Morrison government paves the way for brown hydrogen industry

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After many months of debate, the Morrison government has passed new legislation designed to buttress the production of hydrogen from brown coal and lay the foundations for future carbon capture and storage (CCS) developments, a technology with a bad reputation for its low-efficiency and high cost. Against all the talk and efforts to create a viable green hydrogen industry in Australia, the latest move paves the way for fossil fuel producers to stay in the hydrogen game.

The Offshore Petroleum and Greenhouse Gas Storage (OPGGS) Amendment Bills, which was approved by the Senate this week, will allow for drilling and injection of CO2 released by fossil fuel-powered industrial processes into underground reservoirs. That being said, the new regulatory framework clears all the obstacles for a commercial-scale CSS project in Victoria’s Latrobe Valley.

The CarbonNet project will provide CSS for the $496 million Hydrogen Energy Supply Chain (HESC) pilot project at Loy Yang power station and mine, backed by $100 million in taxpayer money from the Commonwealth and Victorian governments. The project, which is co-funded by a Japanese consortium led by Kawasaki Heavy Industries, will turn brown coal into hydrogen for export to Japan. HESC will use 160 tonnes of brown coal from Loy Yang’s mine to create three tonnes of hydrogen which will be shipped via a specially-designed boat.

Push to have it both ways

In talking about the HESC project, Australia’s Chief Scientist Alan Finkel said last year: “A decision on the future of the project after the trial is likely around the mid-2020s, and it won’t proceed if it’s not cost-effective. But I’m optimistic production of hydrogen can be done competitively – we’ve seen volume-driven cost optimisation in other industries. Brown coal is attractive as the input to the process because it’s easy to access and available in very large volumes that would last hundreds of years. Also, having CarbonNet on the doorstep of the Latrobe Valley coal resource is an enabler in a decarbonised environment.”

Although Finkel pushed Australia toward hydrogen produced by solar and wind during the consultations on the National Hydrogen Strategy, he also remained attached to the fossil fuel-CSS idea. The stance was reflected in the Strategy itself, adopted in November last year, which remains technology neutral. However, the Strategy also envisaged the development of a hydrogen certification scheme that will show the emissions intensity of hydrogen produced in Australia. With such transparency, prospective importers will be aware of the environmental impacts of the hydrogen they use.

On Friday, the Federal government welcomed the passage of the bills that “could pave the way for the development of an important new Australian resources industry”. “The abundant brown coal resources of the Latrobe Valley are ideal feedstock for one of the world’s first hydrogen export industries based on coal, generating new jobs and business opportunities in a regional area that has been suffering with the closure of the Hazelwood power station,” Minister for Resources, Water and Northern Australia Keith Pitt said.

The new legislation throws a lifeline to both ageing coal-fired power stations and low-quality brown coal industry in the Latrobe Valley although overseas markets have been increasingly turning to renewable energies and are therefore more likely to procure green hydrogen. For CarbonNet, located underground, offshore in Bass Strait, the bills effectively remove one of the technical issues around the project. 

“A proposed site straddles the boundary of state and Commonwealth waters and the Bill amends and clarifies the regulatory framework to help unlock the development of more projects in the Latrobe Valley – providing a cost effective pathway to low emissions,” Pitt said.

Covid-19 response

The passage of the amendments is, according to the government, an important step for the country’s economic recovery from the Covid-19 pandemics flying in the face of evidence that renewables hold the key to Australia’s post-pandemic recovery. A recent report found that bringing forward the gigawatts of renewable energy projects in the development pipeline will: create over 50,000 new direct jobs, and many more indirect jobs during construction; triple the amount of large-scale renewable energy installed in Australia with the addition of more than 30 GW of new capacity and inject $50 billion of investment into the Australian economy — much of it in rural and regional areas.

“As Australia emerges from the Covid-19 pandemic and begins the process of economic recovery, it’s even more crucial that we ensure that our regulatory approvals support, not hinder, major projects. These amendment achieve that,” Pitt said.

The new regulation comes hot on the heels of the announcement of a $300 million Advancing Hydrogen Fund, as the number of pre-commercial activities and feasibility studies continues to grow across the country. Based on fuel prices in March, the BloomberNEF’s Hydrogen Economy Outlook estimated that renewable hydrogen could be produced for US$0.8 to US$1.6/kg by 2050, making it competitive with natural gas. Australia’s government has set the open-ended goal dubbed ‘H2 under AU$2’ as part of its as yet unreleased but much anticipated Technology Investment Roadmap.

Kobad Bavhnagri, Global Head of Industrial Decarbonization at BNEF and lead author of the report, said: “Our analysis suggests that a delivered cost of green hydrogen of around US$2/kg in 2030 and US$1/kg in 2050” is achievable in China, India and Western Europe. Countries with the best renewable and hydrogen storage resources, such as Australia, could achieve 20-25% reductions on these costs.

But BNEF cautions that even at US$1/kg the use of hydrogen in place of fossil fuels is still likely to require a carbon price or other policy measures to make it the most attractive option: “This is because hydrogen must be manufactured, whereas natural gas, coal and oil need only to be extracted, so it is likely to always be a more expensive form of energy,” he said.