Urgent action required to become green hydrogen superpower

Joe Biden’s surreptitiously-named Inflation Reduction Act has been described as the world’s biggest piece of climate change legislation, as big in its impact as the Paris Climate Change Agreement. Scott Hamilton and Joanna Kay argue Australia must act now to keep capital and talent onshore.

Queensland's Assistant Minister for Energy, Lance McCallum (left), with Scott Hamilton, senior advisor for Zero Carbon Hydrogen Australia, at the Smart Energy Queensland conference in September 2023.

Image: Smart Energy Council / Twitter

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It’s an investment of at least $500 billion (USD 370 billion) in electrification, renewable hydrogen and smart energy manufacturing and innovation.

Just as it’s a fillip for climate action in the US, it’s also a major barrier to smart energy manufacturing in our country, Australia. It is a direct threat to Australia’s green hydrogen hopes because it is directing investment away from Australia to the US.

Australia must counter the Inflation Reduction Act if it wants to become a green hydrogen superpower.

The 2019 National Hydrogen Strategy made the big, bold, audacious goal that Australia should become ‘a global leader in clean hydrogen by 2030’. The Strategy is currently under review and there is no less ambition from the federal, state and territory governments.

Rightly so, when there is a $1.4 trillion market by 2050 at stake, according to recent analysis by Deloitte. Clean hydrogen capacity can grow to “170 megatonnes of hydrogen equivalent in 2030 and 600 Mt H2eq in 2050,” said Deloitte in its 2023 Global Green Hydrogen Outlook. Australia’s 2022 State of Hydrogen Report identified over 100 local projects in the pipeline, including eight gigawatt-scale projects. Even conservative analysis focusing on replacing fossil gas with renewable hydrogen to make green ammonia in Australia still means potentially hundreds of billions of new clean energy investment.

Sadly, Australia’s green hydrogen ambition is not being matched with real action. Australia’s largest renewable hydrogen plant is the Tonsley $14.5 million, 1.25 MW hydrogen project in South Australia. Only a single project with a capacity of 10 MW has reached financial close. Australia is not on the path to be a global leader.

The Biden administration passed the US Inflation Reduction Act (IR Act) last year. It includes more than USD 370 billion ($570 billion) in direct assistance and will drive trillions of dollars in new investment into the US. The IR Act is providing tradable tax credits for hydrogen production that can be combined with tax credits for related renewable energy production and end use cases. Importantly, it creates a system of cascading incentives along the supply chain to substantially reduce the costs and make the US a global clean energy manufacturing superpower.

The IR Act is welcome and critical to decarbonising one of the biggest greenhouse gas emitters in the world. Literally trillions of US dollars, are being crowded into the US economy as direct result of the IR Act. “Simply put, the IRA is a game changer for Bloom,” said KR Sridhar, Founder and Chairman of the leading electrolyser company Bloom Energy. It is also having a tremendous impact around the globe as countries including China, Canada, South Korea, India and the EU scramble to put in response measures to stop capital leaving their countries and going to the US.

Australia’s own rush to build renewable energy fast enough to replace tired, old, failing power stations is being hamstrung by the US clean energy push. “It’s a material threat to us,” said Dr Guy Debelle, recently departed Fortescue Future Industries executive.

Talent, especially Australian leading engineers, is being lured to America. “We need 60,000 more graduate engineers in the next 10 years to just replace those that we think will retire,” said Jane MacMaster of Engineers Australia. “Local universities now only produce about 7,500 graduates annually,” MacMaster said. 

On behalf of its green hydrogen members, Zero Carbon Hydrogen Australia (a division of the Smart Energy Council) released a detailed response to the IR Act at the Smart Energy Queensland Conference on 5 September 2023. 

“Australia cannot rest on what has been started in the last 18 months when it comes to building and sustaining a renewable hydrogen industry,” CEO John Grimes said. “We need bold, urgent and dramatic action to raise our collective efforts to respond to the US IR Act and not miss this fantastic opportunity for our country,” he added.

The $2 billion Hydrogen Headstart program being focused on only supporting renewable hydrogen and its derivatives is very welcome. “A down payment of our response to the Inflation Reduction Act,” said Minister Chris Bowen earlier this year.

Australia now needs supporting policy measures to ensure we build momentum and get our green hydrogen sector thriving. We need tax credits, similar to the US, for production of renewable hydrogen and derivatives including green ammonia and green iron. 

A critical advantage of US-style tax credit approach is that it provides and immediate investment incentive. Government grant programs and auctions such as the Headstart program invariably take years of design, consultation and tender processes – usually prior to the time taken for a specific project to then reach financial close.

We’ve had the down payment, now it’s time for a renewable hydrogen tax credit scheme.

About the authors:

Scott Hamilton is a senior advisor for Zero Carbon Hydrogen Australia and an Adjunct associate professor at Monash University.

Joanna Kay is General Manager of Zero Carbon Hydrogen Australia.

The views and opinions expressed in this article are the author’s own, and do not necessarily reflect those held by pv magazine.

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