The tax incentive for green hydrogen is a start, but it has a very, very long way to go

by Matthew Ryan


We need green hydrogen to have a net zero economy, but the amount estimated to be produced by the measures in the Budget show how far we have to go

The Australian Government’s 2024-25 budget claims to be “supercharging Australian renewable hydrogen”. The new policy that will apparently achieve this is the Hydrogen Production Tax Incentive (HTPI) – a tax credit scheme that will pay developers $2 for every kilogram of green hydrogen they make. That might seem like a lot, but a closer look at the figure reveals it will do little to alleviate any of the greenhouse gas emissions Australia produces.

What this policy tells us is how big the government expects hydrogen production to be and what it believes a “renewable energy superpower” actually looks like.

The way this policy will work is that projects that get off the ground before 2030 will get access to the credit for the first ten years of production. For projects that manage to access the credit, it has no hard cap – the more they produce, the more credits they get. This means that we can work back from the cost estimate of the HPTI in the budget papers to find how much hydrogen the government thinks will be produced each year in the 2030s.

The Budget expects to be paying $1.1 billion in credits every year through the 2030s, which works out at a bit over half a million tonnes of hydrogen each year. What does that mean, though? Is that heaps of hydrogen, or bugger all?

To put this in context, the energy content of all that green hydrogen is 78.1 petajoules per year. How does that stack up against all the natural gas we currently use (which hydrogen is supposed to help replace)? Not very well, I’m afraid.

We currently burn 164PJ of gas in our homes, and 396PJ across the manufacturing sector. LNG production (turning gas into a liquid) is the second largest source of demand for our gas at 450PJ – and we exported a whopping 4,637PJ of LNG in 2021-22.

Tally up all our uses for gas, and you get 6,076PJ of annual fossil gas production.

And yet, the Government seems to think it’ll be on the way to becoming a “renewable energy superpower” with just 78PJ of green hydrogen. That means our current gas production is more than seventy-seven times higher than projected green hydrogen production. Yikes.

Interestingly, Australia already produces 494,227 tonnes of hydrogen from fossil fuels. So, the projected 550,000 tonnes of green hydrogen could replace our current hydrogen (mainly used to produce fertiliser) – but that’s about it.

To be clear, we will need green hydrogen in a net zero world. Helping this industry get started makes sense.

As a policy, the HTPI is fairly sound. The big danger of a scheme like this is if public funds are made available for hydrogen produced from fossil fuels. So far, the scheme seems to only apply to renewable hydrogen, which is good – but you can bet that fossil gas companies will be lobbying hard to change this during future consultations. If they get their way (again), this policy could easily turn into another subsidy for fossil fuels.

What is interesting is that this policy assumes such low hydrogen production. Maybe these budget projections are wrong, and the green hydrogen boom is just around the corner (in which case this subsidy will cost a lot more). But for now, it seems like those modelling boffins at Treasury aren’t buying the government’s own hype.

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