Andrew Forrest’s Fortescue Future Industries continues push for US-style hydrogen tax credit
Andrew Forrest’s green energy business will continue pushing for a US-style hydrogen tax credit as part of a $2bn budget commitment to the fledgling industry.
Andrew Forrest’s green energy business will continue to push for a US-style hydrogen production tax credit following a $2bn federal budget commitment while former chief scientist Alan Finkel says Australia’s bid to build a major export industry selling the energy source will take longer than expected.
The government on Tuesday promised to “bridge the commercial gap” for early-stage green hydrogen projects by providing revenue support through “competitive hydrogen production contracts”.
It will work with industry in the coming months to develop a favoured revenue support scheme based on a review of approaches adopted overseas.
Treasurer Jim Chalmers described the global shift to clean energy as the “biggest opportunity for growth and prosperity”, and Australia had the potential to become a world leader in hydrogen production and export.
However, the former chief scientist said export markets would take longer than initially expected to form.
“When we developed the national hydrogen strategy four years ago, we were excited by the
allure of Japan, Korea and other countries importing hydrogen and its derivatives. However,
they have been slow to step forward,” Dr Finkel will tell an Adelaide conference on Thursday.
“We all know that renewable electricity and clean hydrogen are key to the future, but the economics of clean hydrogen and how best to use it are not yet clear.”
In its pre-budget submission, Dr Forrest’s Fortescue Future Industries called for a green hydrogen production credit similar to the $US3 a kilogram on offer under the landmark US Inflation Reduction Act.
The European Union is taking a different approach, with plans to introduce a contracts for difference (CfD) system that aims to close the market price gap between green hydrogen and its cheaper fossil fuel-derived counterpart.
Under a CfD mechanism, a government agrees a fixed price for a product — such as green hydrogen — via an auction process, with the difference between the agreed price and the real-world wholesale price topped up by the government.
Former Reserve Bank deputy governor and FFI director Guy Debelle backed Tuesday’s funding announcement, but said industry was eagerly awaiting more details.
He said the US-style tax credit remained FFI’s favoured approach, and it would work with the government to work up a scheme that suited Australian industry.
“A scheme of support for hydrogen I think is great, and we just have to understand what the details are,” he said.
“One aspect we like about the production tax credit is that you only get it when you’re actually producing, so to some extent you’re actually already successful at that point.
“In the European system there’s a competitive auction to cover the difference between the green product and the non-green product – basically the fact that at least today, with current technology, the green product is more expensive.
“In the end they can both end up achieving mostly the same thing.”
The government’s Hydrogen Headstart program includes $5.6m in funding in 2023-24 to analyse the implications of, and develop a response to, the IRA and other overseas schemes.
Industry groups were largely supportive of the government’s hydrogen program, which is expected to begin direct investments from 2026-27.
However hydrogen technologies expert Professor Francois Aguey-Zinsou from the University of Sydney said it would come too late, and Australia risked missing the boat following major subsidies in the US and Europe.
“It’s a good thing that the Australian government is trying to put in subsidies to help industry but the process and the timeline are a recipe for failure,” he said.
“What the world will look like by 2027, I’m not going to make any predictions, but we’ve had Covid, then there is a big recession coming.
“So I think the government needs to be more ambitious in the timeline and the level of support, especially when the Biden administration has subsidised green hydrogen in the US at $US3 a kilo, and the European Union has been doing the same thing since 2017.
“The race is on globally – if Australia is serious it needs to make the timeline shorter and make access to money easier for industry.”
However Associate Professor Liam Wagner from Curtin University was more bullish, saying Australia was sitting on a “potential gold mine”.
“We shouldn’t be exporting the raw hydrogen, we should be exporting ammonia produced using hydrogen – we should be doing the value-add here,” he said.
“And if we could convert all the iron ore to direct reduced iron we’re sitting on a potential gold mine – we’d be in a prime position globally and heavy industry needs it.”
FFI has five green hydrogen projects in its global pipeline, including its most advanced Australian project which involves a proposal to convert an existing gas-fed ammonia facility at Gibson Island near Brisbane into a renewables-fed green ammonia facility.
It also plans to begin production of Australian-made hydrogen electrolysers at a new Gladstone factory in Queensland later this year.
Dr Debelle said FFI was looking to progress the Gibson Island project “as soon as possible”, with a final investment decision expected later this year.
“Is something like this (Hydrogen Headstart) highly relevant for the economics of Gibson Island? Yeah, absolutely,” he said.
While Hydrogen Headstart has been largely welcomed as a positive first step towards establishing an Australian green hydrogen industry, some have argued it doesn’t go far enough.
Australian Hydrogen Council chief executive Fiona Simon described it as an “important early step” in getting more hydrogen projects off the ground, while the Clean Energy Council said it would be a “boon for Australian jobs”, and represented a “substantial down-payment” on Australia’s response to the IRA.
However the Australian Petroleum Production & Exploration Association (APPEA) and Low Emission Technology Australia (LETA), which works with hard to abate industries to invest in emission-cutting technologies, were both critical of the budget’s lack of support for carbon capture, utilisation and storage (CCUS).
“Hydrogen Headstart’s exclusive focus on renewable hydrogen misses a crucial opportunity to focus on all hydrogen production pathways, including clean hydrogen using coal, gas or biomass with carbon capture and storage,” LETA chief executive Mark McCallum said.
“It also stands in contrast with the approach taken in the US through the Inflation Reduction Act, which provides significant support for CCS and for all forms of clean hydrogen production.
“Hydrogen with CCS is an extremely competitive source of clean hydrogen. Australia must be a low-cost producer to be competitive.”
APPEA welcomed the government’s commitment to review regulations surrounding CCUS projects in a bid to provide more certainty for investors, but said the budget fell short of committing to the national CCUS road map which it had been calling for to provide a “clear policy direction”.
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