Yes, we really do need a Clean Commodities Trading Company. Pronto
A price on carbon is unlikely in the near term. Reality demands alternative strategies to catalyse private investment efficiently and effectively.
By Oliver Yates and Elizabeth Thurbon
Huw McKay’s critique of the proposal to establish a Clean Commodity Trading Company (CCTC) is a welcome contribution to the debate on Australia’s energy transition.
Like McKay, we strongly support a credible price on greenhouse gas emissions to speed up decarbonization and bolster Australia’s position in clean commodity industries like green iron, steel and aviation fuel.
But in the near term, achieving this outcome is unlikely. This reality demands alternative strategies to catalyse private investment as efficiently and effectively as possible.
The CCTC is not just a pragmatic solution to this challenge, but an optimal one. While McKay raises a number of concerns, they don’t stand up to scrutiny. Here’s why.
1. The CCTC would not create “Butter Mountains”
The claim that the CCTC would accumulate surplus stocks of unsellable clean commodities is flawed and misunderstands how the CTCC would operate.
Clean commodities like green steel and Sustainable Aviation Fuels (SAFs) are functionally identical to their conventional counterparts, differing only in production methods. In other words, end-users can’t tell the difference between ‘clean’ and ‘conventional’ commodities. This means that clean commodities can easily be sold in conventional commodity markets, ensuring flexibility and market access.
So how would this work, both financially and environmentally? Upon purchasing ‘clean commodities’ like green iron, the CCTC could de-couple the physical commodities from their environmental attributes through the creation of clean commodity credits. This dual-market approach would allow the physical commodities to be sold in conventional markets, and clean commodity credits to be traded elsewhere to address growing demand for emissions reductions in both regulatory and voluntary frameworks. As Europe’s Carbon Border Adjustment Mechanism (CBAM) takes effect, demand for clean commodities in key markets like East Asia will increase, particularly as manufacturers seek compliant, lower-emissions inputs.
In sum, unless one truly believes that global demand for conventional commodities like iron, steel and aviation fuel is about to vanish, or that countries across the globe are about to abandon their quest for net zero (in which case it seems pointless arguing for a carbon price), the concern that the CCTC would end up with warehouses full of unsellable products is unfounded.
2. The CCTC would not duplicate private sector activities and be inefficient
The suggestion that the CCTC would duplicate or hinder private sector efforts overlooks key barriers currently facing private firms and the essential role of government in overcoming them.
Currently, private firms are reluctant to invest in green industries because they perceive it as expensive and risky, not least because of policy uncertainty. The CCTC would address this problem by creating guaranteed demand for clean commodities, reducing investment risk and catalysing private sector participation.
Unlike fragmented policy tools like Production Tax Credits (PTCs) and government grants and loans, the CCTC provides an integrated and highly efficient solution. By pooling the balance sheets of Japan, Australia, and South Korea, the CCTC would stimulate demand, ensure scale, and create a streamlined process for private firms that avoids the inefficiencies of navigating multiple subsidy programs.
For example, hydrogen projects in Australia currently face a maze of funding sources—from PTCs and ARENA grants to Hydrogen Head Start subsidies and CEFC loans. A single contract with the CCTC would consolidate support, reducing overheads and bureaucracy for project proponents.
3. The CCTC not would not act merely as an intermediary to fill policy gaps
McKay’s characterization of the CCTC as a gap-filling intermediary oversimplifies its purpose. The CCTC would not only bridge existing gaps but also shape future markets by assuming risk, certifying clean commodities, driving demand, and ensuring that production takes place in the most efficient global location. Its role is proactive: to establish credible market signals and accelerate investment in clean industries where it is most economic rather than simply waiting for private sector demand to materialize or for a carbon price to be implemented.
McKay overlooks that when you decouple the clean attributes from the commodity itself, it will lead to a more efficient allocation of resources. For example, if producing green steel was cheaper in Australia than in Europe (as it is), then with the development of a clean credit market European steel manufacturers would be incentivised to produce green steel in Australia where it is the cheapest and take the clean attributes home to Europe, rather than producing green steel at home. Developing this solution will be in Australia’s long-term advantage as we have both the low-cost minerals and the renewables needed to execute. As a nation, we want to reduce climate waste, where individual countries support inefficient local solutions. Rather, we want to deal with the global emission challenge with the most efficient global solutions.
4. Australia does not lack the experience and sophistication needed to execute the CCTC vision
Mckay depicts Australia as an ‘ingenue’ when it comes to initiatives like the CTCC, implying that it lacks the experience and sophistication required to execute. This is an inaccurate depiction that smacks of cultural cringe.
Australia has a strong track record in commodities production and trade, supported by professionals and institutions. The success of the Clean Energy Finance Corporation (CEFC), which has become a global benchmark for effective green investment, along with our experience designing, creating and regulating offset markets, demonstrates Australia’s ability to design and operate complex market mechanisms, leveraging private sector skills and expertise.
Collaborating with Japan and South Korea only strengthens the CTCC proposal. As Mckay observes, Japan boasts some of the world’s most successful trading companies, proving that trading companies can be highly profitable enterprises that play an important role in the economy. Japan’s expertise and its shared decarbonization goals make it a natural partner for Australia. A multilateral approach would also enhance trust, align interests, and deepen economic and geostrategic ties in an increasingly volatile global environment. The suggestion that Japan would view the CTCC principally as a chance to exploit Australia sells Japan — and our relationship — short. It also overlooks the fact that Japan and Australia would be sitting at the same side of the table – as CCTC co-owners – not competitors.
5. The CTCC would enhance Australia’s international standing
Australia has much to gain diplomatically, especially in our region, from positioning itself as a leader of ambitious decarbonisation efforts. In the context of the climate crisis, the CTCC’s establishment is clearly justified and should be easy to defend on both market failure and environmental security grounds. Australia should seize the opportunity to be at the forefront of debates about what a climate-friendly international trade and investment regime might look like.
The CCTC is not a replacement for long-term carbon pricing but a necessary measure to address immediate barriers to investment in clean commodities. By providing a credible market signal, mitigating risk, and leveraging international partnerships, the CCTC offers a strategic and pragmatic – and arguably optimal – response to the energy transition challenge. It ensures that Australia can avoid falling behind in an emerging global industry while positioning itself as a leader in the clean commodity markets of the future.
Far from being a risky or redundant endeavour, the CCTC is a timely and innovative solution to one of the most pressing challenges of our time. Australia needs it, pronto.
This article was originally published in the Mandarin on 24 Jan 2025.