Australia could solve its climate wars by using hydrogen to create steel, the Grattan Institute believes.

In a new report the think-tank says focusing on “green” steel production could create a multi-billion dollar export sector using renewable energy.

It could also save the jobs of coal miners and others reliant on emissions intensive industries, whose work is threatened by efforts to fight climate change.

The federal government is eyeing hydrogen for its export potential, but the Grattan Institute says it would be cheaper to produce green steel in Australia than shipping hydrogen to countries without abundant renewable resources.

Having 6.5 per cent of the global steel market amounts to $65 billion in export revenue each year, and could create 25,000 manufacturing jobs, the report says.

According to the Grattan Institute it’s a ‘win-win-win’.

It says green steel uses hydrogen, produced from renewable energy, to replace metallurgical coal to reduce iron ore to iron metal and the nation’s extensive wind and solar energy resources mean Australia can make hydrogen, and therefore green steel, more cheaply than other countries.

“It would create a new export industry, support carbon workers, and cut emissions,” the report says.

“For too long, adding value to Australia’s energy and minerals resources and creating sustainable jobs through manufacturing and exporting have been the stuff of dreams.

“Not anymore. If we get this right, we will resolve the great climate conundrum that has stretched our political fabric for more than a decade.”

Energy Minister Angus Taylor says the government hopes to create a domestic hydrogen industry.

“Clean commodities made with Australian hydrogen will help us to become a world leader in the industry,” he said.