Australia, explained.
Australia will need to lead as global supply chains pivot towards low-emissions production (Getty Images)
A new policy model that removes the risk in clean commodity innovation will put Australia ahead of the pack.
Subscribe to The Informer for monthly expert analysis, and to Events for advance notice of visiting world leaders and distinguished guests.
You may unsubscribe from Lowy Institute newsletters at any time. For information on our privacy practices and how to unsubscribe, see our Privacy Policy.
Green energy statecraft and Australia’s clean industry futureGreen energy statecraft and Australia’s clean industry future
As global supply chains pivot towards low-emissions production, Australia will need to lead, or risk being left behind. The country’s challenge is not a lack of technology, capital, or ambition. It’s a gap in policy architecture. Without bankable demand, Australia’s most promising clean commodity projects – green iron, sustainable aviation fuel, and clean ammonia – remain stuck at the starting line.
To meet that challenge, we propose a new demand-side policy model: the Clean Commodities Trading Initiative (CCTI) – a flagship example of green energy statecraft. At its heart is a new tool for national transformation: Clean Commodity Credits that reward innovation and emissions savings.
A market-friendly mechanism to kickstart large-scale clean production.
Green energy statecraft is a strategic approach to governance that uses the clean energy transition to simultaneously advance a nation’s economic, environmental, social, and geostrategic goals. Unlike conventional industry policy, which focuses on domestic market corrections, statecraft treats clean energy as key to national security and prosperity – used to build alliances, secure supply chains, boost productivity, and shape global rules.
The European Union, China, Japan, and South Korea are all pursuing variations of green energy statecraft. Australia must do the same – on its own terms, with tools suited to its advantages, institutions, and budget.
The CCTI is the tool for our times.
The CCTI is a market-friendly mechanism to kickstart large-scale clean production. Its core function is simple: government acts as an early buyer of clean commodities – not to stockpile goods, but to create the conditions for investment. Clean production projects face long lead times and high capital costs. But their biggest barrier is price uncertainty. Firms can’t justify investment if they don’t know whether the market will pay a green premium to offset higher costs. The CCTI removes that uncertainty. It contracts with producers to buy a baseline volume at agreed floor prices. These offtake agreements give developers and financiers the confidence to proceed.
Without bankable demand, Australia’s most promising clean commodity projects – such as sustainable aviation fuel – will remain stuck at the starting line (David Syphers/Unsplash)
But the real innovation lies in what happens next.
Upon purchasing clean commodities such as green iron, the CCTI would decouple the physical products from their clean attributes by creating Clean Commodity Credits, or Innovation Credits, since the clean attributes reflect not just lower emissions but innovation in production. This dual-market approach allows the physical commodities to be sold in conventional markets while the credits are banked or traded later.
A clean commodity contains two price components: the base cost of the commodity; and the cost of producing it with low emissions. This second factor – the “green premium” – raises prices above conventional alternatives. Clean Commodity Credits solve that problem. They let clean commodities enter traditional markets without the higher price tag. Meanwhile, the CCTI can offset its support costs by monetising the credits in flexible ways. As we argue in our new paper, it could:
This flexibility allows the CCTI to adapt as markets evolve, maximising taxpayer value while supporting market development.
In effect, these credits create bankable demand for green innovation. They send a clear price signal – not just for carbon, but for the kinds of technologies, processes, and business models that will define the clean economy. They give governments a strategic mechanism to stimulate private investment and build advantage in future-facing sectors.
If Australia continues to rely on patchwork subsidies and fragmented supply-side measures, it will fall behind.
Traditional carbon markets, while important, work by penalising emissions. But in heavy industry, where low-carbon alternatives are still emerging, penalties alone often aren’t enough to drive change. Establishing a market for these credits flips the model. Instead of punishing laggards, it rewards leaders. Governments can set clean production targets – say, 30 per cent green steel by 2030 – and let firms meet them by innovating or buying credits from early movers. It creates a race to the top, not just a drag on the bottom line.
This model rewards firms that act now with firm demand at a price that justifies production – not in 2030 when carbon prices bite or regulation finally arrives. And it allows government to recover its support as credit markets develop. Once established, the same principle can apply to any product the government deems strategic, regardless of its carbon value. Thus Innovation Credits may be the better name.
Japan and South Korea, two of Australia’s key trading partners, seek long-term access to clean industrial inputs they cannot produce domestically. Australia, with its renewable energy resources and export capacity, is a natural partner. By embedding Clean Commodity or Innovation Credits into trade relationships – through joint offtake agreements, shared credit markets, or co-investment in CCTI-backed facilities – Australia can deepen economic ties and build geopolitical resilience. This is green energy statecraft in action: aligning clean industry development with alliance-building and regional stability.
The energy transition is a global race. Other countries are moving decisively. If Australia continues to rely on patchwork subsidies and fragmented supply-side measures, it will fall behind. The CCTI offers a smarter, faster, and more strategic path forward. It reflects the kind of governance Australia now needs: bold, integrated, efficient, and effective.
Green energy statecraft isn’t just theory. It’s practice. And with the right tools, Australia can lead.
This article relates to a Studies in Statecraft series from the Asia-Pacific Development, Diplomacy & Defence Dialogue (AP4D).
About the authors
Elizabeth Thurbon
Elizabeth Thurbon is Professor of International Political Economy, Director of Research, and Deputy Head of School in the School of Social Sciences at UNSW Sydney.
Oliver Yates
Oliver Yates is currently the Australian country head of GAW Capital and board member of the Smart Energy Council having been the first CEO of Australia’s Green Bank, the Clean Energy Finance Corporation.
The most-pressing world events explained by Lowy Institute experts and global contributors, in your inbox, every Thursday.
You may unsubscribe from The Interpreter at any time. For information on our privacy practices and how to unsubscribe, see our Privacy Policy.
