The Albanese government’s $2bn commitment to nurture a hydrogen industry in Australia has been welcomed by sector experts as a “great start” but one that must be accompanied with a clear strategy for it to have a chance to succeed.
The 2023-24 budget, released on Tuesday, earmarked $7.3m in the coming fiscal year for its “hydrogen headstart”, climbing to $151.2m by 2026-27.
It also allocated $38.2m to a “Guarantee of Origin scheme” to track and verify the carbon emissions of hydrogen and other products made in Australia and support renewable energy certification.
Guy Debelle, a director of Fortescue Future Industries who in February warned of the threat to Australia posed by huge renewable energy subsidies in the US, welcomed the budget commitments as “a great start” on hydrogen, which can be used to power vehicles, generate electricity and power industry.
Debelle said making hydrogen in Australia at about $3/kg – the rough forecast for the outcome of the US subsidies – was “in the vicinity” after the budget.
FFI is considering five hydrogen projects, four of which are in the US or Europe. But Debelle said the government’s pledge was “clearly helpful” for the firm’s plans for a possible hydrogen production site at Gibson Island, near Brisbane.
Chalmers on Wednesday said “hydrogen is a big, big chance for Australia”.
“With the Americans piling in so much cash into grants and subsidies that Canadians to Europeans following suit in one way or another, we’re got to work out what is our slice of the action here,” he told the National Press Club.
When releasing the federal budget on Tuesday evening, Chalmers: “Hydrogen power means Wollongong, Gladstone and Whyalla can make and export everything from renewable energy to green steel.
“Seizing these kinds of industrial and economic opportunities will be the biggest driver and determinant of our future prosperity.”
Australia’s relative abundance of solar and wind energy gives Australia the opportunity to be a renewable energy superpower, economists including Ross Garnaut have argued.
The University of Sydney’s Prof François Aguey-Zinsou, who is also director of the Australian Association for Hydrogen Energy, said “anybody can produce hydrogen – there’s nothing special about Australia”.
Aguey-Zinsou said the nation had “been quite slow in reacting” on hydrogen. While the budget allocation was welcome, “it will take a lot more money for Australia to take a piece of the cake”.
He said as Australia currently has no customers for any locally produced hydrogen, nor a clear view as to prioritising any particular part of the supply chain. Storage and distribution for what is particularly leaky gas would be among the challenges, he said.
Another problem was the absence of a national strategy, with the states competing for investment, Aguey-Zinsou said. States such as New South Wales may be better off working on the testing and manufacturing technology, leaving the large-scale electrolyser plants for South Australia or the country’s north.
Victoria and the commonwealth spent $100m on a venture to produce hydrogen from brown coal in the Latrobe Valley for export to Japan. But as Guardian Australia reported last month, the project may be at risk of failing due to demands for extra subsidies and a lack of willingness from Japanese customers to sign up for long-term deals.
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The federal budget stated the $2bn hydrogen commitment was solely for hydrogen to be produced from renewable energy. It contained no further commonwealth funds for the coal-to-hydrogen plant.
Tony Wood, the Grattan Institute’s energy and climate change program director, said the hydrogen program was worth doing if it were well designed and well managed.
He said the size of the funding size meant it could lead to between four and six flagship projects, and being prepared for some of them to fail, given it would not be clear in advance that they would be commercial.
While the US was funding many projects, Australia should take a focused approach, and needed to avoid being captured by vested interests, he said.
“Conceptually, structurally, strategically this is a really important idea,” Wood said.
The independent MP Sophie Scamps said the budget was “a missed opportunity to supercharge our ability to become a renewable energy superpower”.
She said the $2bn investment and other green energy investments were “a drop in the ocean” compared with the US actions.
“The current level of investment in industry incentives and subsidies here in Australia may not be enough to stop some of our emerging businesses and industries heading offshore,” she said.
Bur the Australian Hydrogen Council’s chief executive, Fiona Simon, said the funding was “exactly the signal the market needed”.
“Competitive hydrogen production contracts are a much-needed market mechanism to provide revenue support for flagship projects, and will help get more and more large hydrogen projects off the ground so we can scale up to gigawatt-scale capacity as soon as possible,” Simon said.