Bell Bay, at the mouth of the Tamar River, once housed Tasmania’s only oil-fired power station. It was built in the 1960s and, when it was decommissioned in 2009, a new plant began operating directly next door: Tamar Valley Power Station, which runs on gas instead.

Today, as the world edges further away from coal, oil and gas, Bell Bay’s sprawling industrial precinct has become the unlikely setting for a new phase of the energy transition, one that is increasingly gaining promise as a missing piece in the push to slow global warming: green hydrogen manufacturing.

Hydrogen – which burns cleanly and emits only water – has been climbing towards the top of the decarbonisation agenda. In the past several months, governments, resource companies and large Asian energy users have been raising their bets on the fuel’s future and bankrolling pilot projects across Australia.

Several of these are taking shape in Bell Bay, where Origin Energy, Woodside Petroleum and Fortescue Metals Group are each lining up to pursue plans for large-scale “green” hydrogen facilities. By some counts, more than $190 billion of green hydrogen projects were announced worldwide in 2020.

Those betting on hydrogen as the next big thing point to its possible applications as both a transportable carrier of energy and a direct high-density fuel itself, capable of cleaning up the difficult-to-decarbonise sectors of the economy. Wind and solar can supply electricity for homes and electric-car batteries, but what will be done about energy-intensive manufacturing industries for which viable carbon-free alternatives are not readily available? Hydrogen might just be their solution. It’s also being explored as a clean option for aviation, shipping and heavy freight and an alternative for heating buildings.

The technology may be straightforward but there remain high hurdles to green hydrogen uptake and valid scepticism about its outlook. For one, the prohibitively high cost of the technology to produce it raises questions about whether it can ever be profitable. So what is green hydrogen? What’s driving the hydrogen rush? Is it hype or could it be the holy grail?

What is hydrogen and what is ‘green’ hydrogen?

Hydrogen (H) is the most abundant element in the universe – No. 1 on the periodic table. Here on Earth, however, it does not exist alone. Rather it combines with other elements to form compounds – mainly water (hence H2O: two hydrogen atoms, one oxygen atom) but also natural gas, coal and petroleum.

It is used today mainly in oil refining and to produce ammonia for fertiliser, but nearly all hydrogen currently comes from coal and gas through a process that emits carbon dioxide into the atmosphere. According to the International Energy Agency, the production of hydrogen globally is responsible for around 830 million tonnes of carbon dioxide a year, more than the total annual emissions of Australia. This is known as “grey” hydrogen.

For hydrogen to have a role in the clean energy transition, it must be developed without creating any emissions. One way is to continue producing hydrogen from fossil fuels but using carbon capture and storage (or CCS) technology to trap the carbon dioxide before it enters the atmosphere and bury it underground. This hydrogen is “blue” hydrogen.

But the cleanest version of all is “green” hydrogen, generated by renewable energy sources without emitting any carbon in the first place.

Green hydrogen is made via electrolysis, a process that uses an electrolyser to send an electric current through water to split the “H2” from the “O”. When renewable energy is used to power the electrolyser, the end product is emissions-free.

Why is hydrogen on the agenda now?

“I ask myself, why now?, given that the idea of a hydrogen economy has been seriously and frequently proposed since 1972,” said Australia’s former chief scientist Alan Finkel in 2018. One reason, he wrote, was the rapidly declining cost of renewable energy. The other: Japan’s commitment to become a long-term, large-scale hydrogen customer.

On the global climate calendar, 2050 is an important year. It’s the deadline by which scientists agree the world must achieve net zero emissions in order for countries to honour the Paris climate agreement’s goal of limiting global warming to below 2 degrees above pre-Industrial Revolution temperatures and avoid the worst effects of climate change.

More and more countries have set targets to achieve net zero emissions by the middle of the century. Australia is not one of them. But the three biggest buyers of Australian shipments of coal and liquefied natural gas (LNG) – Japan, China and South Korea – enshrined their net zero deadlines in 2020.

“Moving away from fossil fuels, using more renewables, electricity, hydrogen,” says Prakash Sharma, Wood Mackenzie Asia-Pacific head of markets and transition. “This is what net zero is all about.”

Why Japan’s pledge is particularly significant is that the nation is resource-poor and depends on imported fossil fuels to supply 94 per cent of its energy needs. Wood Mackenzie, a global consultancy, projects that Japan’s decarbonisation strategy will drive significant demand for hydrogen imports by the 2030s as it sets targets to blend hydrogen with natural gas for power generation and have 800,000 hydrogen fuel-cell cars on its roads by 2030.

More broadly, though, most developed nations are pledging on similar mid-century targets to get to carbon neutrality and, in the search for strategies to decarbonise industries that cannot simply be electrified and powered by renewable sources, more eyes are turning to hydrogen.

In countries such as Australia, governments and energy producers have embarked on strategies to develop hydrogen production and export capacity to meet that future demand.

How could hydrogen help?

As the push to zero out greenhouse gas emissions takes on greater urgency worldwide, the solution for some of the heaviest contributors to global warming is already obvious and available: electrification. In Australia and around the world, electricity generation will continue shifting from fossil fuels to wind and solar – supported by batteries and pumped hydro. Cars that run on petroleum can be replaced with cars that run on batteries charged by a low-carbon power grid. So can buses, trams and trains.

But what about parts of the economy essential to modern civilisation that can’t be easily electrified – such as the manufacturing of products such as steel, cement, glass and chemicals that use coal or gas to produce ultra-high heat or as a raw material? Then there are other forms of transport – aviation, shipping and long-haul trucking – that require high-density fuel to travel much further distances than existing battery technology is capable of supplying.

By some counts, a quarter of global emissions come from this so-called “difficult-to-decarbonise” category. Perhaps the most tantalising appeal of green hydrogen is its potential to clean up some of these sectors that have proved hard to decarbonise in the past.

One of the top targets for hydrogen is the steel-making industry, which directly accounts for up to 8 per cent of world emissions. Steel-making emissions come from the coal used to produce coke for the giant superheated blast furnaces that convert iron ore to molten pig iron. Hydrogen could replace coal in this process.

It’s a technology being explored by steel-makers around the world. In Australia, the Andrew “Twiggy” Forrest-backed Fortescue – an iron ore mining company that accounts for 2 million tonnes of greenhouse gas annually – is targeting plans to build the nation’s first green steel plant later this year, which will examine technology including green hydrogen.

“Replace coal in the furnace with our old friend, green hydrogen … you get steel,” says Forrest. “But instead of emitting vast clouds of CO2, you produce nothing more than water vapour.”

Another of the most immediate applications for clean hydrogen is fuel-cell electric vehicles. Hydrogen vehicle technology has been significantly overshadowed by the more popular and increasingly mainstream battery-powered electric vehicles, such as Teslas. Hydrogen vehicles account for less than 0.1 per cent of vehicles produced each year.

However, hydrogen vehicle technology has some advantages over batteries, including, typically, a longer driving range and far quicker refuelling times that could make it a more viable alternative for heavier vehicles such as trucks.

The lighter weight of hydrogen compared to batteries, which allows for greater distances without refuelling, and an energy density per unit mass that is three times higher than traditional fuels has placed it as one of the most promising zero-emission technologies for aircraft, too. Hydrogen has one of the highest energy density values per mass – 120 MJ/kg for hydrogen versus 44 MJ/kg for petrol. (This means that for every 1 kilogram of mass, hydrogen has an energy value of 120 megajoules.)

Airbus, the world’s biggest plane-maker, spent years exploring batteries but in 2020 turned its focus to hydrogen options instead. Glenn Llewellyn, the company’s vice-president of zero-emissions technology, says battery technology is “not improving at the rate needed” for Airbus to achieve its ambitions.

Will hydrogen live up to the hype?

Waves of enthusiasm about hydrogen as the clean-burning gas that could replace fossil fuels have come and gone for decades, and nothing much has happened. If hydrogen hype is to ever become a reality, high hurdles need to be cleared. There is justifiable scepticism about its potential to be anything more than just a pipe dream.

“Mind-bogglingly stupid,” is how Tesla’s Elon Musk describes its use in cars when compared to lithium-ion batteries. “It’s just very difficult to make hydrogen and store it and use it in a car. If you, say, took a solar panel and use that ... to just charge a battery pack directly, compared to split water, take hydrogen, dump oxygen, compress hydrogen ... it is about half the efficiency.”

The vast majority of the 110 million tonnes of hydrogen currently produced globally is from natural gas, not renewable energy. In fact, less than 1 per cent of hydrogen produced today is green hydrogen.

There are many reasons to doubt the potential for hydrogen’s varied applications. Hydrogen is difficult to store and transport; it is highly flammable and has long suffered an image problem (think, Hindenburg); the process to make green hydrogen is hugely water-intensive (one kilogram of hydrogen requires nine litres of water, raising concerns about water resources); and, unquestionably, the top barrier is the cost.

The federal government has set a goal of having green hydrogen produced at $2 per kilogram, the point at which it believes it would be competitive with hydrogen sources from fossil fuels. The government’s renewable energy agency, ARENA, says this would mean the cost of electrolysers would need to fall by as much as 75 per cent.

“There have been false starts for hydrogen in the past,” the International Energy Agency says, but it acknowledges significant support is emerging from governments, oil and gas producers, car makers and renewable energy suppliers. “This time could be different.”

Many experts, such as those at the respected Grattan Institute think tank, say too little thought is being given by Australian governments and industry about where hydrogen technology has the best chance of being commercially viable. A better idea would be finding hydrogen’s niches, which probably are the sources of emissions that lack clean alternatives.

“The government is placing too many bets on too many horses, and some of those bets may turn out to be a waste of public funding,” Grattan energy program director Tony Wood says. “Instead of throwing confetti at everything, we should be focusing our resources – prioritising and identifying areas where the fundamental economics might have the most potential.”

Is this a ploy by big oil and gas?

In the wake of the latest multibillion-dollar hydrogen investment wave in Australia and around the world, eyebrows have also been raised because it’s being funded mostly by oil and gas companies, who see it as a lifeline for their continued, long-term relevance in a world that’s increasingly legislating against carbon emissions.

Hydrogen could become a new and potentially profitable industry for them, giving new life to natural gas if blue hydrogen takes off, prolonging the longevity of gas infrastructure such as pipelines if blue or green hydrogen is blended with natural gas for heating and cooking, and developing new export opportunities to countries eager for either zero-emissions form.

“Big Oil’s last stand will be to use fossil fuels to create blue hydrogen – storing the emissions in the ground and peddling it as clean energy,” Forrest argues. “But it’s not clean, and governments are already falling for it.”

Oil and gas companies are investing in both blue hydrogen and green hydrogen projects.

Saudi Arabia, the world’s biggest oil exporter, is seeking to become a hydrogen pioneer, with state-owned energy giant Saudi Aramco focusing on blue hydrogen and another Saudi firm partnering with US-based Air Products and Chemicals to build the world’s biggest green hydrogen plant at the planned futuristic city of Neom on the Red Sea.

Oil and gas company executives explain their industry’s push to lead the hydrogen revolution by saying it makes sense for obvious reasons and shouldn’t surprise anyone: there’s no other sector in the world that has better expertise.

“It fits well within our competencies as a company. It’s what we do. We produce gases and liquefy them. That’s our base business,” Woodside chief executive Peter Coleman says. As well, the demand for hydrogen is emerging from markets that companies such as Woodside already sell into. “The Asian markets – Japan, Korea and China,” he says.

What’s next for hydrogen in Australia?

When it comes to hydrogen, governments both state and federal are setting high ambitions for Australia.

In 2019, the Council of Australian Governments’ energy council endorsed a national hydrogen strategy that aims to position the nation as a major global industry player and exporter of the fuel in its super-chilled, liquefied form by 2030.

Finkel, the nation’s chief scientist at the time, remarked that Australia was “at the dawn of a new industry … that could contribute to jobs, export income, energy storage and, vitally, emissions reduction”.

Australia is investing to help make this a reality, committing $300 million for the Clean Energy Finance Corporation and $70 million for the Australian Renewable Energy Agency to jump-start a domestic industry by supporting projects. The federal government has also entered into a series of partnerships with Germany, South Korea and Japan to explore the possibility of future hydrogen exports.

The federal government’s investment plan is “technology neutral”, meaning public funding is available both to green and blue hydrogen. This has raised concerns among some business leaders, renewable energy advocates and the ACT government that using hydrogen to store fossil fuel-generated energy could prolong the operation of coal- and gas-fired power stations and increase demand for fossil fuels that could be served by renewables.

Green hydrogen, however, appears to be attracting more attention, with new projects and joint venture partnerships across the country. In Western Australia’s remote Pilbara region, a consortium is planning the Asian Renewable Energy Hub, proposing to produce green hydrogen and export green ammonia on a massive scale.

Blue Infinite Energy is forging ahead with the Arrowsmith Hydrogen Project, north of Perth, largely from on-site solar power.

In NSW, gas pipeliner Jemena says its $15-million Western Sydney Green Gas project will generate enough hydrogen to meet the energy needs of about 250 homes and businesses from mid-2021 and, under a deal with Hyundai, could supply hydrogen to fuel the carmaker’s NSW vehicle fleet.

Origin Energy, one of Australia’s largest power and gas companies, is proposing a green hydrogen production plant at Bell Bay for green ammonia exports in one project and, in another, is planning an electrolyser in Townsville for green hydrogen for export and local supply in partnership with Japan’s Kawasaki Heavy Industries.

Woodside’s efforts are also centred on two projects: the Badgingarra Renewable Hydrogen Project in WA’s wheat belt region to produce green hydrogen for transport and industrial applications; and the H2TAS green hydrogen project in Bell Bay, targeting developing hydrogen for the transport sector.

In the latest development, the Tasmanian government struck an agreement with Woodside to support its application for ARENA funding, and Woodside is working with TasGas to assess blending hydrogen in the island’s gas pipeline network.

Places such as Bell Bay are considered ideal for hydrogen projects because they are established industrial precincts, have the necessary existing infrastructure and, critically, have access to cheap and abundant hydroelectric power, an important factor for green hydrogen projects to be competitive globally.

“In terms of renewable hydrogen, three things you need are electricity, water and infrastructure – road, rail and port – and we’ve got all them in spades in Tasmania, and specifically here in Bell Bay,” says Guy Barnett, the state’s Energy Minister.

“Unlike many other hydrogen manufacturing opportunities around the world, Tasmania has the best of the best – it’s up to 15 per cent more cost competitive here compared to the mainland because of the complementary nature of our hydroelectric facilities working with wind.”

Indeed, access to enormous wind, solar and hydro resources are one of the reasons governments and industry believe Australia is an ideal location, along with the country’s trade relationships with big north Asian LNG customers. But in a bid to become the world leader, competition will be fierce as countries such as Saudi Arabia invest heavily in the technology, too.

As the Grattan Institute’s Tony Wood explains, Australia’s lofty hydrogen plans have some way to go before the technology starts to make sense economically. And, although hugely promising, whether hydrogen will live up to the government’s hopes is not the sure thing some hydrogen evangelists are proclaiming it to be.

“Rose-coloured glasses are a really nice thing to have,” says Wood. “But sometimes I would replace them with clear glass instead.”