Australia could miss out on the boom in hydrogen jobs and exports while putting at risk its plans to reduce greenhouse gas emissions without urgent action amid warnings a policy shift by the United States has changed the ground rules around the emerging power source.
A report by Deloitte Economics, to be released on Friday, has found Australia is at a “hydrogen tipping point” because of the Biden administration’s plan to spend hundreds of billions of dollars on subsidising its own hydrogen and renewables sector.
Australia last year set itself the goal of being one of the world’s three largest hydrogen exporters over the coming decade, with a further aim of using the energy source to supply clean and green power to an emerging manufacturing sector. Many of the gains are expected to flow to regional areas now dependent on fossil fuels.
Hydrogen is expected to be a key part of the suite of technology changes required for Australia to reach its target to cut emissions 43 per cent below 2005 levels by 2030 and reach net zero by 2050.
Hydrogen, which burns cleanly and emits only water, is touted as an important growth technology in the push to arrest global warming due to its potential to decarbonise parts of the economy that cannot be easily electrified, such as a range of industrial processes or heavy transport.
But the Deloitte analysis shows many of the expectations around an Australian hydrogen industry have been dealt a blow by US President Joe Biden’s Inflation Reduction Act passed last year, which contained $580 billion in support for clean manufacturing.
The various subsidies in the new laws are expected to make renewable US hydrogen the cheapest in the world while drawing in investment that otherwise could have flowed to nations such as Australia.
Report authors Pradeep Philip, Matt Judkins and James Boyle said the US move was a global game-changer that could have substantial negative impacts on an Australian renewable energy industry if action was not taken now.
“There is a short window for Australia to act and ensure its competitiveness and lay the foundations for a significant new industry,” it found.
“The competition will continue to increase, but without intervention, Australia risks a smaller industry that does not live up to public promises, fails to deliver for regions in transition and fails to offset declining fossil fuels.”
Deloitte’s analysis suggests the federal government consider a $2-a-kilogram production credit for hydrogen. This is about half the maximum credit available under the Biden administration’s program.
The company argues this lower price reflects Australia’s comparative advantages in some areas, while also keeping a lid on the total budget hit. At $2 a kilogram, the federal government would pump an estimated $15.5 billion into the industry over a decade.
That investment would, Deloitte estimates, generate $17.4 billion a year of hydrogen exports. That’s on top of supporting supplies of renewable hydrogen to the domestic market.
But without the subsidy, the company said Australia’s key energy markets of South Korea and Japan would come under threat from cheap American hydrogen.
By 2050, Australian hydrogen exports would be 65 per cent lower than expected, Australian greenhouse gas emissions would likely be higher as fossil fuels remained in the energy system for longer, while forecast industrial developments would be delayed without access to cheap hydrogen.
Philip said the Biden government’s policy would “cut Australia’s renewable lunch” and make it more difficult for the country to reduce its emissions.
“We have a wealth of comparative advantages in green industries like hydrogen, but we’re at risk of falling behind in the race to net zero. Despite Australia’s clean energy ambitions, the reality is our global competitiveness is declining,” he said.
“Moreover, it [hydrogen] means that hard-to-abate areas – concrete, aviation, steel – can actually decarbonise. Without this, we could face energy deficits and costs of production in Australia will be higher than they should be.”
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