National Hydrogen Strategy Issues Papers

• The development, growth, and success, of the Norwegian oil and gas industry provides a model for scaling-up an industry, and the supporting supply chains, that is instructive for Australia.

Three years after Phillips Petroleum informed the Norwegian government that it had discovered Ekofisk – one of the largest offshore oil fields ever found, the Storting (Norwegian parliament) voted to establish Statoil as a state-owned oil company and the Norwegian Petroleum Directorate (NPD) as the industry regulator. Norway’s politicians also appreciated the importance of a national oil policy and in 1972 a unanimous Storting therefore adopted the ‘10 oil commandments’, which have underpinned oil policy since. Some of these ‘commandments’ can inform Australia’s development of a hydrogen industry:

1. National supervision and control must be ensured for all operations on the Norwegian Continental Shelf (NCS).
2. Petroleum discoveries must be exploited in a way which makes Norway as independent as possible of others for its supplies of crude oil.
3. New industry will be developed on the basis of petroleum.
4. The development of an oil industry must take necessary account of existing industrial activities and the protection of nature and the environment.
5. Flaring of exploitable gas on the NCS must not be accepted except during brief periods of testing.
6. Petroleum from the NCS must as a general rule be landed in Norway, except in those cases where socio-political considerations dictate a different solution.
7. The state must become involved at all appropriate levels and contribute to a coordination of Norwegian interests in Norway’s petroleum industry as well as the creation of an integrated oil community which sets its sights both nationally and internationally.
8. A state oil company will be established which can look after the government’s commercial interests and pursue appropriate collaboration with domestic and foreign oil interests.
9. A pattern of activities must be selected north of the 62nd parallel which reflects the special socio-political conditions prevailing in that part of the country.
10. Large Norwegian petroleum discoveries could present new tasks for Norway’s foreign policy.

• Within the last 10 years, these ‘commandments’ were reaffirmed in Storting White Paper 28 (2010-2011), An industry for the future – Norway’s petroleum activities, which stated:

‘Norway’s petroleum resources belong to the Norwegian people, and they must be managed in a way that benefits the entire Norwegian society. This has been the foundation for the management of our petroleum resources for the past 50 years… the Norwegian people are the owners of the water resources, and that economic rent should fall to the greater community.’

• Norway’s sovereign wealth fund is the largest in the world, with the stated aim of ensuring ‘responsible and long-term management of revenue from Norway’s oil and gas resources so that this wealth benefits both current and future generations’.

• The lessons for Australia? The federal government must lead – the federal government must set the vector, provide the framework and the plan to build / scale-up the hydrogen industry in Australia. The interests, well being and security of Australia, and Australians, must be factored in to the growth of the hydrogen industry – it is not solely about the export dollar – scaling-up the hydrogen industry presents an opportunity to ensure domestic energy and economic security and, in the long run, Australia’s national security and resilience.

Drawing on Norway’s successful experience, Australia’s hydrogen industry needs to: be under national supervision and control; be developed so as to make Australia as independent as possible; consider environmental and sustainability impacts; be integrated to support both export and domestic needs; and be part of a broader integrated energy plan that, itself, is part of a new and reinvigorated national security strategy.

• Australia needs to demonstrate a commitment to the burgeoning ‘hydrogen economies’ by becoming a hydrogen economy itself - it is not enough to be content with exporting the ‘raw material’ elsewhere for other nations to reap the many benefits of hydrogen such as fuelling transportation, alternative power generation, and overall emissions reduction. We need to be seen to ‘use’ hydrogen technologies and value add to them, rather than being merely the supplier of hydrogen to Asia.

Interestingly, the Government’s Liquid Fuel Security Interim Report released in April 2019 notes that Australia may be left behind as the world moves away from oil-based fuels to other forms of transport energy such as electricity and hydrogen.

Becoming our own hydrogen economy will also add diversity of supply to our energy mix, reduce our reliance on imported oil, create jobs, help the environment and ultimately contribute to strengthening our national security, and resilience.

• Understanding supply chains – international and domestic - to ensure they are secure and resilient, and therefore can be relied upon, as we become part of the international trade in hydrogen. The federal government’s Inquiry into National Freight and Supply Chain Priorities report, and the subsequent National Freight and Supply Chain Strategy, address the vulnerabilities and opportunities regarding internal/domestic supply chains, however there is still a gap in understanding the risks and vulnerabilities regarding the international supply lines that support the Australian way of life. There is no obvious indication that global supply chains are understood, indeed, the Liquid Fuel Security Interim Report observed the following:

‘… Fuel companies each have a strong economic incentive to manage their own supply chain, no one has oversight of the whole market. Even with work under way for this review it is difficult for government to see the full picture of fuel supplies in Australia.’

‘Further work on supply chain modelling of the Australian liquid fuel market will improve our understanding of how the market would adjust to disruption and the economic impacts for Australia ...’

If the government is struggling to understand liquid fuel supply chains, it is not too great a leap to conclude other global supply chains are not fully understood. Without an understanding of the global supply chains, how can we guarantee to our international partners that we will be a reliable supplier?

Furthermore, if we wish to reduce risks and maximise the potential of hydrogen, we need to take a wide view that considers how the broader implications of rapidly changing technological, environmental and social trends supports the development of integrated solutions that create a more connected, sustainable world.

• Development of an Integrated Transport Energy framework which will enable the current piecemeal initiatives to be coordinated, supported, and rolled-out in a manner to optimise the benefits for consumers, industry, investors and the environment. The Hydrogen Roadmap for Europe, released in February 2019, is an example of what such a framework could look like. It addresses the current momentum of hydrogen activities underway and then articulates the various pathways available to transition the transportation system from oil to hydrogen. The Roadmap sees hydrogen as an energy source for trucks, buses, ships, trains, cars and commercial vehicles.

• When the South Korean President, Moon Jae-in, released his Government’s hydrogen strategy earlier this year, he noted that South Korea is dependent on imports for 95% of its energy. The transition to hydrogen would reduce this reliance, especially for petroleum, which is largely sourced from the Middle East. Energy security would be enhanced by the development of an efficient hydrogen production and distribution system.

Actively supporting alternative energy sources for transportation (of which hydrogen is but one option) will reduce Australia’s unhealthy reliance on imported fuels and ultimately improve our national security. To effectively transition the transportation sector from oil to renewables it is necessary to have a plan – an integrated plan that considers all elements of Australia’s transport energy needs, and acknowledges that energy security will not be achieved if we continue business as usual. Incentives for reducing or compensating the initial costs of hydrogen transport would likely be necessary during the transition.

• Target Setting is a key component of the broader energy policy framework proposed. Without meaningful and measurable targets, development of a hydrogen transportation plan will merely be tokenism and will see Australia continue to fall behind the rest of the world as ‘hydrogen economies’ boom elsewhere. For example, the South Korean Hydrogen Roadmap released earlier this year articulated the plan to become a hydrogen-based economy. Fundamental to achieving this vision is clearly setting targets, for example, the government set a goal of production of FCEVs from 2,000 (the previous production rate from Hyundai) to 4,000 this year and to rise to over 80,000 by 2022. There is strong Asian competition from Japan regarding FCEVs with their hydrogen strategy setting a target of 800,000 FCEVs by 2030 and Germany is leading European efforts by setting a goal of 1.8 million units by 2030. All three nations have plans to roll out a refuelling network commensurate with the rate at which the FCEVs are produced and introduced.

If FCEVs are manufactured at this rate, Australia needs to be ready with a plan to meet the inevitable future demand for these vehicles. How many FCEVs should be imported each year over the coming decade? What does the transition look like? How is the refuelling infrastructure rolled out? What regulatory and policy changes need to occur? What technical infrastructure and workforce skills need to be developed?

• Timelines for the introduction of most of these modes of transportation could be relatively quick if the supporting infrastructure was in place as the technologies already exist. Indeed, hydrogen trucks, trains and buses are already being used in several European cities as well as in the US. The big challenge for Australia, apart from the lack of refuelling stations, infrastructure, investment and an actual strategy, is an apparent lack of political commitment to disrupt the energy system that supports the transportation sector status quo. That said, sub-national jurisdictions are attempting small-scale shifts to alternative energy options; for example, the ACT government’s EV and incoming FCEV fleets. However, in the absence of an integrated national strategy, and a political will to move forward, these initiatives will continue to be piecemeal, and lack the substance to achieve the momentum needed for a beneficial whole-of-nation outcome.

Prioritising the introduction / transition of various hydrogen-fuelled transportation across market segments could assist roll out. For example, hydrogen buses in CBDs; taxi and hire car fleets; mining sector heavy vehicles; suburban trains; Sydney ferries.

• Australia should also consider international cooperation and research partnerships, as well as investment in R&D, to further the development of hydrogen-fuelled transportation. For example, at the recent G20 the energy ministers of Japan, the EU and the US released a statement affirming their shared desire to strengthen trilateral cooperation on hydrogen and fuel cell technologies. The statement said:

‘METI [Japan], ENER [EU], and DOE [US] share a strong interest in hydrogen and fuel cell technologies which could bring significant benefits to the energy sector, the economy and to the environment. Hydrogen and fuel cells are part of a broad and sustainable energy portfolio and could be a key to opening up opportunities and value in all sectors, from transportation to industry, as well as enabling reliable, clean and affordable electricity.

‘The organizations have been world leaders in funding hydrogen and fuel cell programs over more than three decades and intend to strengthen their unity to accelerate the development of sustainable hydrogen and fuel cell technologies in the world. The organizations recognize the importance of reducing the cost of hydrogen for its affordability as well as reliability. The organizations strongly believe that their envisaged cooperation can lead to expansion of international collaboration and contribute to scale-up hydrogen in the global economy. While continuing to work with many countries through other international partnerships and collaborations, the organizations believe that they have much to gain from working together.’

There has been substantial argument across both sides of politics for Australia to improve its innovation capacity, and in that respect, hydrogen could also be an important component of innovation, further demonstrating Government leadership. This would necessitate the Australian Government signaling that Australia is prepared to incubate and support a Hydrogen industry through direct funding of world leading research and development, thereby attracting entrepreneurial investment. Specifically, direct investment in engineering departments at Universities by the government, partnered with Industry, would be needed.

Any technological investment must be complemented by investment in a culture of innovation supporting the Hydrogen industry, involving integrated policy development, including research and development, across all tiers of government (Federal, State, Local). Investors must be able to see certainty across decades with active Government intervention supporting a mature industry and not merely fostering a number of ‘start up’ companies.

If Australia wants to be a player in the global hydrogen-economy, it needs to broaden the focus of its hydrogen aspirations. Development of a domestic industry, in parallel with an export market, will ensure the full benefits of a hydrogen-economy can be realised, for industry, investors, the population at large, the environment and ultimately the security of the nation. Leveraging the technologies already available, particularly in transportation, participating in multilateral R&D, and supporting innovation to address Australia-unique challenges, will ensure the timelines to introduce hydrogen-fuelled transportation will be reduced, and Australia’s overall energy system resilience improved.