Hydrogen, Renewables

Supporting hydrogen to reach its potential

Despite the hype for hydrogen as a green alternative to gas, there are still challenges relating to its role in the race to net-zero emissions, writes Jackson Allen, counsel at international law firm Allen & Overy.

As Australia’s companies look towards net-zero emissions, scepticism often arises around solutions that initially generate a great deal of enthusiasm, such as hydrogen. There was enormous excitement in Australia around green hydrogen, and it was often put forward as a direct replacement to gas and liquefied natural gas (LNG).

Given Australia is one of the leading producers of LNG globally – accounting for approximately 20 per cent of global LNG exports, as of February 2022, according to the Federal Government – that pins high hopes on the future of green hydrogen as a new powerhouse export.

Now that the reality of large-scale development is here, we’re finding hydrogen does not always compete with electrification as a solution. Capital expenditure is a significant issue – hydrogen still has a relatively high cost of product for each unit of energy, and ongoing challenges in storage and transportation are yet to be overcome. The need for conversion (and associated losses) means it will always be at a disadvantage compared to simply using electricity, so long as that is possible.

While challenges remain, Allen & Overy’s recent report, “Financing the Gap: A Blueprint for Decarbonisation”, notes that some experts believe hydrogen will transform everything from power generation to mass transit thanks to its flexibility as a carrier of energy.

This raises the question of whether hydrogen falls short of the hype in Australia.

In short, the answer is no. Regardless of the challenges that remain, hydrogen is essential if the world wants to reach net zero (and not just less) carbon. Hydrogen supply chains will be critical as Australia attempts to tackle its greenhouse gas emissions. In shipping and heavy transport industries, it could have a huge impact on decarbonisation efforts.

While it may not live up to some of the highest expectations that have been pinned to it, hydrogen’s real value will be in decarbonising some of the world’s trickiest industrial processes, such as steel production. It is likely to be a very useful source of greener energy for countries with limited options for renewable energy.

Jackson Allen is counsel at international law firm Allen & Overy. Photo: Supplied.

This means unlocking hydrogen’s full potential in Australia is not just a domestic issue – it affects many of our regional Asia-Pacific neighbours, and therefore presents new opportunities for APAC energy exports. Some Asia-Pacific nations, such as Japan, do not have a viable pathway to net zero without hydrogen. If Japan becomes a centre of demand, Australia is extremely well placed to maximise its potential as a large-scale green hydrogen producer for the country. In fact, pilot cargoes have already been shipped from Australia to Japan.

The sheer scale of Australia’s energy transition means hydrogen investment in Australia must be massive, and such investment is already underway. For example, increased funding for regional hydrogen projects and hydrogen highways for freight routes were announced in the 2022-2023 Federal Budget, signalling the Federal Government’s commitment to hydrogen infrastructure.

Still, more will need to be done. Hydrogen needs increased direct government intervention – in the same way renewable power did initially – to boost investment and realise its potential.

Australia needs increased government focus on growing domestic demand, providing hydrogen projects with certainty of offtake and revenue. While the Federal Government’s successful Renewable Energy Target scheme for the electricity sector would not translate directly to the hydrogen market, a similar focus on targets and incentives may be beneficial to boost market participation.

Significant steps have already been taken, and the Australian Government has introduced a scheme to certify green hydrogen; amended regulation to allow hydrogen into existing gas networks; and reviewed regulatory framework to identify what rules need to change to facilitate hydrogen production and transport. This puts Australia ahead of many other global markets.

However, all this won’t be enough to stay ahead of the curve. Whether greater government support takes the form of direct state funding towards construction projects, or revenue support measures to encourage infrastructure developments powered by hydrogen, more incentives need to flow through to Australian corporates. Preferably sooner rather than later as we work as quickly as possible towards a zero-carbon future with sufficient options for all our domestic and global energy needs.

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