The Start with steel: A practical plan to support carbon workers and cut emissions report also highlights the key role of government policy in the creation of a new manufacturing industry based around clean energy.

The biggest opportunity for the Hunter was in low-emissions 'green steel', which is made by using renewable energy to extract hydrogen from water and then using the hydrogen to replace coal in the steel-making process.

"The Hunter has access to the high quality renewable energy needed to make hydrogen cost effectively. It is the hub of the NSW power grid, and can draw a mix of solar and wind energy from the north, south and west of the state," report author Tony Wood said.

"The Hunter also has the other key ingredients needed to make and ship green steel to Asia. It has the Newcastle port and, crucially, a large workforce capable of building a new export industry."

The report estimates that capturing 6.5 per cent of the global steel market would generate about $65 billion in annual export revenue and could create 25,000 manufacturing jobs in NSW and Queensland.

In addition to environmental benefits, the emergence of a green steel industry would provide opportunities for coal industry workers to proactively transition to clean energy jobs.

"The availability of these workers sets the Hunter apart from a place like the Pilbra in Western Australia. The Pilbra has renewable energy and iron ore but its workers are expensive and few in number...it makes more sense to ship iron ore to Newcastle than attract new workers to the Pilbra," Mr Wood said.

Much of the report's modelling is predicated on a gradual global decline in the demand for coal over the next decade, a scenario that some in the coal industry dispute.

The International Energy Agency's 2019 report shows coal use in China will peak in two year's time, however, it also forecasts coal consumption across south-east Asia will more than double by 2040.

Hunter MP Joel Fitzgibbon, whose electorate is dominated by coal industry jobs, said the pace of the development of green steel technology was an unknown.

"However, I suspect coking coal for steel making will be in strong demand for many years to come and the Australian coal industry will continue to supply the market with its high quality product," he said.

But the Grattan Institute argues the transition towards clean energy industries should occur sooner rather than later.

"The Hunter region deserves a better strategy than just hoping that demand for coal will continue indefinitely," Mr Wood said.

"It is possible that China and India will continue to burn our coal at record rates, as they have done for the past decade and a half. But it is also possible that they will not. We need to be ready for either outcome."

The report acknowledges that investment to create a global-scale export industry would need to come from the private sector, however, favourable government policy was also essential for creating the right conditions for this investment.

It recommends governments fund and publish pre-commercial studies of geological potential for hydrogen storage across Australia.

Federal, state and local governments could also play a role in coordinating land-use planning and regional development and by helping fossil fuel industry workers to retrain.

"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," Mr Wood said.

"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."

Hunter Research Foundation director Will Rifkin said the report aligned with repeated calls for a renewed focus on Australian manufacturing.

"The Grattan Institute's study picks up on a growing discussion of the value of Australia's regions, following decades of significant growth in Sydney, Melbourne and Brisbane," Professor Rifkin said.

"It is essentially an argument for what is called 'place-based policy'. That is where you look at the natural assets of a region, the existing infrastructure, the skill sets in a region, transport capability and other factors. You also look at the role that the region plays - and can play - in the national economy and in international supply chains.

"Then, the government determines what levels to pull, what investments to make to take advantage of those capabilities. That is instead of doling out government investment to marginal electorates."

Committee for the Hunter chief executive Alice Thompson said the report highlighted the opportunity for the Hunter to leverage its competitive advantage in the area of export-focused manufacturing.

"The Hunter can benefit from being a first mover, but this means being on the cutting edge," she said.

"Let's not wait for a national taskforce or government to pick winners and tell the Hunter what place we will take in a revitalised national manufacturing industry. We have the leadership, the experience, a skilled workforce, key assets and capacity to establish our own vision for a thriving export oriented manufacturing industry in the Hunter.

"With our local communities, industry, businesses and councils locked behind a shared plan we are in a much stronger position to communicate to state and federal governments how they can best partner with us and capture the benefits sooner."

Hunter Business Chamber chief executive Bob Hawes also welcomed the report's observation that the region was potentially a good match for a green steel industry, but cautioned it may be some time before such an industry was viable.

"There may be an opportunity for the Hunter to be a hub for the development of this technology, while continuing to support traditional steelmaking methods through our resources and manufacturing capability," he said.

"This idea need not be intrinsically linked to regional transition - if the Hunter can demonstrate that it has the capacity and capability of supporting new industry on a comparative advantage basis, and there is a government and industry framework to support it, then it should be investigated accordingly, as the Grattan report suggests."

The region would welcome another pillar industry that uses existing networks and industrial capacity. However, he said it did not necessarily follow that one sector had to decline to allow another to start up.

"The Hunter region has been identified by National Energy Resources Australia as a potential hydrogen hub and while there is work to be done to realise this opportunity, the establishment of a hydrogen cluster here would certainly aid the development of a green steel industry," Mr Hawes said.

"We have demonstrated that we can import iron ore and the Port of Newcastle would welcome the diversification of the trade."

The University of Newcastle is among a growing number of organisations worldwide that are exploring the role that hydrogen technology can play in a clean energy future.

As part of its energy research agenda, the institution has formed a taskforce with a focus on converting coal to hydrogen.

"We all know that Newcastle is the world's largest coal export port and either way you cut it that is going to be a sunset industry," Vice chancellor Professor Alex Zelinsky told the Newcastle Herald late last year.

"So how do we help the region transition into other parts of the economy?

"We have been doing research into hydrogen and our researchers believe there are ways to use coal to convert it to hydrogen, capture the carbon dioxide so you are not polluting and export the hydrogen."