On 22 November, the COAG Energy Council agreed to Australia’s National Hydrogen Strategy (the Strategy); setting out a vision for a clean, innovative, safe and competitive hydrogen industry that benefits all Australians. The Strategy aims to position Australia’s hydrogen industry as a major global player by 2030 and identifies 57 joint actions for Australia to start realising its hydrogen potential.
Why the hype about hydrogen?
Hydrogen is an energy carrier. When burned with oxygen or consumed in a fuel cell, hydrogen produces only water and energy, with no carbon emissions. Hydrogen can be produced from water with electrolysis and, where renewable energy is used to power the electrolysis, produced as a zero emission fuel. Hydrogen can also be produced from coal or methane using thermochemical reactions, but carbon capture and storage technologies are needed for the carbon dioxide emissions.
The need to reduce carbon emissions while meeting growing demand for energy, combined with falling costs to produce and use hydrogen, have led to global momentum for clean hydrogen.
Given Australia’s availability of land, abundance of wind and solar resources, and prior experience with large scale resource projects, Australia is well placed to take advantage of this economic opportunity and export hydrogen to countries like Japan and Korea. Developing a hydrogen industry is a rare area in energy and climate policy that has been embraced by both sides of Australian politics. The Strategy advocates for an adaptive approach to allow Australia to make the most of this opportunity.
Taking Action – the adaptive pathway
The Strategy identifies two phases of development and subsequent activities:
Foundations and demonstrations (already underway, to 2025)
Developing supply and demand through pilots, trials and demonstration projects;
Assessing supply chain infrastructure needs and developing supply chains for prospective hydrogen hubs;
Reviewing and reforming regulatory and legal frameworks;
Strategic and coordinated international engagement with key markets to harmonise standards and encourage trade;
Improving workforce skills; and
Building community confidence in hydrogen.
Large-scale market activation (from 2025 onwards)
Identifying signals that large-scale hydrogen markets are emerging;
Scaling up projects to support export and domestic needs; and
Building Australian hydrogen supply chain infrastructure and large-scale industry infrastructure.
The Strategy notes that governments will consider the most appropriate support to scale up the industry in light of global signals, which may include policies to create hydrogen demand or policies that stimulate private investment. Governments have agreed that mandatory national hydrogen targets are not appropriate at this time, but may be revisited as the market develops.
The Strategy identifies four key measures of success:
Australia is one of the top three exporters of hydrogen to Asian markets;
Australia has an excellent hydrogen-related safety track record;
Hydrogen is providing economic benefits and jobs in Australia; and
Australia has a robust, internationally accepted, provenance certification scheme in place.
Industry development signals and ways to track progress against these measures of success are also set out in the strategy.
Strategic Actions
The actions agreed in the Strategy include:
Hubs: Support the development of hydrogen hubs to aggregate various users of hydrogen in one area and minimise costs.
Infrastructure: Complete an inaugural National Hydrogen Infrastructure Assessment by 2022, which considers hydrogen supply chain needs, taking into account local community concerns and priorities. The Hydrogen Infrastructure Assessment is to be reviewed and updated at least every five years.
Regulation: Review of existing legislation, regulations and standards, with coordinated review of legal frameworks, where practical.
Hydrogen in the gas networks: Support continuing pilot and trial projects for blending of hydrogen in gas distribution networks. By the end of 2020, complete a review to consider:
The application of the National Gas Law to hydrogen;
The economics of blending and eventual use of 100 percent hydrogen in the gas networks; and
Safe limits for hydrogen blending in transmission networks.
Hydrogen certification: Australia will seek to play a lead role in the design and development of an international guarantee of origin scheme, in order to tell how a given unit of hydrogen has been produced and its environmental impacts. To avoid international disagreement and delays, the strategy proposes an initial minimal certification scheme that verifies and tracks production technology, carbon emissions associated with production (scope 1 and scope 2) and production location. The scheme could be expanded later to include water consumption and other factors.
Energy markets: By 2024, complete a review based on experience from pilot projects, trials and demonstrations to consider options for energy market reforms to improve the integration of hydrogen into energy markets.
Taxation: Continue with the current revenue arrangements that apply to hydrogen, with industry and community consultation to occur before making any changes.
Bilateral partnerships: Support development of bilateral agreements and work with bilateral partners to promote trade and investment in hydrogen.
National coordination: Annual ‘State of Hydrogen’ report to be published by the Commonwealth.
What are we likely to see in relation to regulation?
The Strategy prioritises responsive, light-touch regulation to remove barriers to industry development, while keeping Australians safe. A preliminary legal review across the jurisdictions identified about 730 pieces of legislation and 119 standards potentially relevant to hydrogen industry and supply chain development. The Strategy proposes that the States and Commonwealth review their existing legislation, and then take a coordinated approach to regulation for hydrogen safety and hydrogen industry development, including supporting the development of technical safety standards for the hydrogen industry. For any new regulations associated with hydrogen, Australian Governments will follow the COAG Principles of Best Practice Regulation.
While a nationally consistent approach for safety is likely, the planning and regulatory approvals for hydrogen infrastructure will be governed by existing State based environment and planning legislation. The Strategy advocates a coordinated approach for planning and regulatory approvals, to give project proponents a visible single-entry point to access multiple regulatory regimes. Governments have also agreed to develop and incorporate ‘hydrogen-ready’ capabilities into planning and regulatory approvals, with several State Governments establishing cross-government working groups to develop the competency in and awareness of hydrogen.
For more information or discussion, please contact Partner Damian Roe or Special Counsel Elizabeth Harvey from HopgoodGanim Lawyers' Resources and Energy team.