Is Australia in the race to net zero?

As economies around the world enter into a bidding war for market share and dominance of hydrogen production, Australia is at risk of being left behind in the race to become a clean energy superpower, despite it being well placed to develop a clean energy export market due to natural advantages.

An analysis of the US Inflation Reduction Act’s (IRA) clean energy incentives in research from Deloitte Access Economics suggests that Australia could lose market share to the US and export 65% less renewable hydrogen by 2050.

Meanwhile, the Australian Hydrogen Council (AHC) has released a paper detailing what it believes would be an appropriate response by the Australian Government to the IRA and other international incentives that are increasingly attracting investment in hydrogen.

The hydrogen tipping point

The Deloitte Access Economics report, Australia’s Hydrogen Tipping Point – The urgent case to support renewable hydrogen production, found that without action, Australia’s scaled renewable hydrogen production may be delayed by a decade until the mid-2030s, and its hydrogen industry may never reach a comparable scale to fossil fuels.

The analysis suggests there may be a goldilocks zone for policy intervention — around a $2/kg hydrogen production credit, approximately half the level of the maximum credit in the US for renewable hydrogen, reflecting Australia’s underlying comparative advantages.

This would require a $15.5 billion public investment over a decade and, if done right, would put Australia on track to produce almost 16 million tonnes of renewable hydrogen a year by 2050, with exports worth $17.5 billion a year. This would also lead to the creation of clean industries to offset the decline of existing fossil fuel industries.

Pradeep Philip, head of Deloitte Access Economics said: “We have a wealth of comparative advantages in green industries like hydrogen but we’re at risk of falling behind in the race to net zero. Despite Australia’s clean energy ambitions, the reality is our global competitiveness is declining. The US Inflation Reduction Act looks set to cut Australia’s renewable hydrogen lunch.”

Matt Judkins, Deloitte Access Economic Partner, said Australia has an opportunity to take advantage of its natural assets to produce products that meet zero carbon ambitions, such as green steel, green aluminium and zero carbon fertilisers. “We can’t afford to lose this race.”

Call for strategic action

The AHC paper calls for ‘immediate action’, listing six recommendations to enable the hydrogen sector to move forward. The recommendations include:

1. Underwrite demand through a revenue support mechanism to incentivise domestic production of critical chemicals and metals.
2. Increase and expand ARENA funding for trials and demonstrations looking at decarbonisation of the production processes for carbon-intensive industries.
3. Develop bespoke joint support packages between Australia and its trading partners.
4. Develop a revised hydrogen strategy.
5. A revised hydrogen strategy should explicitly value and support the development and commercialisation of new technologies and industries, to ensure a pipeline of technologies and researchers in Australia.
6. Consider establishing a case manager approach within government to assist project developers and funders to tie all potential sources of support together, as well as assist in the coordination of planning and approvals.

Dr Fiona Simon, CEO of the Australian Hydrogen Council, recommends that the government underwrites demand through a revenue support mechanism, such as contracts for difference, to incentivise the domestic production of strategically important chemicals and metals such as iron, ammonia and methanol.

“Beyond the next 12 months, a revised hydrogen strategy is crucial to incentivise hydrogen production in areas where Australia has a competitive advantage, such as the production of iron. Funding could be matched by the states and territories, or split so that one funding stream defrays capital costs and the other provides long-term underwriting for contracts.

“A renewed focus on job creation, building sovereign manufacturing capabilities and helping heavy industry decarbonise should be a key focus of an updated strategy.

“We welcome the government’s commitment last week to review the National Hydrogen Strategy and hope to see a cohesive plan that reduces uncertainty and complexity for investors.

“This cannot be left to chance, or to the whims, complexities and uncertainties of a nascent market. Governments must be market makers at this stage of the energy transition. This is not only about funding for pilots but also major infrastructure investment in the public interest. Becoming cost competitive with fossil fuels will not happen without extensive government policy and subsidies.”

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