The case for a ‘Clean Commodities Trading Company’ to advance Australia’s green superpower ambitions
A Clean Commodities Trading Company classification would deliver massive and connected economic, environmental, and strategic gains.
By Oliver Yates and Elizabeth Thurbon.
Australia is uniquely positioned to become a green superpower. We believe a Clean Commodities Trading Company (CCTC) — potentially jointly owned with trading partners such as Japan and South Korea — could be the next key to unlocking our green industrial potential. Working alongside a smart Production Tax Credit (PTC) scheme, a CCTC would derisk global supply and demand for nascent green industrial products like metals, hydrogen and fuels.
Canberra - the seat of power
In recent weeks, landmark reports from two key think tanks have underscored Australia’s advantage, which lies in its ability to convert cheap, abundant renewable energy into high-value clean commodities like green iron, ammonia, and more. By leveraging these resources, we can significantly increase the value of our exports, create advanced, job-rich industries that strengthen our economic security, and position ourselves as a global leader in low-carbon industrial production.
This is not just an economic opportunity — it’s a pathway to enhanced national security via deeper geostrategic ties and meaningful contributions to global decarbonization efforts.
The government should be congratulated on its ambition to turbocharge the green transition by mitigating private sector risk.
However, realizing this vision will require creative and effective policy measures beyond those articulated under the Future Made in Australia (FMA) agenda so far.
Managing risks of the production tax-incentive scheme
One of the government’s signature support policies is the Production Tax Credit (or Incentive) Scheme. Modelled on international PTCs, the government’s scheme provides tax rebates to producers based on the quantity of green commodities they generate. This mechanism is designed to bridge the cost gap between production expenses and market willingness to pay, incentivizing the adoption of greener technologies.
While potentially helpful, PTCs have three risks that must be managed carefully.
Firstly, PTCs can be blunt and inflexible. Tax credits risk being set either too high, wasting taxpayer funds, or too low, failing to stimulate investment.
Secondly, PTCs can lack adaptability. PTCs are difficult to adjust once implemented, making them ill-suited to dynamic market conditions.
Thirdly and arguably most importantly, PTCs are not able to address the problem of demand. The greatest barriers to private sector investment in green commodities are not only production costs but also the lack of guaranteed demand at viable prices.
Without robust offtake agreements from creditworthy buyers, the ability of financing vehicles like the CEFC, NAIF, and NRF to provide support for firms investing in new green industries is constrained by their commercial mandates. Of course, the government could force these entities to fund projects without such agreements, but that would expose them — and taxpayers — to significant financial risks.
While we applaud the government for its FMA ambitions, questions remain about the extent to which the Bills introduced last week address these risks.
For example, is the hydrogen-production tax incentive set high enough to move projects forward without recipient firms also having to tap a multitude of other support schemes (e.g. Hydrogen Head Start, ARENA grants etc.) to get them over the line, with all the administrative burdens, inconsistent evaluation standards and delayed timelines that would likely entail?
At the same time, is the structure of the Critical Mineral Processing Tax Incentive sufficiently efficient? Currently, eligibility is tied to criteria set out in the legislation, which specifies a number of important requirements including that the activities be Australia-based. Yet what appears to be missing is the requirement that projects demonstrate financial need. In the absence of this requirement, tax incentives (read: precious taxpayer dollars) might go to projects that don’t actually need government support to get them over the line. In this case, we might end up subsidising firms that would have invested anyway, rather than those who definitely won’t invest without it.
Finally, PTCs do not address arguably the greatest investment barrier facing Australian firms in these cutting-edge new industries of the future — the problem of demand.
To be sure, there appears to be nothing in the legislation to rule out government bodies, like Export Finance Australia (EFA) for example, stepping in to issue purchase contracts for Australian-made green hydrogen, minerals or commodities. But what seems to be missing is the pressing public mandate to do so.
At the same time, while existing bodies like the EFA could in theory play this role, there is a strong argument for a much more ambitious and strategic approach that would not just solve the problem of demand but deliver multiple additional security-enhancing benefits for Australia. A Clean Commodities Trading Company embodies this approach.
The Clean Commodities Trading Company
To overcome the potential pitfalls of PTCs and ensure they deliver on their potential, Australia and its trading partners need a state-owned Clean Commodities Trading Company (CCTC). This entity would directly address the demand-side barrier by acting as an off-taker for green commodities, issuing contracts to de-risk private investment in clean production facilities. We identify five key features and benefits of the CCTC.
Firstly, it offers flexible and adaptable support. Unlike PTCs, which offer uniform subsidies regardless of market dynamics, offtake agreements issued by the CCTC directly address demand uncertainty by guaranteeing a buyer for green commodities. This targeted approach fosters investor confidence, minimizes inefficiencies in subsidy allocation, and adapts flexibly to market conditions, ensuring that taxpayer funds yield maximum value.
Secondly, it would facilitate the creation of clean commodity credits: The CCTC would decouple the “green” nature of commodities from the physical product, creating clean commodity credits. These credits could be traded globally, enabling firms to offset emissions in line with regulatory or voluntary targets, similar to existing mechanisms in electricity and carbon markets.
Thirdly, it would share the costs and benefits of green industry creation with Strategic Partners: If the government were to establish the CCTC as a joint initiative with Japan and/or South Korea, it would distribute the costs of creating a clean commodity industry while ensuring shared benefits. This collaboration would not only reduce Australia’s fiscal burden but also strengthen strategic alliances (more on this below).
Hard-to-abate sectors like steelmaking urgently need clean commodities
Fourthly, it would accelerate decarbonization. Hard-to-abate sectors like steelmaking urgently need clean commodities. By guaranteeing demand, the CCTC would fast-track the development of these essential materials, helping Australia and its partners meet their emissions-reduction goals.
Finally, it would strengthen geostrategic ties in the context of growing global instability.By leveraging offtake agreements, the CCTC would not only de-risk production but also align with broader security-enhancing objectives. These agreements can be structured to prioritize partnerships with key trade allies like Japan and South Korea, ensuring long-term export markets for Australian clean commodities. This approach integrates economic and strategic imperatives, positioning Australia as a reliable trade partner in decarbonization and enhancing regional cooperation and stability.
Why the CCTC is an essential complementary support mechanism
The CCTC’s tailored, demand-driven approach provides three superior benefits to all other supports on offer:
Risk reduction: Offtake contracts mitigate financial uncertainty for producers, unlocking private sector capital.
Dynamic adjustability: Contracts can incorporate mechanisms to adjust support based on market conditions, ensuring taxpayer funds are used efficiently.
Market creation: The CCTC catalyses a market for clean commodities and credits, addressing the root cause of investment hesitation.
In sum, while PTCs support the creation of green production capacity by lowering operational costs, they do not directly promote the establishment of new industries or foster trade relationships. In contrast, offtake agreements issued by a Clean Commodities Trading Company guarantee long-term demand that encourages not just production but also the development of export-ready supply chains and deep trade ties. Without demand assurance, PTCs risk enabling production without unlocking broader economic and strategic benefits.
The CCTC as a model for sophisticated green energy statecraft
As a model for sophisticated green energy statecraft, the creation of a Clean Commodities Trading Company would demonstrate Australia’s commitment to smart, collaborative policymaking designed to maximise national security, comprehensively conceived. Specifically, the CCTC would enable Australia to seize the green superpower opportunity, deliver massive and connected economic, environmental, and strategic gains, and set a global example of how nations can work together to tackle the challenges of decarbonisation.
By establishing a government-owned CCTC, we can lead the world in clean commodities, secure our green superpower status, and ensure a prosperous, sustainable future for generations to come.
This article was first published at the Mandarin on 4 December 2024.