But policies encouraging the use of green steel in electric vehicles, wind farms and data centres could help to save its potential, a study has found.
WWF Australia issued the warning in a report on Thursday, which found Australia had eight green iron projects in the pipeline but none that had secured a final investment decision.
The finding comes after The Superpower Institute estimated Australia could more than triple its iron export revenue in 2060 by moving to green iron, and after the federal government launched a $1 billion Green Iron Investment Fund.
The low-emission mineral is typically produced using renewable energy, such as hydrogen, solar and wind power, rather than coal or gas and can significantly cut emissions from steelmaking.
The study, prepared by Deloitte Access Economics and called Creating the Pull, found Australia's burgeoning green iron industry faced several barriers, including high energy costs and a lack of international carbon pricing or green iron standards.
But its biggest hurdle was a lack of guaranteed demand from international trading partners, including China, Japan and South Korea which were major buyers of Australian iron ore.
The federal government should prioritise deals with its Asian partners to secure green iron demand, the report found, and create a green trade corridor in which Australia would buy green steel in return.
Addressing green iron demand could help to secure a crucial export industry, WWF Australia low carbon futures senior manager Monica Richter said, and provide certainty for investors.
"Australia has the iron ore, renewable energy resources and deep trade ties to be a global green iron leader but without clear buyers, projects cannot secure financing," she said.
"If we want projects built, we need to create the pull, not just the supply."
In addition to trade partnerships, the report said the government should encourage the use of green steel in large construction projects, such as wind farms and data centres.
The report also recommended the government mandate green steel in its electric vehicle fleet purchases, which Deloitte Access Economics energy and climate advisory director Joe Fowles said would send a strong signal but come with a modest cost.
"On a $40,000 car, the premium for making that car with green steel is estimated to be only a little bit over $1000," he said.
"It's the same you pay for rego and it's less than you pay for your annual insurance."
Eight green iron projects are proposed for Western Australia, South Australia and NSW, including the Whyalla Steelworks that is undergoing a technology upgrade.
