The move to a lower greenhouse gas (GHG) intensive global economy would significantly change Australia's trade profile given that exports account for around 25pc of its economy and are dominated by fossil fuels and steel making commodities, according to a report by the Australian government's climate policy advisor.
But the country's abundance of minerals for low emission technologies and the ability to export renewable power will see new exports emerge.
The report by the Australian government's climate policy advisor the Climate Change Authority (CCA) said international trade has historically rested on factors such as the relative costs of production, quality, and security of supply. As the world shifts towards net-zero emissions, carbon content will become increasingly important for competitive advantage.
Australia has some of the world's best resources for producing electricity from solar and wind resources, extensive landscapes conducive to sequestration of carbon, and large reserves of the raw materials required for low emissions technologies, such as lithium, uranium, nickel and copper, the CCA said in the report titled Trade and Investment Trends in a Decarbonising World.
"We also have the potential to decarbonise exports with high embedded emissions, such as steel and aluminium," said the CCA report. The report referred to initiatives by Australian iron ore producers Fortescue Metals Group looking to produce steel with hydrogen by removing coking coal from the process. UK-Australian iron ore producer Rio Tinto and steel producer BlueScope last week said that they will jointly explore low-carbon steel production using Pilbara iron ore, including the use of hydrogen to replace coking coal at BlueScope's Port Kembla Steelworks in Australia.
Iron ore is Australia's largest export by value and volume. Australia is also the world's largest exporter of metallurgical coal, the largest LNG exporter and the second largest thermal coal exporter.
Achieving net-zero emissions will require a major reorientation in global investment. On a decarbonisation trajectory consistent with the Paris agreement, global low carbon investment would more than triple on current levels to average $2.4 trillion/yr over the next 30 years, the CCA said.
Over the same period, fossil fuel investment would almost halve to $580bn a year. The economics of energy markets will drive significant growth in low emissions investment in coming decades, even in the absence of new policy drivers, the CCA said. The private sector is beginning to limit financing for fossil fuel projects, particularly thermal coal and sustainable finance is growing, although the shift remains in the early stages, it said.
"We will need to produce the cleanest exports at the lowest cost to succeed in overseas markets," the CCA said.
Given its abundant renewable resources of solar and wind, global investors are looking to Australia as an ideal site for large scale renewable electricity projects with trade potential, the CCA said.
There are three significant renewable energy export project proposals in Australia, include the Sun Cable project.
Trade policies could be used against countries not reducing emissions at a rate consistent with the Paris agreement goal to pursue efforts to limit it to 1.5°C above pre-industrial levels, it said. The world's largest economies, including some of Australia's key trading partners, are considering using trade to drive global decarbonisation, including measures such as carbon border adjustment mechanisms. These actions by governments add to the growing push from markets and consumers for companies to disclose their supply chain emissions and certify the carbon content of their products, it said.
Last week Australia said it will set a goal of net-zero GHG emissions by 2050, but only released vague plans of how to achieve this target.
