Green Iron Production in SA

Executive Summary

This Cost-Benefit Analysis (CBA) evaluates the economic viability of establishing hydrogen- based green iron production (H2-DRI) in South Australia compared to the Business-as-Usual (BAU) carbon-intensive export model. The analysis identifies Flexible Green Iron Technology as the optimal strategic pathway. This scenario delivers a superior Net Present Value (NPV) of 13,524 AUD, a Benefit-Cost Ratio (BCR) of 1.14, and an ROI of 13.99%. Conversely, the BAU and Inflexible scenarios yield negative NPVs, demonstrating non-competitiveness. Monte Carlo simulations confirm the Flexible scenario’s resilience against market volatility, making it the recommended investment for national decarbonisation.

1. Introduction

Against the backdrop of international net-zero commitments, Australia faces a critical economic inflection point as its fossil fuel export industries face long-term contraction. Rather than accepting a decline in export income and employment, Australia and specifically South Australia possesses a distinctive opportunity to lead the global green iron transition. The state leverages two critical comparative advantages: world-leading magnetite resources and immense potential for low-cost renewable energy, with 75% of its electricity already generated from renewables. The Eyre Peninsula emerges as the most attractive hub for production due to its proximity to resources and potential for cost-effective hydrogen storage. This analysis evaluates whether strategic investment in H2-DRI technology can secure future national income while hedging against the risk of stranded assets in carbon- intensive sectors.

2. Methodology, Assumptions and Identification

The methodology follows a classic CBA framework comparing a base case of carbon- intensive production against two alternative green hydrogen technologies (IEA, 2020). The study assumes a 35-year project lifecycle with a 7% social discount rate. To allow for a focused comparison of technological impacts, annual iron production is held constant at 5 million tonnes. While the benchmark price for conventional iron is set at 779 AUD per tonne, green iron is modeled with a 150% premium (1,169 AUD per tonne) to reflect international market incentives and existing tax credit structures. Data used for this analysis is primarily synthesised from recent industry literature (OECD, 2025), accounting for total labor costs including both the initial construction workforce and long-term operational employees (Indeed, 2025).

For participating firms, the primary costs involve substantial initial capital investment and ongoing operational expenses. While the BAU scenario excludes these upfront costs, the Inflexible Technology scenario suffers from high expenses due to the requirement for a constant, uninterrupted energy supply. In contrast, Flexible Technology reduces costs by adjusting production to align with renewable energy availability. These corporate costs are offset by significant benefits, including increased export revenues and a suggested A$170 per tonne production tax credit (Burfurd et al., 2025. Furthermore, early adopters stand to capture innovation spillovers and gain technological leadership in a market where carbon border tariffs such as CBAM increasingly penalise high-emission imports. From a government and social perspective, these expenditures are justified by increased long-term tax revenues, regional development in the Eyre Peninsula, and progress toward national emissions reduction targets.

3. Results and Sensitivity Analysis

The quantitative results reveal a stark divide in financial viability across the three scenarios. The BAU model results in a negative NPV of -14,506 AUD and a sub-unitary BCR of 0.75, confirming that the fossil-fuel-based export approach is no longer economically resilient. Similarly, the Inflexible Green Iron scenario shows a negative NPV of -16,208 AUD and a BCR of 0.87, as the lack of adaptability to energy variability increases operating expenses beyond the point of profitability. Only the Flexible Green Iron scenario delivers a positive financial performance, achieving an Internal Rate of Return (IRR) of 6%. This flexible configuration allows the plant to lower electricity costs and improve energy efficiency, making it the most sustainable and resilient pathway for Australia’s industrial transition.

A Monte Carlo simulation involving 1,000 iterations was conducted to evaluate each scenario’s robustness under market variability regarding production costs and iron prices. Compared with BAU, both green iron scenarios yield higher expected returns, reinforcing the case for transitioning away from carbon-intensive production. However, only the Flexible Technology pathway achieves this while minimising downside exposure.

While the Inflexible scenario exhibits a notable probability of losses under adverse market conditions, the Flexible pathway maintains a positive NPV across the majority of simulated ranges with no meaningful probability of negative outcomes. This demonstrates far greater financial resilience, reinforcing the case for adopting adaptive production models that can navigate the variability of renewable energy markets.

4. Conclusion

The findings of this Cost-Benefit Analysis demonstrate that green iron production is more economically suitable compared to maintaining carbon-intensive exports, provided that flexible technology is utilised. The Flexible Technology scenario achieves the highest NPV and BCR while maintaining the most robust resistance to market volatility. These findings align with South Australia's Green Iron and Steel Strategy, which targets commissioning a hydrogen-based Direct Reduced Iron plant in the Upper Spencer Gulf by 2030 through targeted support, specialised industrial precincts, and phased public procurement of Australian green steel (Government of South Australia, 2024). By focusing infrastructure development on specialised industrial precincts in South Australia, the state can successfully transition toward a high-value, low-carbon export future.

References

Burfurd, I., McMahen, C., Hossain, F., Scott, B., McConnell, D., Bruckner, A., & Zou, A. (2025). A Green Iron Plan for Australia: Securing prosperity in a decarbonising world. the Superpower Institute; The Superpower Institute. https://www.superpowerinstitute.com.au/work/green-iron-plan

Government of South Australia. (2024). South Australia’s Green Iron and Steel Strategy. https://www.energymining.sa.gov.au/__data/assets/pdf_file/0010/1017829/South-Australias-Green-iron-and-steel-strategy.pdf

IEA. (2020). Iron and Steel Technology Roadmap - Analysis. IEA. https://www.iea.org/reports/iron-and-steel-technology-roadmap

Indeed. (2025). Production worker salary in SouthAustralia. Indeed.com. https://au.indeed.com/career/production-worker/salaries/South-Australia

OECD. (2025). Green Iron opportunities in Australia: A case study within the OECD’s Global Green Iron project. OECD Publishing; Paris. https://doi.org/10.1787/bbd1e2b8-en