Australia has unveiled plans to become a global leader in green hydrogen production and exports as part of its ongoing green energy transition.

Not only does the country account for around 20% of the world’s announced green hydrogen project, according to IEA figures, but Canberra’s dream of becoming a leading exporter means the country accounts for half of globally announced export-oriented projects.

The government appears to be betting on its ability to replicate the success seen in the country’s natural resource sectors. Australia’s long-standing success as a major exporter of iron ore, coal and gas has been a cornerstone of its economic growth. By leveraging this established model, the government aims to position Australia as a leading regional exporter of green hydrogen, ensuring the country’s role as a key player in the global energy transition.

The National Hydrogen Strategy positions the country as a “global hydrogen leader” in waiting

Australia must overcome several hurdles before it can realise this, however. After all, green hydrogen is an industrial process rather than a natural resource, meaning Australia’s competitive advantage—outside of the space it can offer investors—is extremely limited. By embracing an export strategy that private investors will have to bankroll, the country’s risks may be relatively small. This could see Australia miss out on more significant rewards in the long term.

National Hydrogen Strategy

The government released its National Hydrogen Strategy 2024 on 26 September, updating a previous strategy from 2019.

The document positions the country as a “global hydrogen leader” in waiting while touting the significant economic gains for early movers. Citing forecasts that the global hydrogen market value will reach $1.4t by 2050, with around $280b tied to interregional trade, the government argues the country must act now to capture a share of emerging trade opportunities.

The National Hydrogen Strategy seeks to build on existing initiatives the government unveiled in its budget earlier this year, which included the Hydrogen Production Tax Incentive and Hydrogen Headstart programmes. The former provides a demand-driven refundable tax offset of A$2/kg ($1.3/kg) to eligible hydrogen producers between fiscal 2027–28 and 2039–40, while the latter will provide A$4b in revenue support for large-scale early movers.

The newly updated hydrogen strategy has set a production target of 0.5–1.5mt/yr by 2030 and 15–30mt/yr by 2050. Exports, meanwhile, are expected to top 0.2–1.2mt/yr by 2030, with no long-term target provided. The government has already started looking for international trade partners capable of absorbing its planned exports to reach these targets.

Export negotiations

Almost two weeks before the updated National Hydrogen Strategy was unveiled, Canberra announced it had agreed with Germany to deepen “cooperation on new green hydrogen supply chains”. The two sides signed a Joint Declaration of Intent on 13 September to negotiate a A$660m deal in joint government funding to guarantee European demand for Australian green hydrogen.

Germany makes sense as a potential partner for Australia, given it has adopted a demand-focused approach to developing its green hydrogen market. Berlin wants hydrogen demand to climb from around 55TWh to 95–130TWh by 2030, with imports accounting for 50–70%.

However, the nebulous nature of the two countries’ deal underscores one of the biggest challenges facing the green hydrogen sector: drumming up a sufficient level of demand for what is a prohibitively expensive fuel. Green hydrogen projects remain commercially unviable, with their carbon abatement potential the biggest argument for their existence.

Driving costs down

Amandine Denis-Ryan, CEO of the Institute for Energy Economics and Financial Analysis (IEEFA) Australia, told Hydrogen Economist that green hydrogen would need wide-ranging support to become commercially viable.

“Green hydrogen suffers from a ‘chicken and egg’ issue, where costs are currently too high to generate demand, and large volumes of demand are needed to drive costs down. Some support is going to be needed to bridge the technology to commercialisation—in particular to reduce costs, and/or to create demand at non-competitive prices,” Denis-Ryan said.

Australia’s competitive advantage—outside of the space it can offer investors—is extremely limited

This support could take the form of government financing, offtake requirements for priority industries, voluntary uptake targets and a willingness to pay a premium by industry. Combining the different options could buy the emerging technology enough time to find its feet. The National Hydrogen Strategy estimates that green hydrogen costs will fall from A$5–10/kg (around $3–7/kg) to below $2/kg (around A$3/kg) by 2050. Denis-Ryan said hydrogen should be cost-competitive with fossil fuel alternatives in several sectors, including ammonia, when prices reach this level.

Still, the government’s export ambitions raise serious questions about such a strategy’s economic viability. Developing a liquid green hydrogen market requires government action on both the supply and demand side of the equation. Relying on foreign markets will leave the country reliant on policy successes or failures beyond its borders.

Kondo-Francois Aguey-Zinsou, a University of Sydney professor and leading hydrogen researcher, told Hydrogen Economist that the current focus on building green hydrogen export capabilities was a politically convenient solution to the thorny problem of driving demand in the face of high costs.

“The government has shown a lack of interest in developing domestic green hydrogen demand because doing so requires heavy investment; we are talking billions of dollars in R&D, infrastructure, etc. Ministers are not willing to take that kind of risk and would much rather give free access to international corporations in the hopes they can build another coal, iron or gas sector,” said Aguey-Zinsou.

Risk and reward

The problem for Australia is that taking a relatively safe approach that has been developed successfully for other energy resources offers little return. The country’s most significant competitive advantage is the space it can offer for project development. However, green hydrogen is an industrial process that relies on a skilled labour force, which Australia may struggle to develop without commitment to developing a local market.

Aguey-Zinsou added: “A low-risk approach of private sector investment is one strategy, but obviously the return for the Australian people is lower. In the end, it is a choice, and many advocate for the high risk approach that sees the government taking a bigger bet and heavily investing in building local capability and sovereignty in hydrogen tech.”

For its part, IEEFA believes that direct hydrogen exports are unlikely to ever make financial sense, and the focus should be on exporting hydrogen-based products, such as green iron or ammonia. Following that logic, Denis-Ryan stated that converting up to 30% of the gas feedstock used by the country’s ammonia plants to green hydrogen, with financial support from the government, would align with critical areas of national interest. Firstly, it would not require significant plant refits, minimising infrastructure costs.

Secondly, it would create large demand volumes in the near term, helping to deepen the domestic consumption pool. Thirdly, it would help shore up domestic energy security by reducing domestic gas consumption—the ammonia sector is the country’s second-largest industrial gas user—as the country grapples with forecasts of mid-term gas shortages.

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Author: Andrew Kemp