Part 2

Hy-Politics – political considerations shaping the evolution of clean hydrogen policy

Summary of the use case in Australia

In Australia, hydrogen is viewed as having a use case for transportation, heat and industry, as well as for export. While hydrogen has, in Australia, historically served mainly as an input into various industrial processes, both federal and state governments have committed to expand the use of hydrogen to transportation and heat (among several other applications).

In 2018, the CSIRO published the National Hydrogen Roadmap (the "Roadmap"), which analyses the economic opportunities associated with hydrogen and assesses how these opportunities can be realised in Australia. The Roadmap identifies hydrogen as having applicability and value in the areas of transport, remote area power systems, industrial feedstocks, for export, electricity generation, producing heat and synthetic fuels.

In respect of the three specific use cases identified for discussion in the Outline, the justification for each in Australia is as follows:

  • Transportation: As of 2019, transport accounted for approximately 18% of Australia's total greenhouse gas emissions. Further, the transport fuel supply chain is reliant on overseas partners (as Australia imports approximately 90% of its liquid fuel). Consequently, the development and use of hydrogen as a transport fuel in Australia could reduce greenhouse gas emissions and secure a reliable domestic fuel supply. Notably, hydrogen is forecast to account for 50% of all domestic transport fuels and the use of hydrogen as a transport fuel is forecast to constitute approximately 20% of total future demand for Australian hydrogen production. However, the success of hydrogen as a transport fuel rests largely on the development of further infrastructure both at a global manufacturing level (i.e. upscaling production facilities) and at a local operational level (i.e. hydrogen refuelling stations).
  • Heat: The Australian east coast gas market is expected to experience a gas shortage in the next decade fuelled by declining reserves in the vicinity of major gas consumption areas, restrictions on onshore development and the significant cost required to build import facilities or pipelines from other parts of Australia where gas reserves are abundant. Hydrogen is seen as an economic, low emission and, if the industry is successful upscaled, readily available replacement for natural gas as a source of heat. Hydrogen also has the potential to supplement the existing natural gas industry, through the process of blending hydrogen into existing natural gas pipelines so as to reduce the overall emissions intensity of gas combustion and relieving the impact of possible shortages. There are a number of projects in Australia which are studying the feasibility of blending hydrogen into local gas distribution networks. Nonetheless, using hydrogen to deliver heat is expected to be challenging in the short term.
  • Industry: Clean hydrogen is seen as a viable option to displace grey hydrogen as industrial feedstock. As hydrogen produced through steam methane reforming relies on a continuous input of natural gas, the cost and supply concerns noted above for "Heat" apply equally to Industry. A subset of the industry use case, is the potential for the creation of an export-focused manufacturing sector, for example the potential of a "green steel" export industry.

While we note that export is not a use case as such, it is worth noting that Australia does consider the potential for hydrogen to become a major export as a significant motivator in developing its hydrogen capabilities. To this end, Australia has developed ties with Japan, Singapore, South Korea, the Netherlands and Germany to investigate.

While Australia can leverage off of its experience as a major LNG exporter, the success of any large-scale export industry is largely dependent on the availability of technologies (such as storage and long-haul transport) and achieving a competitive production price.

Green vs. blue

The Australian Government has indicated that it is technology neutral when it comes to hydrogen production. Australia's Chief Scientist Dr Alan Finkel (who chaired the working group which developed Australia's National Hydrogen Strategy) has argued that it would be irresponsible not to investigate alternate fuel sources for hydrogen, as multiple sources would provide valuable diversification and opportunities for scale. There is significant support for blue hydrogen amongst key industry players, as it allows existing producers in Australia's well-developed oil and gas industry to leverage off their existing natural gas reserves. For example, Woodside and Santos are both focused on blue hydrogen developments. Further, there are a number of existing coal projects which are looking for opportunities to use their resources in a different way. The Australian Government's key aim has been to achieve "H2 under $2" (per kg) – this is the price where hydrogen is expected to become competitive with alternatives in large-scale deployment across Australian energy systems.


Part 4

Hy-Achieving – creating a suitable incentive regime

Various government funds and initiatives have been created to incentivise the development of hydrogen projects in Australia. For example, at the national level, there is the Clean Energy Finance Corporation's $300m Advancing Hydrogen Fund and a $70m Renewable Hydrogen Deployment Funding Round from the Australia Renewable Energy Agency. State governments have also committed to supporting the development of the hydrogen industry by way of financial support. While this funding has resulted in the feasibility of a number of research and pilot programmes required for large-scale hydrogen production, it has been suggested that such financial support needs to be extended to encourage technological development and support existing pilot programmes transition to large-scale commercialisation.

The Federal Government has developed, and consulted with industry in respect of, a proposed approach to the development of a 'Guarantee of Origin' scheme for hydrogen. This scheme would implement a standardised process of tracing and certifying where and how hydrogen is made and associated environmental impacts. This aligns with Australia's hydrogen strategy, which provides that "Australia wants to be a leader in developing an international [certification] scheme". On the basis of Australia's comparative advantage in producing renewable energy (due to space and natural resources available), a robust and internationally recognised certification scheme for green hydrogen is expected to be critical for Australia's competitiveness in the export of hydrogen.

Currently, the main method of incentivising the use case is government funded financial support provided directly to project developers, although in April 2021, the Federal Government announced that the 2021-22 budget would include $275.5m to accelerate the development of four additional clean hydrogen hubs in regional Australia. Accordingly, it is the taxpayer who pays for the chosen method of incentivising the use case. Whether this is the incentive model that continues to prevail as hydrogen gains traction and becomes more established in Australia remains to be seen.


Part 5

Hy-ly Volatile? making it safe, sustainable and transportable

The current regulatory landscape does not explicitly accommodate the creation of a hydrogen market in Australia. While some existing legislative frameworks are likely to apply to the hydrogen industry, it is probable that further regulatory reform will be required to specifically target the needs of large-scale hydrogen production.

A report commissioned by the Department of Industry, Innovation and Science identified 730 pieces of legislation and regulations, and a further 119 standards, that may be relevant to the development of an Australian hydrogen industry. These pieces of legislation principally relate to aspects addressing the safety, development and upscaling, environmental impacts and infrastructure needs (including transport and pipelines) of the hydrogen industry. A separate review would need to be undertaken to consider whether changes would be required to address hydrogen production, transport to market, use as fuel, use in gas networks, safety, project approvals, environmental protection and economic effects on industry. The Federal Government included $2.4m in the 2021-22 budget to support hydrogen related legal reforms.

A further regulatory challenge facing the hydrogen industry is the inconsistent application of different policies and priorities across the states. In order to achieve relative uniformity among jurisdictions, the various state and territory governments have committed to developing a nationally consistent approach to regulatory models applicable to the hydrogen industry. To this end, the Australian Government will drive the national regulatory reform by applying a "smart, consistent, light-touch" approach. In July 2020, through Standards Australia, the Australian Government adopted eight international standards relating to hydrogen quality, storage, transportation and usage. Several state and territory governments have also established cross-government agency working groups to develop competency in, and awareness of, hydrogen across government, including identifying and addressing regulatory gaps and providing advice on compliance with existing requirements.

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