Australian Policy – The Next 12 Months: Generating Supply and Demand for Green Hydrogen and Ammonia

In August 2022, Hamilton Locke’s New Energy Partner and sector lead, Matt Baumgurtel spoke at Ammonia Energy Association’s annual conference, joining industry experts to discuss Australian policy for ammonia adoption. Matt presented on how Australian policy measures could help generate supply and demand for green hydrogen and ammonia over the next 12 months. In this article, we share some of Matt’s insight into the transition to green hydrogen and ammonia, and what still needs to be done to achieve it.

Pledges to achieve net zero emissions by 2050 are steadily increasing as the global need to decarbonise becomes more generally acknowledged. Over the last decade, hydrogen and its derivative, ammonia, have come into the spotlight and are heralded as Australia’s next superhero renewable fuel resource.

The energy transition – opportunities for hydrogen and ammonia

As nations strive to meet the emissions reduction targets of the Paris Agreement by incorporating cleaner fuels into their energy supply, the decline in demand for fossil fuels threatens the Australian resources sector. While the outlook for Australian coal and natural gas exports is still positive in the short to medium term, if Australia wants to ensure its future economic success, it must not disregard the long-term challenge posed by global decarbonisation obligations.

The export of hydrogen and its derivatives offers Australia an opportunity for economic growth and a means of modernising the mining and resource industries and fostering economic resilience.

Hydrogen is the ideal complement to batteries and renewable electricity because of its long-term energy storage potential and the ability of electrolysers to be switched on or off as needed. Additionally, hydrogen has the distinct ability to be transported around the globe as a zero-carbon fuel in both liquid form and chemical forms (such as ammonia). With its plentiful renewable resources, established commercial ties with China, Japan, and Korea, and low sovereign risk, Australia is well-positioned to play a significant role in the hydrogen export market.

Ammonia is the second most produced chemical in the world, with most ammonia used as the base for fertilisers that support food production. Unlike hydrogen, ammonia has been traded globally for decades and has well-developed technologies for large-scale storage and transport. This hydrogen derivative serves as a viable transport alternative to liquid or compressed hydrogen. Hydrogen is challenging to ship – it has to be liquefied by chilling it to temperatures below −253°C, using up a third of its energy content. Ammonia, by contrast, liquefies at −10°C. Further, the energy penalty of converting hydrogen to ammonia and back is roughly the same as chilling hydrogen. As far more infrastructure already exists for handling and transporting ammonia, ammonia is the safer bet.

Significant employment opportunities will arise from building new regional industries for green hydrogen and ammonia production. While many relevant skills and infrastructure assets already exist in regional areas, new downstream value-added manufacturing could support jobs in Central Queensland, Gladstone, the Hunter Valley and Pilbara. Researchers from the Grattan Institute,¹ state that if Australia was to produce 6.5 per cent of the world’s ammonia with green hydrogen by 2050, there would be 5,000 ongoing jobs. This number rises by an additional 15,000 jobs if global shipping moved exclusively to ammonia and Australia maintained a 6.5 per cent market share.

Current state of play of hydrogen and ammonia

Australia

While some more than others, each Australian State and Territory has taken steps to support the adoption of renewable hydrogen and its derivatives. Each State and Territory has committed funding and developed various policy initiatives to further its adoption. Some examples are considered in the table below.

It is clear that Australia is committed to the cause and each Government is taking steps to promote the hydrogen and ammonia industry both domestically and in export.

International

Australia is not alone in its measures to implement green hydrogen within the economy. Recent announcements from overseas provide a further sense of the commitment required. For example, the United States has allocated US$9.5 billion directly to hydrogen, with further potential multibillion impacts from other infrastructure coverage. The Biden Administration introduced several proposals to expand tax credits for clean energy and suggested pairing investment in 15-low carbon hydrogen demonstration projects with a new tax credit for low-carbon hydrogen production facilities.

The United Kingdom has also committed funding, approximately £240 million directly, with a further £1.3 billion for net zero with hydrogen as a priority.

In South Korea, during FY21, spending on hydrogen projects by the South Korean Government totalled almost $US702 million. Its Hydrogen Economy Roadmap of Korea aims to grow domestic annual consumption from 130,000 tons in 2018 to almost 5.3 million tons by 2040.

In Japan, hydrogen and ammonia is intended to make up 1 percent of both the energy and electricity supply mix in 2030.

Direct Australian Government support for the hydrogen industry is significant and is now over A$1.2 billion. By comparison to our international counterparts, there is still room for improvement if we are to achieve our national objectives.

Required policy action to generate supply and demand

The window of opportunity for Australia will not exist forever. Policy needs to be focused on kickstarting both hydrogen supply and demand. We have considered two ways to achieve this, ie the “carrot and the stick” approach:

1. Incentivising green hydrogen production – by bridging the price gap between green and non-green hydrogen;
2. Disincentivising substitutes for green hydrogen – either by taxing or regulating its use or price.

Demand generation

To generate demand, the Australian Government should consider grants, rebates and subsidies for offtakers or through market mechanisms, for example similar to the Renewable Energy Target (RET) scheme. The RET scheme, designed to reduce emissions of greenhouse gases in the electricity sector, incentivised electricity retailers and renewable energy power stations to reduce emissions.

The Government could guarantee offtake agreements and launch tax incentives to consumers for purchasing renewable electricity. Prioritising a certification scheme for green hydrogen will also support demand generation to ensure transparency in consumer purchasing of green hydrogen.

Community buy-in is a fundamental aspect of generating demand. By emphasising the local benefits around economic development, job creation and circular economy opportunities with the community, communities are more likely to get on board and support Government initiatives.

Supply generation

As mentioned above, the Federal, State and Territory Governments have provided funding to develop technology and pilot projects for hydrogen and ammonia uptake. Further initiatives can be pursued by the Government, including equity co-investments, public-private partnerships, limiting the producer risk by underwriting production of green hydrogen and introducing tax incentives.

Developing domestic infrastructure is key to progressing Australia’s supply of green hydrogen and ammonia. Governments can continue to incentivise infrastructure development that can be shared across industry players and provide legislative certainty around standards, approvals, time frames and pathways.

Conclusion

The green hydrogen and ammonia industry is not yet at commercial scale and considerable investment and policy action is required to generate supply and demand. Realising Australia’s potential as a hydrogen and ammonia superpower requires strong national leadership to plan, collaborate and communicate with partners, stakeholders and the wider community. With the world moving to net zero, Australia’s opportunity to take advantage of this emerging industry is now.

The Hamilton Locke team advises across the energy project life cycle – from project development, grid connection, financing, and construction, including the buying and selling of development and operating projects. For more information, please contact Matt Baumgurtel.