Hydrogen is a crucial battleground for achieving net-zero carbon emissions. Australia, with its excellent wind and solar conditions, recognized the potential of hydrogen early on and introduced a hydrogen strategy in 2019. However, five years later, Australia has not become a hydrogen superpower and is instead lagging behind the U.S. and the Middle East. In May this year, Australia increased its subsidies for green hydrogen. As Asian hydrogen buyers heavily invest in the hydrogen supply chain, can Australia reclaim hydrogen orders?

Australian Hydrogen Too Expensive, Investors Hesitant

In April this year, SP Global reported that Australian green hydrogen is expensive and may lose supply chain orders. Australia has about 156 green hydrogen or low-carbon hydrogen projects, with a total expected capacity of around 10 million tons, of which approximately 146 are green hydrogen projects. However, in reality, investors are hesitant, with only three projects reaching the Final Investment Decision (FID).

SP Global notes that since 2021, the cost of electrolyzers has increased by 20% to 45%, raising the cost of green hydrogen produced by electrolysis. Global inflation has also significantly increased factory construction costs, which is disadvantageous for Australia. In contrast, low-carbon hydrogen in Middle Eastern countries benefits from existing facilities, resulting in lower impacts.

Hydrogen, while being a low-carbon energy source, has different carbon emissions depending on the manufacturing method. Hydrogen produced by electrolysis using renewable energy such as solar or wind power is called "green hydrogen." Hydrogen produced from fossil fuels is known as "gray hydrogen," which does not meet low-carbon energy requirements. However, if gray hydrogen is treated with carbon capture, utilization, and storage (CCUS) technology, its carbon emissions are reduced, and it is referred to as low-carbon hydrogen or "blue hydrogen."

U.S. and EU Compete with Subsidies, Australia Races to Catch Up

"The world has changed," says Alison Reeve, Deputy Director of Energy and Climate Change Programs at the Grattan Institute. She was involved in the development of Australia's hydrogen strategy.

Another reason Australia is losing its hydrogen advantage is the substantial subsidies provided by the U.S. and EU for renewable energy. Reeve explains that the EU has spent trillions of euros to revive the post-pandemic economy and move industries from Asia to Europe. In 2022, the U.S. Inflation Reduction Act (IRA) also significantly subsidized domestic renewable energy.

Australia is racing to catch up, introducing the A$2 billion (US$1.3 billion) "Hydrogen Headstart program" in 2023. Six companies passed the first round of selection, with a total electrolyzer capacity of 3.5 GW. Australian Climate Change and Energy Minister Chris Bowen stated that the "Hydrogen Headstart" program will advance hydrogen development and set Australia on the path to becoming a superpower in renewable energy.

Asia's Hydrogen Procurement: The International Battle Begins

In May 2024, Australia launched the "Future Made in Australia" program, aiming to transform Australia into a superpower in renewable energy.

Finance Minister Jim Chalmers announced an additional A$2 billion for the "Hydrogen Headstart" program, including a tax offset of A$2 per kilogram for green hydrogen produced in Australia, with a subsidy period of up to 10 years. The total cost of this incentive is estimated to be A$6.7 billion.

SP Global reports that Australia's subsidy is unprecedented and is well-received in the industry. However, upon closer analysis, the hydrogen subsidy provided by the U.S. is $3 per kilogram (about A$4.50), more than twice that of Australia's.

The Deputy Director of Research and Analysis at SP Global Commodity Insights believes this will help close the subsidy gap between the U.S. and Australia and attract buyer interest. He mentioned that without this subsidy, the cost of exporting green ammonia from Australia to Japan would be more than twice that of U.S. green ammonia.

The Australian Financial Review (AFR) points out that the Japanese government plans to invest ¥3 trillion in hydrogen projects over the next 15 years and will start selecting investment targets in a few months. Faced with strong competition from the U.S., Australia needs additional advantages.

References:
♦ Prime Minister of Australia（2024.5.14），Investing in a future made in Australia
♦ Financial Review（2024.7.18）），Green hydrogen too ‘expensive and inefficient’: Finkel
♦ S&P Global（2024.4.25），Costly Australian renewable hydrogen may lose upcoming supply deals to Middle East, US
♦ S&P Global（2024.5.15），Australia's A$2/kg Production Tax Incentive for renewable hydrogen to help energy transition
♦ The Conversation（2023.12.3），Hyped and expensive, hydrogen has a place in Australia’s energy transition, but only with urgent government support
♦ Prime Minister of Australia（2024.5.14），Investing in a future made in Australia

Source: Environmental Information Center