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Australia’s pathway for a clean hydrogen future

Purpose of the State of Hydrogen report

Australia’s National Hydrogen Strategy takes an adaptive approach, requiring frequent assessment of the industry to ensure its actions are aligned with international progress.  

To track Australia’s progress against global developments, Australian governments have committed to publishing an annual State of Hydrogen report. This report monitors and tracks the measures of success and industry development signals outlined in the National Hydrogen Strategy.

Australia’s National Hydrogen Strategy supports all production pathways and technologies that are capable of producing clean hydrogen. Clean hydrogen is hydrogen produced using renewable energy or using fossil fuels with substantial carbon capture and storage (CCS). This gives our emerging hydrogen industry flexibility to pursue the pathways that best meet customer preferences as global markets emerge.

While the industry has already made progress against many of these measures and signals, others will become more relevant as the industry matures. This report sets out our approach to measuring progress and gives a snapshot of where we are up to.

Thirteen industry development signals are defined in the strategy to indicate whether aspects of the hydrogen industry are advancing quickly or slowly by 2025 and 2030. These industry development signals are:

  • investment
  • project scale
  • cost-competitiveness
  • Australia’s exports
  • chemical feedstock
  • electricity grid support
  • mining and off-grid
  • heavy transport
  • light transport
  • gas networks
  • electricity generation
  • steel making
  • industrial heat.

The strategy also outlined measures of success across 3 categories. These measures will guide decision-making as the strategy is implemented.

  1. Australia has a clean, innovative, safe and competitive hydrogen industry
    • Clean
      • Carbon intensity of the Australian hydrogen production meets community, customer and consumer expectation and is decreasing over time.
      • Australia has a robust certification scheme that is internationally accepted.
    • Innovative
      • Australia is regarded as having a highly innovative hydrogen industry and a supportive research and development environment.
      • The sustainability of water use for Australian hydrogen production continues to improve.
    • Safe
      • Australia has an excellent hydrogen-related safety track record.
    • Competitive
      • Australian hydrogen is cost-competitive domestically and internationally.
      • Australia has a ‘hydrogen-ready’ workforce that is responsive to industry’s needs.
  2. Australia’s hydrogen industry benefits all Australians
    • Jobs and prosperity
      • Hydrogen is providing economic benefits and jobs.
    • Supported communities
      • Benefits are flowing back to communities where hydrogen industries are located.
    • Domestic use
      • The cost of clean hydrogen continues to decrease in part due to technology developments and in part due to scale achieved in the development of a hydrogen export industry.
      • Hydrogen production and use is integrated into energy market structures.
  3. Australia is a major global player
    • Hydrogen exports
      • Australia is among the top 3 exporters of hydrogen to Asian markets.
    • Investor confidence
      • Australia is seen as a destination of choice for international investors in hydrogen.
      • Australia has major offtake or supply chain agreements in place with importing countries.
    • Hydrogen capability
      • Australia has demonstrated hydrogen capability in all links of the supply chain.

How we track progress

In 2020, the Department of Industry, Science, Energy and Resources commissioned CSIRO to develop a data framework to facilitate consistent, repeatable measurement of hydrogen industry progress. The department then commissioned KPMG to analyse the Australian and global hydrogen industries using CSIRO’s data framework. Using the information available in 2021, the industry was assessed against each of the 13 development signals to determine whether each development signal is:

  • advancing quickly
  • advancing
  • advancing slowly.

Definitions

In this report:

  • ‘hydrogen’ means hydrogen and its derivatives, such as ammonia.
  • ‘clean hydrogen’, means hydrogen produced with either:
    • renewable energy
    • fossil fuels with substantial carbon capture and storage (CCS).
  • ‘high-carbon hydrogen’ means hydrogen produced from fossil fuels without CCS.

Australia’s hydrogen opportunity

Hydrogen is a versatile and clean fuel that produces no carbon emissions when used. It has been identified as an important technology to reduce global emissions by many countries including Australia, the United States, Germany, Japan and Korea.

Hydrogen is a flexible, safe, transportable and storable fuel. It is currently used:

  • for oil refining
  • in chemical and fertiliser production
  • as an industrial chemical feedstock for products such as ammonia and steel.

Emerging uses for hydrogen include:

  • powering vehicles
  • generating heat
  • trading clean energy between countries.

The main methods used to produce hydrogen in Australia are:

  • electrolysis (extracting hydrogen from water using electricity)
  • thermochemical reactions using coal (coal gasification) or natural gas (steam methane reforming).

Approximately 87 million tonnes of high-carbon hydrogen was produced globally in 2020.[2] Carbon emissions from thermochemical production using fossil fuels can be greatly reduced by capturing and storing the carbon emissions. 

Producing hydrogen from electrolysis powered by renewable electricity does not create any carbon emissions.

Australia has abundant renewable energy resources. The National Hydrogen Strategy estimates that Australia has 262,000 square kilometres of land that is highly suitable for hydrogen production using renewable electricity. This is about 3% of Australia’s total land area and is larger than the average European Union nation. This amount of land could theoretically support tens of thousands of gigawatts of renewable energy projects.

Australia also has substantial resources of coal, both black and brown. The most significant black coal resources are located in the Bowen and Surat basins (Queensland) and the Sydney basin (New South Wales). Coal is Australia’s largest commodity export, with our annual thermal and metallurgical coal exports worth more than $40 billion, mainly to Japan, India, the European Union, the Republic of Korea and Taiwan. Economic demonstrated resources (EDR) of black coal are adequate for about 90 years at current rates of production.[3]

Australia’s brown coal resources are located mostly in the Gippsland Basin in Victoria, where it is used for electricity production. At current rates of production, there are nearly 500 years of brown coal resources remaining.[4]

Australia’s gas reserves include large conventional gas resources located mostly in the Carnarvon, Browse and Bonaparte basins off the northwest coast, with smaller resources in the Gippsland Basin (offshore Victoria) and the onshore Cooper–Eromanga Basin in South Australia. EDR of conventional gas are adequate at current levels of production for around 60 years.[5]

Substantial resources of coal seam gas (CSG) are associated with the major coal basins of eastern Australia. CSG resources are being rapidly increased by exploration, with significant economic demonstrated resources of CSG now identified in the Bowen, Surat and Sydney basins.

Australia has extensive geological sites for carbon capture and storage (CCS). In the near term, the best CCS opportunities are:

  • the Carnarvon Basin
  • offshore Western Australia (the site of one of the world’s largest carbon capture and storage projects on Barrow Island)
  • the Gippsland Basin, in offshore Victoria (site of the CarbonNet project)
  • onshore regions near the Cooper Basin (Queensland and South Australia) and Surat Basin (Queensland).

Australia also has a long-standing track record as a trusted global energy exporter. This means we are well placed to produce clean hydrogen at a large scale. We can use Australian-made clean hydrogen to help decarbonise our own economy, as well as supply it to other countries. 

Australia’s goal is to be a major supplier of clean hydrogen by 2030. This could see the Australian hydrogen industry reach the scale of our current liquefied natural gas (LNG) industry. The value of our LNG exports in the 2019–20 financial year totalled $48 billion, 16% of Australia’s total resource and energy exports.[6]

Realising this opportunity for hydrogen could provide enormous growth in domestic manufacturing. It would also create ongoing jobs in project financing, management, operation and maintenance.

Areas for action

For the Australian hydrogen industry to realise this opportunity, we need to keep taking action in 3 main areas:

Building domestic demand

The National Hydrogen Strategy identifies that building domestic demand for hydrogen is important to help the Australian industry achieve export scale.

Increasing domestic demand for hydrogen could unlock new industries to drive economic growth. It could also reduce emissions in hard-to-abate areas of the economy.

Low-cost hydrogen production at scale

Clean hydrogen is currently more expensive than conventional fuels for most end-use applications. Production costs need to fall before clean hydrogen can compete with these fuels on price.

Efficiencies of scale and lower electricity and gas costs will play a significant role in reducing the cost of producing hydrogen.

Reducing hydrogen delivery costs

Australia’s Technology Investment Roadmap sets a stretch goal for hydrogen production of under $2 per kilogram – the point where hydrogen becomes competitive with conventional fuels. Compressing, storing and transporting hydrogen could add up to $2 per kilogram to the cost of hydrogen.[7]

To build a hydrogen export industry, the costs of hydrogen storage and transport need to fall. This will reduce the cost of hydrogen delivered to domestic and international consumers.

Figure 1: Production pathways for clean hydrogen

Diagram showing 3 different ways hydrogen can be made. Text description follows.

Hydrogen can be produced through:

  • electrolysis, which uses renewable energy to extract hydrogen from water, with oxygen as a by-product.
  • gasification, which uses coal to extract hydrogen from water, with carbon dioxide as a by-product
  • steam methane reforming, which uses natural gas to extract hydrogen from water, with carbon dioxide as a by-product.

Australia’s National Hydrogen Strategy

To take advantage of the hydrogen opportunity, Australia’s governments worked together to develop Australia’s National Hydrogen Strategy in 2019. One of the world’s first hydrogen strategies, it provides a framework for governments and industry to work together to build Australia’s hydrogen industry.

The strategy describes a vision of a clean, innovative, safe and competitive industry – an industry that benefits all Australians and where Australia is a major global player by 2030.

The strategy enables choice of clean hydrogen production technologies, supporting all production pathways that can create clean hydrogen.

While renewables are essential for decarbonising industries, there is growing recognition that carbon capture and storage (CCS) also needs to play a role. CCS can be used to reduce emissions from industrial processes that cannot be decarbonised with renewables alone. It can drastically reduce the emissions from cement production and fugitive emissions from liquefied natural gas.

Large international organisations such as the United Nations Framework Convention on Climate Change (UNFCCC) and the International Energy Agency (IEA) recognise that achieving many net zero ambitions will be difficult without CCS.

The Australian Government has provided over $300 million help develop CCS and carbon capture, use and storage (CCUS) hubs and technologies, and also has developed an Emissions Reduction Fund method to credit abatement from new CCS projects.    

The National Hydrogen Strategy includes 57 nationally coordinated government actions. These actions are the first steps Australia needs to make to capture its hydrogen opportunity. They are grouped into themes:

  • national coordination
  • developing production capacity, supported by local demand
  • responsive regulation
  • international engagement
  • innovation, research and development
  • skills and workforce development
  • building community confidence.

A stretch goal for hydrogen

The Australian Government released its first Low Emissions Technology Statement under the Technology Investment Roadmap in September 2020. The statement provides an approach to quickly deploy low emissions technologies with the highest abatement and economic potential for Australia.

The statement sets economic stretch goals for priority low emissions technologies. These stretch goals will help priority technologies reach economic parity with existing technologies and enable wide-scale uptake.

Clean hydrogen is identified as a priority technology under the Technology Investment Roadmap. Its economic stretch goal is a production cost under $2 per kilogram of hydrogen. This is the cost where hydrogen becomes competitive with conventional fuels.

An adaptive approach

Australia’s natural advantages are not enough to create a successful hydrogen industry. We also need to ensure the scale and timing of Australia’s industry development aligns with international market growth.

The National Hydrogen Strategy takes an adaptive approach to industry development. It lets Australia scale up quickly as the hydrogen market grows, but doesn’t overcommit to an industry that is still maturing. This means taking action now, but accepting that we need to keep refining what we do as markets and technologies change.

Figure 2: Adaptive approach to industry development

Diagram showing our adaptive approach. Text description follows

We will realise our vision for the Australian hydrogen industry by repeating the following steps:

  • taking action
  • reviewing, revising and adapting the strategy
  • watching industry signals.

The adaptive approach has 2 main phases:

  • Foundations and demonstrations (2020 to 2025). This phase focuses on creating, testing and demonstrating supply chains, as well as building capability.
  • Large-scale market activation (2025 to 2030). This phase builds on and broadens the work in the first phase. It focuses on scaling up the industry and developing markets to underpin it.

Footnotes:

  1. International Energy Agency (IEA), Net Zero by 2050 – A Roadmap for the Global Energy Sector, May 2021.
  2. Geoscience Australia, Energy Overview, September 2021
  3. Geoscience Australia, Energy Overview, September 2021
  4. Geoscience Australia, Energy Overview, September 2021
  5. Office of the Chief Economist, Resources and Energy Quarterly, March 2021
  6. Advisian, Australian hydrogen market study, May 2021