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Various government funds and initiatives have been created to incentivise the development of hydrogen projects in Australia.41 For example, at the national level, there is the Clean Energy Finance Corporation's $300m Advancing Hydrogen Fund42 and a $250m Future Fuels Fund from the Australia Renewable Energy Agency.43 In April 2021, the Federal Government announced that the 2021-22 budget would include funding to accelerate the development of clean hydrogen hubs in regional Australia with further funding for regional hydrogen programs being included in the 2022-23 budget, bringing the Australian Government's planned investment in hydrogen hubs to $525 million.44 Accordingly, it is the taxpayer who pays to incentivise entrants into this industry.
State governments have also committed to supporting the development of the hydrogen industry by way of financial support, for example, up to $3 billion will be provided under New South Wales' Hydrogen Strategy, in the form of waiving government charges, providing exemptions on network charges, direct capital investments and other incentive programs.45
While this state and federal 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.46 To stimulate the market, investors consider that government demand-side support in the form of CfDs and other offtake instruments that absorb price differences may provide more value as it would provide cashflow certainty. Cashflow certainty would also assist in securing external financing and broader private sector investment which is crucial to the success of the industry.
The current regulatory landscape does not explicitly accommodate the creation of a hydrogen market in Australia.49 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.50
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.51 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,52 and in 2022, Australian Energy Ministers agreed to extend the national gas regulatory framework to hydrogen, biomethane and other renewable gases.53
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 committed to developing a nationally consistent approach to regulatory models applicable to the hydrogen industry. However, this has not been what has occurred to date.
We are now seeing some states propose hydrogen specific legislation (for example, South Australia), and New South Wales has introduced its own incentive mechanisms. Further, certain states have expressed clearer preferences for green, rather than blue, hydrogen projects (for example, Tasmania and the ACT). There have, however, been some key themes for reform across the states. For example, most states have developed Renewable Energy Zones (REZs) or strategic development precincts for renewable hydrogen production. 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.54
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