion transport, leading to increased battery life and decreased charging time, and allows the battery to be highly scalable and portable.

    Gelion’s patented gel chemistry also reduces complexity, price and servicing costs, while maintaining the fireproof and high temperature safety characteristics as well as the recyclability of zinc bromide chemistry. Gelion’s battery format and method of construction are very similar to lead acid batteries, enabling Gelion to partner with existing manufacturers worldwide for low‑cost production.

    Low emissions materials

    Steel and aluminium production accounts for around 40 million tonnes CO₂-e of domestic emissions each year (approximately 8% of Australia’s annual emissions).[44] Like clean hydrogen, low emissions materials could see Australia export renewable energy as embodied energy.[45]

    To produce low emissions materials in Australia, we need low‑cost:

    • firmed renewable electricity
    • clean hydrogen.

    Low emissions cement is an emerging technology that could help address Australia’s emissions challenges. It will be considered for future prioritisation as a low emissions material.

    Low emissions steel

    Stretch goal: low emissions steel production under $700 per tonne (based on marginal cost).[46]

    Potential for low emissions steel in Australia

    Australia only produces 0.3% of the world’s primary steel. But it is the world’s largest exporter of iron ore, with 53% of the global export market.[47]

    Australian industry has a competitive advantage to capture a greater share of the steel value chain. Exporting upstream material for steel production could also provide jobs in regional areas. Potential exports include:

    • iron ore mined with zero emissions equipment and transported on zero emissions trains and ships
    • value-added products like beneficiated ores and hot briquetted iron.

    These exports will help decarbonise global steel supply chains and reduce global emissions.

    Deployment pathways and cost drivers[48]

    Low emissions steel can be produced by:

    • adding CCS to the traditional blast furnace and basic oxygen furnace process[49]
    • direct reduction of iron and an electric arc furnace (DRI-EAF), fuelled by natural gas (with CCS) or clean hydrogen.

    Molten oxide electrolysis could also produce low emissions steel if it can be proven at commercial scale (Figure 14).[50]

    Figure 14: Low emissions steel production methods

    Diagram showing the 3 production methods for producing low emissions steel. Text version provided immediately after image

    A simplified process is shown describing three pathways to produce low emissions steel:

    • Blast furnace, basic oxygen furnace + CCS: Iron ore and metallurgical coal are passed through a sintering plant, followed by a blast furnace, and a basic oxygen furnace to produce steel. Carbon capture and storage (CCS) is used to capture CO₂.
    • Direct reduction of iron with electric arc furnace, using hydrogen: Iron ore is pelletised, and passed through a direct reduction plant using hydrogen. The resulting DRI pellets are heated in an electric arc furnace (using renewable electricity) to produce steel.
    • Molten oxide electrolysis: Iron ore is processed through a molten oxide electrolysis plant, and the resulting liquid iron is passed through an electric arc furnace to produce steel. This process is powered by renewable electricity.

    DRI-EAF could be competitive on a marginal cost basis as early as 2030, as clean hydrogen and renewable electricity become cheaper. However, capital costs are the main barrier to DRI‑EAF steel plants in Australia.

    In the nearer term, steel producers will likely reduce blast furnace and basic oxygen furnace emissions by improving energy efficiency.

    Earlier stages of the steel supply chain may offer more immediate opportunities. Australia’s iron ore exports could supply future global DRI-EAF markets if we invest in new processing infrastructure. This could include:

    • processing hematite ore into a higher grade product
    • expanding magnetite ore production and processing.

    Australia could also produce hot briquetted iron that is globally competitive with scrap steel and other EAF feedstocks.

    Iron ore requires additional processing (beneficiation) for use in DRI and hot briquetted iron production. Research bodies, including the Commonwealth Science and Industrial Research Organisation (CSIRO) and the Heavy Industry Low-carbon Transition (HILT) Cooperative Research Centre, are looking at ways to produce low emissions feedstock.

    The cost of beneficiation, combined with uncertain global pricing, may encourage Australian companies to use low emissions technologies that can process existing ores without further beneficiation. The government will watch the development of these, including the potential for molten oxide electrolysis.

    Low emissions aluminium

    Stretch goal: low emissions aluminium production under $2,200 per tonne (based on marginal cost).[51]

    Potential for low emissions aluminium

    While Australia’s share of global aluminium production is modest (less than 3%), we are the world’s largest producer of bauxite. Most of our bauxite is processed into alumina, and we are the world’s largest alumina exporter.[52]

    Low emissions aluminium is expected to become the choice of international purchasers.[53] Australia is well placed to reduce emissions throughout the supply chain, including alumina refining and aluminium smelting (Figure 15). We could maintain our world leading position by transitioning to become the world’s largest exporter of low emissions alumina.   

    Figure 15: How low emissions aluminium is produced

    Diagram showing the steps involved in producing low emissions aluminium. Text version provided immediately after image

    Steps in producing of low emissions aluminium:

    1. Bauxite mining.
    2. Alumina refining: bauxite is processed using digestion, clarification, precipitation and calcination to produce alumina.
    3. Aluminium smelting: alumina is smelted into aluminium using electrolysis. The electrolysis process uses renewable electricity and an inert anode.

    Deployment pathways and cost drivers

    Aluminium smelting

    Aluminium smelting is the most energy-intensive and emissions-intensive step of aluminium production. Twenty million tonnes CO₂­­­-e was produced from aluminium smelting in 2020.

    Using renewable electricity would eliminate 90% of the emissions from Australia’s aluminium smelters. The caveat is that the renewable electricity supply must be firmed because aluminium smelters cannot tolerate dips or outages in the electricity supply of more than an hour or two.

    The last 10% can be eliminated by replacing the carbon anodes consumed during smelting with inert anodes.

    Low emissions aluminium production could be cost competitive on a marginal cost basis with current aluminium production methods as soon as 2035. This would be driven by substantial cost reductions in renewable electricity and electricity storage (Figure 16).

    Alumina refining

    Alumina refining produced 14 million tonnes CO₂­­­-e of domestic emissions in 2020.

    Alumina refining offers significant opportunities to reduce emissions. Clean electricity or clean hydrogen could be used instead of fossil fuels to produce steam and heat.

    With support from ARENA, the industry is investigating whether these technologies can be used at Australian refineries. But clean, cheap, reliable electricity is essential to make them economically viable.

    Australia is already a major alumina exporter. Seizing these opportunities will help us capture future markets for low emissions alumina and aluminium.

    Figure 16: Low emissions aluminium cost breakdown under a high technology scenario 

    Bar graph showing costs reductions for low emissions aluminium from 2021 to 2050. Text description provided immediately after image

    A bar graph showing cost breakdown of low emissions aluminium under a high technology scenario. In 2021 the cost of producing low emissions aluminium is above $2,600 per tonne. The cost is expected to reach below $2,200 per tonne by 2050. 

    Carbon capture and storage

    Stretch goal: CO₂ compression, hub transport and storage for under $20 per tonne of CO­­₂.[54]

    Potential for CCS in Australia

    Large-scale CCS deployment in Australia would help decarbonise heavy industries and produce clean hydrogen.

    Australia’s competitive advantage in CCS comes from our geological storage basins, many of which are close to industries that emit highly concentrated streams of pure CO₂. 

    The Gippsland, Surat and Cooper Basins, together with the Petrel and Barrow sub-basins, host carbon storage sites at an advanced stage of development, and each have genuine industry interest and support (Figure 17). The combined storage capacity at four of these key locations (Gippsland, Surat and Cooper Basins, and the Petrel sub-basin) is over 20 billion tonnes.[55] The Australian Government is undertaking further analysis to inform Australia’s potential to store CO₂ in our basins as this varies widely depending on basin characteristics and injection rates.

    Figure 17: Prospective CO₂ storage sites in Australia

    Map of Australia showing prospective CO2 storage sites and nearby CCS projects. Data table provided immediately after image

    CO storage site

    Nearby CCS projects

    Barrow sub-basin, Western Australia

    Gorgon, Western Australia

    Petrel sub-basin or Plover and Elang formations, Western Australia and Northern Territory

    No nearby projects

    Surat basin or Precipice sandstone, Queensland

    CTSCo, Queensland

    Cooper Basin or Toolachee formation, Queensland and South Australia

    Moomba, South Australia

    Gippsland basin or Latrobe group, Victoria, Tasmania and South Australia

    CarbonNet, Victoria

    Analysis by the Intergovernmental Panel on Climate Change and the International Energy Agency concluded that the Paris goals won’t be met without geological carbon dioxide storage.[56] The US and UK governments are investing in carbon capture, use and storage (CCUS) technologies to support broader decarbonisation efforts.

    The government recognises the importance of carbon capture and use (CCU) technologies in complementing CCS, supporting new industries and reducing emissions. CSIRO’s CO₂ Utilisation Roadmap identifies opportunities in Australia’s food and beverages industry, the creation of low emissions building products and materials, and the export of low emissions chemicals and fuels.[57]

    The Australian Government is investing over $250 million from 2021 to 2030 to:

    • establish CCUS hubs
    • support research, development and commercialisation of CCUS technologies.

    This builds on $50 million CCUS Development Fund announced in the 2020-21 Budget.

    CCS hubs are locations with a cluster of relevant industries. They encourage large-scale deployment of CCS by sharing infrastructure, helping reduce costs for industry.

    CCU applications

    Through its $50 million CCUS Development Fund, the Australian Government has invested in several innovative projects to capture process emissions and unlock commercial value and large potential markets, including:

    • $14.6 million to Mineral Carbonation International. The company is building a mobile plant showcasing how CO₂ can be captured and used to produce manufacturing and construction materials, including components of cement and concrete. The plant will capture up to 3,000 tonnes of CO₂ per year from an industrial facility in Newcastle. The pilot project will demonstrate the commercial potential of CCU technology.
    • $2.4 million to Boral to develop a cheap technology to capture and use CO₂. The project will use CO₂ to increase the quality and market value of construction materials like recycled concrete, masonry and steel slag aggregates.

    Deployment pathways and cost drivers

    The cost of CO₂ transport and storage depends on:

    • distance to a suitable reservoir
    • transport mode
    • geological storage characteristics.

    The cost of CO₂ compression, hub transport and storage could be close to $20 per tonne, if high volumes of concentrated streams of CO₂ are clustered within 100 km of well-developed reservoirs.[58]

    Facilities that have started developing projects could implement CCS as early as 2025.[59]

    Storage costs vary significantly based on reservoir characteristics, including:

    • the level of existing geological data, and extent of additional appraisal drilling required
    • geological complexity, such as permeability and porosity
    • depth of formation, which affects construction costs.

    Storage costs for offshore reservoirs are more expensive due to:

    • higher exploration costs
    • more complex engineering
    • the complexity of servicing offshore operations.     

    Applications for CCS

    Deployment of CCS is critical in applications like cement production, where there are few other solutions to completely eliminate emissions.

    Other promising applications for CCS are:

    • CO₂ removal in natural gas processing
    • clean hydrogen from fossil fuels
    • Allam cycle electricity generation from natural gas.

    This is due to:

    • high capture efficiencies at relatively low cost, due to concentrated streams of CO₂ 
    • the potential to locate these applications in CCS hubs near a geological basin.

    In the long term, providing long-term storage of CO₂ for direct air capture and removal is another promising application of CCS.

    Soil carbon

    Stretch goal: soil carbon measurement under $3 per hectare per year

    Potential for soil carbon in Australia

    Increasing organic carbon concentrations in soil can offset emissions from hard-to-abate sectors like agriculture, industry and aviation.

    Soil carbon projects can generate offsets that provide additional income for farmers while improving agricultural productivity and soil resilience (Figure 18).

    Australia is a world leader in soil carbon measurement. But soil carbon stocks vary with soil type, climate and management practices, even within a single paddock. With current information, it is difficult to predict the rate of soil carbon uptake for a given landscape and management practice.

    Understanding this variability and accurately measuring soil carbon concentration currently requires expensive and labour-intensive physical sampling. Technologies that make it cheaper and easier to measure soil carbon concentration will encourage more sequestration activities.

    Cheaper soil carbon measurement will also support best-practice land management and national soil carbon sequestration strategies.

    The government is accelerating the deployment of soil carbon measurement technologies by funding research and development:

    • The $50 million National Soil Carbon Innovation Challenge will identify and fast-track low-cost, accurate technological solutions for measuring soil organic carbon.
    • The $8 million Soil Carbon Data Program supports partnerships between scientists, industry and landholders to develop and validate measurement approaches.
    • The $215 million National Soil Strategy is helping farmers monitor, understand and make better decisions about their soils’ health, productivity and sequestration potential.  
    • The CEFC is investing in the agricultural technology sector to build the industry’s capabilities. The CSIRO, rural research and development corporations, and the CRC for High Performance Soils are investing in agricultural innovations, including soil carbon measurement.

    The Emissions Reduction Fund (ERF) also provides incentives for soil carbon sequestration. To help ERF projects get started, payments of up to $5,000 are available to help with upfront costs of soil sampling. The Clean Energy Regulator is also developing a new soil carbon ERF method that lets projects supplement direct sampling with model-based approaches.

    Deployment pathways and cost drivers

    Figure 18: Soil organic carbon is a balance of carbon inputs and outputs

    Image of a tree, showing photosynthesis and respiration above ground, and plant roots, humus, soil fauna, and decomposing organic matter below ground.

    Soil organic carbon is made up of living organic matter such as roots, fauna and microbes, as well as organic matter at various stages of decomposition, including dead roots, humus and crop residues.

    Technologies to measure soil organic carbon stocks include:

    • physical measurement
    • modelling
    • remote sensing.

    The most practical pathway to low‑cost measurement will require an appropriate mixture of these technologies for the environmental and land management context.

    Physical measurement

    Labour-intensive field sampling followed by lab analysis is currently the standard soil carbon measurement method. But alternative in-field analysis involving technologies such as infra-red scanning are becoming more accessible. Developing tools that use these technologies will significantly lower the cost of physical measurement.

    Modelling and remote sensing

    Modelling and remote sensing technologies can be used to estimate soil carbon concentrations. As these non-contact approaches improve, the need for physical measurement to support precise measurement will reduce.

    Achieving the stretch goal assumes that, with advances in modelling and remote sensing, reliable measurement will be possible with physical testing occurring as infrequently as once every 10 years. Assuming early deployment of modelling and remote sensing technologies, the cost of soil carbon measurement could be reduced to less than $3 per hectare per year before 2030. The stretch goal could be achieved as early as 2025 for land areas greater than 2000 hectares.

    Footnotes

    1. This work for the five priorities from the Low Emissions Technology Statement 2020 was supported by analysis from McKinsey and Company. Initial analysis for the ultra low-cost solar was supported by work from the Australian Renewable Energy Agency (ARENA), Australian Energy Market Operator (AEMO) and the Department of Industry, Science, Energy and Resources. Input price assumptions for electricity prices were based on CSIRO 2020, GenCost report 2019-20, accessed 5 August 2021; Commodities prices were based on Department of Industry, Science, Energy and Resources 2020, Australia’s emissions projections 2020, accessed 5 August 2021, and World Bank projections.
    2. Hydrogen Council 2020, Path to hydrogen competitiveness: a cost perspective, accessed 5 August 2021
    3. International Energy Agency 2019, The Future of Hydrogen, accessed 5 August 2021
    4. Finkel A 2021, Getting to Zero: Australia’s Energy Transition, Quarterly Essay Issue 81
    5. Green M 2021, Solar Price Forecasts & Implications for Australia, accessed 25 August 2021
    6. International Renewable Energy Agency 2021, Renewable Capacity Statistics 2021, accessed 5 August 2021
    7. International Renewable Energy Agency 2021, Renewable Capacity Statistics 2021, accessed 5 August 2021
    8. CSIRO 2017, Low Emissions Technology Roadmap, accessed 9 August 2021
    9. Department of Industry, Science, Energy and Resources 2020, National Greenhouse Accounts 2019, accessed 10 August 2021
    10. Analysis by McKinsey & Company prepared for the Department of Industry, Science, Energy and Resources.
    11. In this statement, the stretch goal for low emissions steel has been revised from the average market price of hot rolled steel in the London Metals Exchange ($900 per tonne) to the average cost of production ($700 per tonne). The production cost does not take into account the cost of capital. Material changes in raw material costs may require the stretch goals to be updated over time.
    12. Analysis by McKinsey & Company prepared for the Department of Industry, Science, Energy and Resources.
    13. Cost breakdowns are not included for low emissions steel due to the commercial-in-confidence nature of information and the limited number of steelmakers in Australia.
    14. Figure 14 shows the process commencing with iron ore fines.
    15. Energy Transitions Commission 2018, Reaching net-zero carbon emissions from hard-to-abate sectors by mid-century, accessed 5 August 2021
    16. In this statement, the stretch goal for low emissions aluminium has been revised from the average market price in the London Metals Exchange ($2,700 per tonne) to the average cost of production ($2,200 per tonne). The production cost does not take into account the cost of capital. Significant changes in raw material costs may require the stretch goals to be updated over time.
    17. Australian Aluminium Council, Australian Industry, accessed 5 August 2021
    18. Department of Industry, Science, Energy and Resources 2021, Resources and Energy Quarterly March 2021, accessed 12 May 2021
    19. The stretch goal assumes CO₂ is transported within a hub distance of less than 100 km.
    20. Estimates by Geoscience Australia.
    21. Intergovernmental Panel on Climate Change 2019, Mitigation Pathways Compatible with 1.5°C in the Context of Sustainable Development, accessed 9 August 2021; International Energy Agency 2019, Exploring Clean Energy Pathways: The role of CO₂ storage, accessed 10 August 2021
    22. CSIRO 2021, CO₂ Utilisation Roadmap, accessed 24 August 2021
    23. Analysis by McKinsey & Company prepared for the Department of Industry, Science, Energy and Resources.
    24. Subject to securing offtake agreements and development approvals.