Net zero needs hydrogen

Australia has the renewable energy resources, technical skills, and track record with international partners to become a globally significant producer of hydrogen and its derivatives.

This was largely the premise of Australia’s National Hydrogen Strategy (COAG Energy Council, 2019) released in November 2019, where a stated objective was to have Australia be one of the top three hydrogen exporters to Asian nations by 2030. Australia was seen as an obvious source for future renewable hydrogen.

But the world has changed since the release of the National Hydrogen Strategy (which we will call NHS v1).

With the pandemic and war in Ukraine, we have seen the vulnerability of supply chains and a new focus on building national capabilities and resilience. These factors have amplified the arguments for clean energy and for hydrogen, both for countries to make their own and to partner with countries they can trust to supply what they need.?

Industry policy is becoming fashionable again as we realise government has a role to play not only in providing for decarbonisation but in supporting domestic energy and industrial resilience.

As a result, many countries are seeing increased focus on clean energy spending and trading relationships to solve several problems: not only decarbonising their economies but also growing new sovereign manufacturing capabilities, boosting self-sufficiency, and de-risking supply chains.

The case for hydrogen has shifted from a potential export opportunity to a means of meeting each of these needs. We increasingly hear about ‘renewables statecraft’ and ‘hydrogen diplomacy’ as a means of supporting domestic needs.

Since its election, the Albanese government has announced net zero aspirations, and set a target of 82 per cent renewables by 2030. The ambition remains for Australia to be a renewable energy and/or hydrogen ‘superpower’.

However, our ability to deliver on these aspirations is not guaranteed. Delays are already setting in for the renewables build, with the Chief Executive of AEMO stating in June 2023 that investment in clean energy was not happening fast enough to replace closing coal power stations, and storage needs to expand by a factor of 30 by 2050 (Ludlow, 2023).

On the hydrogen front, analysis for the Australian Government (2023: xii) suggests "Australia is no longer the global policy leader in developing a new clean hydrogen industry…it still trails many OECD nations in terms of projects proceeding to deployment.”

Further, competition for clean technology investment is now fierce. We have seen major financial incentives announced by various countries, but the benchmark is the US Inflation Reduction Act (IRA). With this legislation, the US government has demonstrated that it seeks to be a serious market creator.

And while the IRA is not just about hydrogen, it has been a game changer for our nascent industry. We may have assumed that Australia had time to take up our mantle as a global leader in hydrogen production. But that is a more challenging assumption now.

A major issue with the development of the industry to date has been the lack of clear government direction about priorities, milestones and plans to deliver. The NHS v1 took a hands-off approach, reflecting the political reality of having nine governments agree to 57 actions (no small feat) as well as the then federal government sentiment of the need to merely “get out of the way of the market”.

Practically speaking, we have not seen coordinated action at a national level since 2019. This is due to several factors, not the least the drain on capacity during the pandemic. There have been some exceptions, such as the federally led work on hydrogen certification, and there have also been good starts, such as the national programme on regulation and work on hydrogen hubs. But there was never a public implementation plan of the NHS v1, and there has been little clarity on the many streams of work and how these are proceeding.

The good news is that the NHS is being refreshed, which hopefully means a new approach to delivery and communications. We have also learned a lot since 2019, such as:

• The energy transition as a whole will be complex, expensive and difficult to deliver, and it needs leadership and clear industrial policy. Globally, there is increasing recognition that nation states need to undertake an industrial revolution, with the requisite and commensurate level of spending, over a comparatively short time frame.
• Hydrogen production and utilisation is a necessity rather than a choice, and it requires significant commitment and investment. This is because hydrogen will be the primary way to decarbonise key sectors of our economy, such as ammonia for fertilisers, iron and alumina ores, industrial processes that require high temperatures, and fuel for heavy road transport, aviation and shipping.
• Hydrogen and its derivatives will be the predominant means for replacing the current energy exports (and revenue) from Australia – either in the form of liquid fuels (e.g. ammonia, methanol) or in the form of ‘embodied hydrogen’ via the onshore processing of Australian iron and alumina ores.
• Making, moving, storing and using hydrogen across a range of applications requires the development and implementation of new technology, the alignment of different sectors of the economy, and significant investment in infrastructure at several points.

The US National Clean Hydrogen Strategy and Roadmap refers to the task of developing the hydrogen industry as requiring an all of government approach (US Department of Energy, 2023: 1). We have learned this lesson repeatedly over the past four years, with the interconnectedness of the various systems requiring a shift from the usual siloed and incremental policy and regulatory decision-making to new models of thinking and allocating risk.

Importantly, cost competitiveness with fossil fuels will not happen without extensive government policy and subsidies. Governments must be market creators at this stage of the energy transition. This means levelling the playing field with fossils fuels, using an appropriate mix of policy and funding levers. This is not only about funding for pilots but also about major infrastructure investment in the public interest. It is also about setting expectations about future policy intent, where this can be anticipated.?

Government policy is the catalyst, where funding from public sources must attract and ‘crowd in’ or ‘back in’ the necessary private sector capital (International Renewable Energy Agency, 2023). Incentives to deliver increased generation and lower power costs also inevitably increase the pace of manufacturing investment. Australia can grow sovereign capabilities across a range of sectors, which provide both growth opportunities and a degree of economic resilience to external shock.

Recommendation 1: Commit to significant market making and ecosystem building in the public interest.

The Australian Government should commit to the following for the emerging hydrogen industry:

• Priorities, planning and coordination: Match the refreshed NHS to broader climate targets and align with other policy for a cross government approach. Commit to nationwide planning for critical energy, including hydrogen infrastructure. (See Recommendations 6-10 in full paper)
• Targeted and ambitious international engagement: To secure the investment required, support ‘Team Australia’, and provide clarity on objectives and communication channels for our trade partners. (See Recommendations 11-14 in full paper)
• Investment in infrastructure: Commit to investments in key infrastructure that meet public interest tests for common user infrastructure and prioritise investment and sequencing of government-funded projects to seek investors and partners. (See Recommendations 15-47 in full paper)
• No regrets market development and support: Commit to further revenue support mechanisms and target setting for industries that are most likely to rely on hydrogen to decarbonise, and undertake further analysis as needed. (See Recommendations 48-53 in full paper)

This work must embed the refreshed NHS within the Australian Government’s broader programme of work for reaching net zero.

Read the full paper on our website: https://h2council.com.au/ahc-publications/.

References

Australian Government (2023) State of Hydrogen 2022, Australian Government Department of Climate Change, Energy, the Environment and Water, April, https://www.dcceew.gov.au/energy/publications/state-of-hydrogen-2022.

COAG Energy Council (2019) Australia’s national hydrogen strategy, November, https://www.dcceew.gov.au/energy/publications/australias-national-hydrogen-strategy.

International Renewable Energy Agency (2023), Low-cost finance for the energy transition, International Renewable Energy Agency, Abu Dhabi. https://www.irena.org/Publications/2023/May/Low-cost-finance-for-the-energy-transition

Ludlow, M. (2023) ‘Stuck in the slow lane to net zero’, AFR Weekend, 24 June.

US Department of Energy (2023) U.S. National Clean Hydrogen Strategy and Roadmap, 6 June, https://www.hydrogen.energy.gov/clean-hydrogen-strategy-roadmap.html.