Aggressive policy moves by the United States to fast-track its renewable energy industry – namely the $US738 billion Inflation Reduction Act – could drastically undermine Australia’s future green hydrogen exports unless urgent public and private action is taken, a new report has warned.
The strongly-worded Deloitte report warns that a failure to aggressively pursue major-scale hydrogen development could shrink Australia’s hydrogen exports by 65 per cent year by 2050 versus forecasts before the IRA’s introduction.
“This could mean that renewable hydrogen never reaches a comparable scale with our current fossil fuel exports, with implications for our balance of trade and clean manufacturing aspirations,” Deloitte says.
Australia’s federal Labor government has previously said that by 2050, Australia’s hydrogen industry could generate $50 billion in additional GDP and create over 16,000 jobs, as well as an additional 13,000 jobs from the construction of renewable energy infrastructure to power the production of green hydrogen.
Renewable hydrogen is widely seen by backers as a way to decarbonise ‘hard-to-abate’ industries, such as heavy transport, metals refining and fertiliser production.
Deloitte says Australia’s competitive position in renewable hydrogen could tip the playing field back in its favour as a manufacturing economy by lowering input costs and accelerating agglomeration effects in industrial clusters.
The report notes substantial differences between policy levers available to encourage renewable hydrogen production on a national level, with production credits emerging as more efficient at incentivising this than capital grants or investment tax credits.
The reports authors identify a “goldilocks zone” for policy intervention of around $2/kg hydrogen production credit. This is around half the level of the maximum credit in the IRA for renewable hydrogen ($US3/kg).
The price differential reflects Australia’s underlying comparative advantages and fiscal objectives, according to Deloitte.
This would require the government to cough up $A15.5 billion (today’s terms) over a decade.
The payoff, says Deloitte, would be setting Australia on track to produce almost 16 million tonnes of renewable hydrogen a year by 2050, with exports worth $17.4 billion a year in today’s terms.
“Crucially, we would set in train the creation of new clean industries to offset the decline of our fossil fuel industries,” according to the report.
The report singles out the US IRA as shifting the global competitive landscape for renewables, while noting that the EU, Canada, and a number of Gulf states have also embraced market intervention.
With the US, European and Gulf producers already entering into a bidding war for market share and dominance, Deloitte expects the global green hydrogen market to deliver significant first mover advantages and positive economic spillover effects driven by long term contracts.
“This dynamic is expected to trigger a race to scaled production, where innovation drives production down the cost curve. But the economic and commercial benefits of innovation extend beyond technology development and are sticky and persistent, and supply contracts are likely to accrue to the early movers,” the report says.
Fortescue Futures Industries, an offshoot of iron ore billionaire Andrew “Twiggy” Forrest’s Fortescue Metals, late last year warned green hydrogen producers needed to start making major investment decisions immediately if climate goals were to be met.
The demand outlook for the cleanest form of hydrogen, made using renewable energy, is still unclear and there’s particular uncertainly over how big a ‘green premium’ customers will pay, Guy Debelle, chief financial officer at Fortescue Future Industries told Bloomberg.
FFI has signed scores of memorandums of understandings with other parties for future development and production of hydrogen.
Australian Prime Minister Anthony Albanese in January unveiled a $70 million investment – which the government hopes will be matched by the private sector – for development of the Townsville Region Hydrogen Hub program in Queensland.
