But there are hurdles to producing green iron in Australia, the report says, and government and businesses need to invest to beat rival nations racing to cash in on the opportunity.
The Superpower Institute released the findings in its Green Iron Plan for Australia report on Monday, analysing potential restrictions and opportunities to establishing a local industry.
The research comes three months after the government announced a $1 billion investment in green iron production, including $500 million to support existing and new developments.
Green iron is produced using renewable energy resources such as hydrogen and electricity generated by the sun and wind rather than coal or gas, and has the potential to cut 90 per cent of emissions from the steelmaking process.
Australia is considered a strong potential green iron producer as it is the world's biggest iron ore exporter, but the report identified three obstacles to its production.
Early investors were not being given enough financial support, infrastructure to support its production was lacking, and the absence of an international carbon price made it hard to compete with fossil fuel-based iron, the report found.
If these issues were addressed, Australia could have a clear pathway to producing green iron, cutting emissions and taking advantage of its natural resources, Superpower Institute chair Rod Sims said.
"If anyone is going to make green iron, it's going to be Australia," he told AAP.
"Every international study I've seen - and I've seen a few - says that if you want green iron, Australia is either one of the small number of top places or is the best place to do it."
Introducing a green iron production tax credit of $170 per tonne could temporarily address the lack of a carbon price, the report found, while grants of up to 30 per cent could help to establish early green iron projects.
Other recommendations include introducing a green hydrogen certification scheme and researching trade opportunities.
Australia could generate up to $386 billion a year from green iron by 2060, the report found.
Mr Sims said the nation should aim to have between two and four projects in operation by 2030.
"Australia is the world's largest producer of gas and coal combined but they will go down as the world moves to net zero, therefore you need a foot in the other camp," he said.
Small green iron plants are already planned in countries including Germany, Sweden and Namibia.
Superpower Institute chief executive Baethan Mullen said Australia should not delay investments.
"The global race to secure green iron production is already underway," he said.
Green iron projects in Australia include Fortescue's Christmas Creek project, expected to begin production before the end of 2025, and a $3.5 billion Gladstone project backed by Quinbrook Infrastructure Partners.
14°C