Australia’s Hydrogen Moment: Dodging the Carbon Capture and Storage (CCS) Cul-de-Sac

For decades now Australia has been the engine room of the powerhouse regional economies of Japan, China, and South Korea. Extraordinary quantities of coal, iron ore, and more recently, natural gas have made their way from Australia across the Pacific to fuel and supply three of the world’s top five manufacturing behemoths. With Australia being the world’s largest exporter of coal and iron ore and recently taking the crown of largest natural gas exporter, it’s fair to say these industries have played an integral role in Australia’s remarkable run of uninterrupted economic growth since the early 90’s.

Looking to the future though, one of these industries is looking particularly vulnerable, with dark clouds on the horizon unmistakeably hovering over Australia’s coal mines. While the current Australian government inexplicably looks to shore up the future of the domestic coal-fired energy infrastructure, China, Japan, and South Korea are making strides to move beyond coal. The not-for-profit Institute for Energy Economics and Financial Analysis (IEEFA) has found demand for Australian coal will drop by 28% by 2025, and by 59% by 2040, with demand from China to fall by 57% by 2040 and Japanese demand to drop by 71% in the long term. Just last week, Japan, Australia’s top export market for thermal coal, announced they would now oppose the construction of any new coal-fired power plants. This comes on the heels of recent reports that major Japanese investors have walked away from existing proposals at a dizzying pace, with three quarters of the proposed pipeline of projects from 2015 now unlikely to proceed.

And while both Japan and South Korea are currently leaning heavily on natural gas imports to help them pivot away from coal in the medium-term, they have been entirely unequivocal about their long-term aspirations: a hydrogen-based economy. Over the last 18 months, both Japan and South Korea have laid out roadmaps outlining how it will be possible to replace fossil fuel use across their societies with zero-emission hydrogen, with power generation, mobility and combined heat and power (CHP) all set to make the transition to hydrogen-based. Both nations understand that this will require deep levels of international cooperation to source the quantities of hydrogen to realise this ambitious objective, given the limited potential for domestic production. They have both accordingly begun reaching out to potential future hydrogen trading partners, seeking to discern who is willing and able to help them achieve their objective. Enter Australia.

There is hardly a country in the world with such abundant renewable energy resources, so the potential for Australia to become a world leader in hydrogen produced via renewables-powered electrolysis is enormous. However, producing hydrogen using renewables is not the only method available; right now, a pilot program funded by the current government is underway attempting to turn brown coal from Victoria’s Latrobe Valley into hydrogen via gasification. This demonstrates the dilemma posed by embracing a vision for a hydrogen economy. The coal industry will attempt to downplay the viability of prolific renewables-sourced hydrogen and frame coal gasification with carbon capture and storage (an unproven and risky technology) as the realistic, sensible option. We simply can’t let this happen.

We have in front of us an opportunity for the Australian economy and for Australian society that is truly staggering in magnitude. Not only could we establish an entirely new industry that would bring in billions of dollars in export revenues and tens of thousands of jobs, we could provide an unprecedented boost to our fledgling renewable energy sector, in turn slashing Australia’s emissions to meet and then exceed our commitments to the Paris climate agreement. Instead of doubling down on coal and banking on the risky assumption that carbon capture and storage will be viable, we should commit ourselves to the proven and zero-emission renewable energy technologies that have already begun to transform our energy networks.

With a federal election just weeks away, both major parties have encouragingly committed to fostering a hydrogen export industry, however these commitments warrant further inspection. While Labor has earmarked $1 billion from the government’s Clean Energy Finance Corporation for developing clean hydrogen and outlined a ‘Guarantee of Origin’ scheme to certify its carbon neutrality, the coalition has simply committed to develop a national hydrogen strategy in step with the nation’s chief scientist. One look at this government’s track record on coal gives a pretty good indication of where they plan to source this hydrogen from. And after all, it was this government that decided to pilot the Latrobe Valley brown coal to hydrogen gasification project.

This is truly a fork in the road moment. It appears more than likely at this point that both major political parties will push Australia in the direction of a hydrogen export industry, however one of these pathways has boundless potential, while the other may be nothing but a cul-de-sac. Carbon capture and storage (CCS) has been under development since the 1980’s and remains firmly out of the mainstream, with only a handful of successful large-scale projects in existence and still eye-wateringly expensive. It remains to be seen whether it can be scaled in time to facilitate the upstart of an entirely new hydrogen export economy for supplying the looming Japanese and South Korean demand, or for that matter, whether it will ever be scaled up at all. The alternative is to utilise mature and increasingly affordable technologies to harness an abundance of Australian wind, solar and hydropower resources to make hydrogen via electrolysis. This would further establish a 21st century electricity network in Australia, while securing the future of the hydrogen industry.

Banking on coal gasification and CCS has additional risks beyond our borders too. Japan’s hydrogen roadmap states the success of the strategy “will primarily depend on the competitiveness and availability of carbon-free hydrogen fuel”. As such, settling on CCS and failing to bring it to scale could theoretically jeopardise the very success of the Japanese and Korean schemes to transform their economies if this corresponded with other potential exporting nations following the same route. We would do well to keep all of this in mind when considering the likely hydrogen policy trajectories of the Liberal and Labor parties.

It’s an exciting time for the nascent hydrogen industry right now. It appears to have bounced back strongly from losing out to lithium ion batteries in the global race to develop affordable zero emission passenger cars, with hydrogen-powered mass transit and commercial vehicles now starting to become more commonplace. With the announcement of the Japanese and South Korean hydrogen strategies, the demand for sustainably sourced hydrogen will begin to skyrocket. This comes just as the Australian Commonwealth Scientific and Industrial Research Organisation (CSIRO) have developed a new way to cheaply transport hydrogen using ammonia, a potentially huge breakthrough if it can be scaled. Fortescue Metals, the company owned by prominent West Australian billionaire Andrew Forrest has announced it will invest $20 million into the project over five years in an attempt to find out.

Once an export industry has been established, the flow on effects for the Australian economy and society would be profound. Cheap and abundant hydrogen would likely displace the natural gas we currently use to heat our homes and our showers, and cook our dinners, as it can be directly fed into our existing natural gas infrastructure with minimal modifications. Fleets of commercial and mass transit vehicles would likely begin switching to hydrogen-powered alternatives, and existing and new industries would begin using it as a chemical feedstock.

We are at an important crossroads for our society and our economy right now. We can either succumb to the polluting and backward-looking coal industry of the 20th century or rise to the challenge before us and turbocharge our renewable energy sector to become a hydrogen producing powerhouse. We only get to forge this path once, so for heaven’s sake, let’s not find ourselves stranded in a CCS cul-de-sac a decade down the road.

Economist, Climate and Energy Policy Analyst. Pondering the path to a socio-ecological transformation.

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