National Reconstruction Fund: consultation paper

National Reconstruction

Fund
Submission to the Department of Industry,

Science and Resources

Date: 7 February 2023
Submission – National Reconstruction Fund

7 February 2023

The Australian Workers’ Union (AWU) welcomes the opportunity to make this submission to the
consultation process for the National Reconstruction Fund (NRF).

The AWU represents around 70,000 members nationally in a diverse range of industries, representing
nearly every part of the supply chain in Australia’s blue collar industries, including:

• the extraction of raw resources – such as metal ores, critical minerals, oil and gas
• agriculture, forestry and fisheries
• the refining and manufacture of energy-intensive trade-exposed products such as steel,
aluminium, plastic, concrete, food processing, chemicals and glass
• the recycling of energy-intensive products
• the manufacture and construction of renewable energy technology and facilities (from Snowy
Hydro 2.0, to the manufacture and installation of wind towers and solar panels used across the
country, along with the emerging Australian hydrogen and battery industries)
• defence manufacturing
• human-induced regeneration for carbon credits in forestry and national parks.
As a result, the AWU has an interest in many of the NRF’s priority areas.

The AWU supports the Government’s policy priority of building the NRF to diversify Australia’s economy
and help to secure well-paid jobs with good conditions for communities across the country. The NRF
forms a critical part of the Government’s industry and energy policy initiatives to place Australia in a
stronger position, adding more value locally while also building our exports in our world-leading areas of
comparative advantage.

In responding to the consultation paper, the AWU supports the ACTU’s submission and
recommendations for the purpose, governance and structure of the NRF. The AWU also makes the
following key submissions. The AWU is eager to continue to engage with the development of the
National Reconstruction Fund and would welcome the opportunity to participate in further consultations
on the scheme.

1 Prioritising and planning for strategic sectors

The AWU recommends that strategic plans be created for critical industries to ensure that investment is
in line with a long-term view of the 7 sectors.

The previous government began this process by establishing national strategies for critical minerals and
hydrogen. The Australian Government should take advantage of the NRF to create similar industry
strategies for Australia's key primary industries (agriculture, fishing and forestry), manufacturing
Submission – National Reconstruction Fund

7 February 2023

industries (such as steel, aluminum, plastics, and cement) and emerging clean industries (such as
battery manufacture).

Government policy priorities for each of these industries are already being pursued separately in different
agencies of Federal and State governments. The NRF should aim to serve these overall plans for industries.

These strategic plans should be developed through a consultation process with industry participants,
peak bodies, unions, and relevant government departments. This could provide a clear industry-wide
vision for growing each sector. This could also serve as a guide for proponents (particularly proponents
of industry-wide proposals) when applying for funding from the PRF. The AWU’s prior research with the
John Curtin Research Centre on the establishment of a clean steel industry in Australia (attached)
illustrates one approach that could be taken.

2 Alignment of Government energy and industry policy

The AWU supports the Government’s priority of acting on climate change, and the incorporation of
industry decarbonisation as a priority area in the NRF. It is essential to Australia’s sovereign capability
that our members’ industries are sustainable in a clean energy future. Australia’s heavy industries
continue to provide good pay and conditions to thousands of people across the country, and our
members are keen to play a role in supporting Australia through the energy transition.

Many of these industries are widely recognised as among the most challenging to reduce emissions in.
Indeed, about 160 of the 215 facilities covered by the Safeguard Mechanism are represented in the
AWU’s membership and coverage.

The AWU has advocated for our employers to take voluntary emissions reduction actions, and worked
with them to understand their technology pathway to reach net zero by 2050. Each industry will require
its own technology pathway. The AWU has worked together with the John Curtin Research Centre to put
forward a plan to achieve an Australian clean steel industry, and with the McKell Institute to develop a
strategy for a hydrogen industry that can attract export customers while also serving the needs of
domestic industry. These reports are attached to our submission.

Simultaneously, the Australian Government has committed to growing the Australian manufacturing
industry through initiatives such as the NRF, recognising its significant contribution to sovereign capability
as highlighted by recent supply chain disruption experienced domestically and globally. The Harvard Atlas
of Economic Complexity puts Australia last among OECD countries in diversity and research intensity of
our exports. But Australia knows from past experience that manufacturing can provide high-skilled and
secure jobs across the country.
Submission – National Reconstruction Fund

7 February 2023

The Australian Government, across multiple departments, has initiated a plethora of parallel initiatives
which will affect heavy industry, identified in the consultation paper. These include the safeguard
mechanism, the Powering the Regions Fund (PRF), the establishment of Hydrogen Hubs, the provision of
additional fully-funded TAFE places, and the Buy Australia Plan.

Some of these initiatives are complementary with both the government’s industry and climate policy goals.
Others are likely to impose significant costs on industry in the short-to-medium term. The AWU
understands that these are necessary to achieve emissions goals and to support Australian industry in
meeting global expectations in a net-zero future. But it is important that Australia does not to throw away
its areas of comparative advantage and the industries our country needs to secure our sovereign
capability. A cohesive 'clean industry policy' is needed to meet both the goals of reducing emissions and
supporting industry.

The NRF will form a critical part of the available funding for industries to reach the goals of the energy
transition. However, it will not be the right funding tool for every facility. In particular, the NRF will require
a commercial rate of return to meet the conditions of loans, guarantees or equity stakes offered. This will
mean that short-term technology upgrades which increase costs without increasing revenue or profit are
not eligible.

As a result, the funding decisions made through the NRF should be made with consideration of the overall
impact of new initiatives, other sources of funding such as the PRF, new regulatory impacts, and in direct
consultation with other government departments (both state and federal), unions and industry. This is
necessary to determine the highest priority areas of need, and should be considered in setting commercial
rates of return expected for different investments from the NRF.

Investments should also be prioritised where they align with other government goals, such as domestic
procurement. The Australian Government, in its role as the steward of the fund, should set targets for regional
and domestic procurement in applications for the NRF, to complement its overall industry policy goals.

3 Safeguard facilities must be a priority – with funding to match

The AWU notes that the review of the safeguard mechanism is still ongoing. However, the Safeguard
Transformation Scheme of the PRF offers a limited amount of reserved funding for safeguard facilities, with
only $600 million allocated for 215 facilities. This amount of funding will not be sufficient to meet the needs
of all necessary facility upgrades to reduce emissions – and realistically, the scale of government funding
needed to support upgrades in safeguard facilities alone is likely to be three to four times that amount.

Provision through the NRF of substantive funding for upgrading existing facilities will offer a far more efficient
use of capital in comparison to money going to start a brand new facility. It also offers the opportunity to reduce
Submission – National Reconstruction Fund

7 February 2023

the existing carbon footprint of facilities, and utilise already established facilities to demonstrate new
transformative production techniques. As one example, Australia’s fuel refineries which already use hydrogen
and have substantial capital and infrastructure offer the perfect vehicle to establish hydrogen hubs.

4 Technology-neutral approach recognising the needs of different industries

It is crucial that the Government adopts a technology-neutral, emissions-first approach in its investments
through the NRF. The AWU supports the breadth of measures currently envisioned for funding under the
NRF – such as developing renewable components, modernising steel and aluminium, and expanding the
use of hydrogen. However, each industry will require different technology options to achieve their
emissions goals, and it is critical that the best options for each industry are funded. These technology
needs should be directly reflected in funding decisions under the NRF.

As one example, the effective funding available for carbon capture and storage was cut by the 2022-23
Federal Budget update in October 2022. While the AWU recognises the need to target CCS funding to
industries that are in most need, it is important to acknowledge that some industries do not have the option
of electrification. For example, some industries use fossil fuel energy for process heat, or their emissions
are a direct result of their process, such as in the case of cement production. The AWU also supports the
rapid development of the local hydrogen industry – both green and blue – to ensure that Australia has a
first-mover advantage when global hydrogen demand escalates. This is discussed further in the AWU’s
research with the McKell Institute (attached).

5 Energy Transition Authority

The AWU believes that the workforce development goals of the NRF would be complemented by the
establishment of an Energy Transition Authority (ETA), as outlined in the ACTU’s submission to this
consultation. The coordinating role played by such an Authority will be critical to ensuring NRF funds help
drive a long-term just transition strategy that minimises risks to workers and communities, support a fair
and long-term transition strategy that reduces risks for workers and communities, maximizes job creation
and regional development opportunities in the transition to clean energy, and avoids the complex
piecemeal approach that is currently hampering transition planning in key energy regions across Australia.

The AWU also shares the ACTU’s view that any projects receiving NRF funding should abide by fair
employment standards, including secure and well-paid jobs, safe working conditions, apprenticeship
opportunities, and have either a current certified industrial agreement with the Fair Work Commission or
have agreed to commence bargaining in good faith with the relevant union or unions to reach one,
alongside providing opportunities for broader training and progression (including apprentices), women and
Aboriginal and Torres Strait Island workers.

John Curtin ResEarch Centre Policy Report No. 8 | July 2022

Clean and
Mean
New Directions for Australia’s Steel Industry

JOHN CURTIN
RESEARCH CENTRE
Contents

Executive Summary 4

Foreword 5

Introduction | Getting real on decarbonising Australian steel 6

Part One | How steel is made and how it could be made 8

Part Two | It’s a race 11

Part Three | The Current State of Play 18

Recommendations 25

3
Clean and Mean New Directions for Australia’s Steel Industry

Executive Summary
This report explores and seeks to provide practical, 1200 jobs in steel manufacturing and many more
concrete solutions to the necessary decarbonisation downstream1 – good, secure, and well-paying
of Australia’s steelmaking and related industries. In jobs. In the recommendations section of this report
the context of climate change, Clean and Mean: we outline the three crucial steps needed to be
taken for Australia to seize this moment:
• methodically identifies the risks involved in
not taking action by allowing for repeated 1. Building a National Clean Steel Roadmap
market failure and persisting with ill-planned or including setting interim targets;
haphazard government intervention or rather
non-intervention; 2. Relatedly, we need a national accreditation
scheme for clean hydrogen and steel to ensure
• the critical steps we need to make to enable that meaningful signals are available to this
technological leaps in the production of and emerging market; and
deployment of clean energy hydrogen fuel into
the steelmaking process; and 3. Making clear the critical role of strategic
government investment to support Australia’s
• the imperative of a tripartite approach bringing major steelmakers in decarbonising, working
together government, business, and worker hand in hand with labour representatives.
representatives to tackle these challenges.
‘Where there is a will there is way’ is a well-worn
At the same time, we argue that a golden, or in this cliché. Yet it is true of Australia’s clean steel future;
case, clean steel economic opportunity lies before if we will it. Clean and Mean: New Directions
us if we take bold action, starting now. The rewards for Australia’s Steel Industry boldly sets out the
will be great. Yet if Australia does nothing while pathway.
the rest of the world moves apace, the pitfalls will
arguably be greater. As we outline, Australians and
their elected representatives, along with businesses
and workers, should know what the risk is, how it
can be fixed, and many of our steelmakers are
already doing so. This report makes the case for
Australia becoming a clean steel industry leader in
Asia and globally, with serious export potential. This
transformation will have benefits for both steel and
related industries and working people, meaning we
can punch above our weight amongst big players
such as China. We should be thinking big. Off the
back of an attractive investment environment, readily
available clean hydrogen, certified clean steel
credentials and a growing export market, Australia
can increase its production of steel and steel
products by 1 million tonnes to over 6 million tonnes
a year. This would constitute a win-win outcome for
business and workers by increasing industry revenue
to more than $30 billion a year and adding around

4
Foreword
Steelmaking is a vital part of the Australian Workers’
Union’s proud 136 year-old history and the history of our country. For decades our union has stood up for steelworkers’ jobs and for Australia’s ability to make steel here through good times and bad.
Today, Australia’s two largest steelworks – the Port
Kembla steelworks in Wollongong and the Whyalla steelworks in South Australia – continue to create a source of good, union jobs.

Steel itself contains carbon and Australia’s abundant supply of coal has long made our country an ideal place to make steel. But today steelmaking must face the inevitable global energy transition.
Because of this, Australia must recognise the new opportunities that come with clean steelmaking. If we do not our sovereign capability to make steel will be lost to countries with no regard for emissions or for workers’ rights.

The John Curtin Research Centre has laid out a practical pathway to continue and grow the
Australian steel industry. This work considers the detail of how steel is made, as well as the commercial realities that government, industry, and workers must consider in expanding the Australian industry. I believe this report should provide the foundation of our union’s work with the new
Australian government to elevate the status of our steel industry to a world leader.

Australia should always be a country that makes things. And, for the foreseeable future, we will need steel for our construction and manufacturing.
This report maps a path to ensuring that, in a low carbon world, the steel Australians use is the steel
Australians make.

5
Clean and Mean New Directions for Australia’s Steel Industry

Introduction | Getting real on
decarbonising Australian steel
The steel industry is a critical backbone of the paid employment. Around 72,000 people are
Australian economy and will continue to be critical directly employed in making primary metal products
in our nation’s evolution towards a mature post- in Australia and another 66,000 are employed in
carbon economy. This post-carbon economy making fabricated metal products – most of which
must not allow working people, their families are steel products.2 Australia boasts two major
and communities to be simply thrown onto the primary steel producers: BlueScope, with its Port
scrapheap of long-term unemployment in the name Kembla-located steelworks (New South Wales),
of so-called ‘just transitions’ spouted by green and GFG Alliance, with its steelworks based in
ideologues and well-meaning progressives. Steel is Whyalla (South Australia). In addition, GHG
one of the main components of our manufacturing, Alliance’s InfraBuild operates secondary (recycled)
infrastructure-building, engineering, and construction steel plants in NSW and Victoria and there are over
supply chains. The common denominator of 300 steel distribution outlets dotted across the wide-
skyscrapers and bridges, cars and cruise ships, guns brown terrain of our country alongside numerous
and washing machines is that they are all made of fabrication, manufacturing and engineering
steel. We cannot exist in a steel-free world. Steel companies each embedded in the steelmaking
is the world’s most commonly used metal, and is cycle. It is estimated that the Australian steel industry
the foundation of our modern industrial economy. generates $29 billion in annual revenue.3 For every
Not unexpectedly, then, steel has historically been person employed directly by the steel industry, this
and continues to be a major employer of Australian creates as many as six full-time Australian jobs in
workers, providing secure and, in the main, well- related and downstream industries.

Table 1: Australian steel industry overview4

Australia must be a country that makes things – a Grants’ program,6 while broader fears about supply
catchphrase of politicians from both major parties chain resilience have led the federal Government
– but our capacity to manufacture goods has to release a Sovereign Manufacturing Capability
been rated the lowest amongst peer nations in Plan.7 These concerns reflect the essential role of
the Organisation for Economic Cooperation Australia’s steel industry. Australia needs a strong,
and Development (OECD) by the Australian sustainable steel industry.
Industrial Transformation Institute (AITI).5 Our lack
of sovereign industrial capability is alarming to the So how do we achieve this lofty goal in
Commonwealth Department of Defence, which practical, fair terms? We need steel, but we
administers a ‘Sovereign Industrial Capability need to decarbonise the process of producing it.

6
Steelmaking accounts for about nine per cent of and opportunities flowing to industry from global greenhouse gas (GHG) emissions, which the decarbonisation. For instance, the Grattan Institute’s scientific consensus clearly demonstrates, is creating report Start with Steel declared “‘Green steel’ serious climate change.8 Stabilising climate is an looks to be Australia’s largest low-emissions export imperative for Australia: the costs of a hotter climate opportunity.”13 Beyond Zero Emissions, another are too great. It’s a race. A race against physics. Australian think-tank, have proposed a ‘Million Jobs
A race to stabilise the climate before it forces a Plan’. Fortescue Metals Group and its chairman dangerous state of equilibrium. A race to capture Andrew ‘Twiggy’ Forrest have also urged major the economic prizes of a post-carbon economy. investments in clean steel tied to the establishment
of a clean hydrogen industry. Garnaut’s idea has
New and emerging technologies mean that for captured the imagination of many pundits and the first time, it is possible to produce steel without policymakers, but we are still not doing what needs emitting any GHGs, but the necessary technology to be done to turn the idea into reality. If Australia is still in its infancy: it has not yet been demonstrated has, as many assert, the potential to be renewable economically or at scale. Nonetheless, our energy superpower, then our nation is well placed competitors are sprinting in the race to solve those to become one of the world’s leading clean steel problems. In Sweden, the steelmaking company superpowers. This report argues that now is the time
SSAB have built the first pilot hydrogen Direct to act and outlines practical measures to get us
Reduced Iron (DRI) plant.9 Approximately 100 there.
tonnes of steel made from this process was sold to
Volvo, who used it to build the first vehicle made Part One explains how steel is made, how from zero-carbon steel this year.10 Right now, it produces emissions, and, furthermore, the
Australia is a step behind, but there is so much practicalities of how decarbonised steel can be industry development necessary that we can made. It also shows that Australia possesses some easily catch up if we move now. This is a moment of the world’s most abundant supplies of the key for bold action if governments, steelmakers, and resources needed for the post-carbon economy.
representatives of steelworkers come together. Part Two shows that we cannot afford to be
complacent in decarbonising iron and steel: it’s a
If we fall too far behind, other countries will begin to race, and if we fall too far behind the costs can penalise us, but if we return to the front of this race, be severe. Part Three looks at our existing iron and the potential opportunity is staggering and good steel industry and the efforts already underway for workers. Much has been made of the idea to decarbonise. The recommendations section that Australia could become a renewable energy considers what we need to do to move faster. It superpower, especially since the publication of shows that if we make the right decisions now, the
Ross Garnaut’s 2019 book, Superpower: Australia’s post-carbon global economy can be very good for low carbon opportunity.11 Garnaut raised the our iron and steel industries – including the workers prospect of Australia becoming “the world’s main who built it and communities they live in.
trading source of metals, other energy-intensive goods and carbon chemical manufacturers in tomorrow’s zero-net-emissions world.”12 Since then, a number of reports have focused on Australia’s natural endowment of renewable energy resources

7
Clean and Mean New Directions for Australia’s Steel Industry

Part One | How steel is made
and how it could be made
The basics of steelmaking are conceptually simple: by definition pure iron, impurities need to be
iron ore (that is various rocks and minerals from removed. This is step one and is a coal-intensive
which metallic iron can be extracted) is reduced process. The most troublesome impurity is oxygen.
into iron metal, and subsequently that iron metal Removing oxygen from iron-ore is called ‘reducing’
is hardened into steel. Both conversion processes (a process which is the opposite of oxidation). The
involve chemical reactions which necessitate traditional method of reducing iron involves putting
producing intense heat. Iron reduction is a process sintered iron ore into a blast furnace with coking
of removing impurities, while converting iron metal coal. Under intense heat, the coal gassifies and
to steel is a process of adding carbon: usually the carbon binds with the oxygen from the iron ore,
around 99 per cent iron and 1 per cent carbon. stripping it away and leaving reduced iron that
Figure 1 (altered slightly from BlueScope’s recent can be used in the next stage of the steelmaking
‘Climate Action Report’) shows an overview of process. The problem is that combining carbon with
iron and steelmaking in three steps: ironmaking, oxygen makes carbon dioxide (CO2), which enters
steelmaking, and casting/rolling and finishing. the atmosphere where it acts as a blanket over the
planet, heating the climate. This is the hardest step
The first two steps are where most of the carbon to change, but it needs to be done.
emissions are generated. Because iron ore isn’t

Figure 1. Overview of iron and steelmaking processes14

The second stage turns molten iron into molten They mostly involve electricity use, so the solution is
steel by adjusting the carbon content through switching to renewable electricity supplies. Some
chemical processes under extreme heat to control steelmaking processes also use natural gas, such
the hardness of the final product. The remaining as in ovens used to cure coated and painted steel
processes also produce some greenhouse products, and use of biogas or electrification are
emissions, but they are relatively easy to abate. potential alternatives there. That requires investment,

8
but the policy problem is not intractable by any the main method of decarbonising the industry. We means. Most steelmakers already have clear need to decarbonise primary steel as well.
plans for mitigating most of those ‘easier-to-abate’ emissions by 2030. Decarbonising Primary Steel

Recycling steel The main source of carbon emissions from primary
steel is the coal used in the iron reduction process.
Recycling steel from scrap using an Electric Arc Central to the most advanced emerging technology
Furnace (EAF) is the simplest way to produce low- for carbon-free steelmaking is clean hydrogen, emissions steel. Around 30 per cent of steel made which has stimulated increasing interest and in Australia is already made this way. Recycling major efforts to establish an Australian hydrogen steel has been a fully electric process for many industry. Australia’s former Chief Scientist Alan years. Figure 1 shows scrap processing entering Finkel suggests that the export opportunity clean the steelmaking process at step 2, with steel scrap hydrogen presents Australia is “almost beyond being used in either a ‘basic oxygen furnace’ imagining”; and that it could rival LNG.15 Put
(BOF) or an ‘electric arc furnace’ (EAF). Because simply, an emissions-free fuel, in this case hydrogen recycling scrap does not need to repeat the highly produced by renewable energy such as solar and emissions intensive process of iron reduction, the wind, or through steam methane reforming of oil main source of emissions from steel recycling is the and gas with carbon capture and storage, would electricity used. This can be mitigated relatively be inserted into the steelmaking process instead of easily, simply by providing fully firmed renewable coal, thus creating carbon-neutral steel and steel- electricity to secondary steelmakers. The main products. These technologies all need to be further challenge for Australia is that, for these facilities to advanced and proven. While some are more be undertaken economically, they must operate advanced than others, any technology that can continuously. This requires that renewable energy be shown to work and can be done commercially supplies are fully firmed and reliable so that the may play a useful role. Every Australian state recycling process is as economical as possible. and territory government have hydrogen plans in
place and are rapidly developing new plans and
Unfortunately, there are limits to the amount of steel refining existing strategies. The Commonwealth that can be recycled. One limit is the frequent need Government also flagged hydrogen as a for very precise specifications that secondary steel priority low-emissions technology in its so-called or EAF processes sometimes cannot deliver. This ‘Technology Investment Roadmap’. We reviewed limit means that recycling likely will never be able developments toward Australia’s hydrogen future in to supply 100 per cent of production. But the major our 2020 JCRC report: Power State: Building the constraint on recycling is simply the availability Victorian Hydrogen Industry.16 of scrap. Countries possessing large stocks from previous decades of steelmaking have an One way that steel could be made without advantage here, but even in the United States only emissions is depicted in Figure 2. It shows how steel about two thirds of steel can be made from scrap. can be made with clean hydrogen and renewable
In countries such as China, there is no sufficient electricity. In the diagram, iron ore pellets are stock of scrap. Primary steel will be needed for reduced with hydrogen that comes either directly many decades, so we cannot rely on recycling as from an electrolyser or else via storage. The

9
Clean and Mean New Directions for Australia’s Steel Industry

reduced iron is then sent to an electric arc furnace
(EAF) where it is purified and hardened into
steel. Throughout the process, there are very few
emissions created other than those that are made
in the generation of electricity for powering the
electrolyser and the EAF. If the electricity is made
from renewables, then the steel can be made with
near zero emissions.
Figure 2. Steelmaking process using hydrogen DRI and EAF17

The potential of the hydrogen technological
revolution is vast, but we are still at the very
beginning of this story. Global consumption of
hydrogen in 2020 was around 90 Mt with just 5
Mt used in steelmaking. Of the 90 Mt, only 0.3
Mt constituted “low-carbon hydrogen” made
from renewable energy. The International Energy
Agency’s (IEA) projects, based on announced
projects, that low-carbon hydrogen use will be
1.2 to 1.4 Mt per year by 2030.18 Hydrogen may
offer the best prospects for decarbonising steel
and other industries, but far more than a few million
tonnes will be needed. The technology is still at the
stage of being demonstrated at scale. There is a lot
of work to do.

10
Part Two | It’s a race
Decarbonising steel is a race. It’s a race against could be crippling. At worst, Australian steelmakers climate change and, equally importantly, it’s a could simply end up excluded from both domestic race against global market competitors. In the race and global markets. If we do not act swiftly enough, against climate change, the IEA says that to meet we could lose what market share we enjoy.
global climate and energy goals by 2050, steel industry emissions must fall by at least half, with In the context of the global steel industry Australia a decline to zero pursued thereafter.19 But in their is a relatively small player, meaning that if we most recent emissions reduction tracking report, fall behind competitors in this race we could the IEA declares that the iron and steel industry is find our industry crushed. Globally, almost 2
“not on track” and calls upon governments to help billion tonnes of steel are produced each year.25 by “providing R&D funding, creating a market for Australia produces excellent steel, but we are not near-zero-emissions steel, adopting policies for a significant producer by world standards. In 2019, mandatory CO2 emissions reductions, expanding Australia produced about 5.5 million tonnes (Mt) international co operation and developing of crude steel, which was about 0.3 per cent of the supporting infrastructure.”20 The IEA also reports global crude steel production that year (see table that steelmakers accounting for about a third of 2). Most steel production is made for domestic global steel production have set private targets consumption in the countries where it is made for achieving net zero emissions before 2050. The because steel is heavy and expensive to trade transition is underway but the results we achieve by internationally – only around 400 million tonnes are
2050 will depend significantly on decisions made traded internationally (around a quarter).26 Even in the next one to three years. In particular, new that figure exaggerates the reality because such a investments in steelmaking assets with thirty-year life large portion of internationally traded steel is both expectancies need to be replacing, not extending imported and exported within the EU.27 the carbon-centric production processes.
Similarly for Australia, of the 5.5 Mt of Australian-
In the race against competitors, industry insiders made steel, about 1.1 Mt (20 per cent) was say that the market pull has already begun, with exported in 2019 which was offset by importation of an increasing number of businesses demanding around 1.9 Mt the same year. Countries are often net zero emissions from their steel suppliers. both importers and exporters of steel because most
Countries such as the United Kingdom have already countries don’t make every type of steel product introduced measures requiring net zero emission locally. Steel products are made with high degrees commitments from all firms bidding for any major of specification, and certain producers may be the government contract.21 The approach is expected only producer of a specific product that meets a to become increasingly common and increasingly particular need. Imports are mainly for products strict.22 For Australia, around 20 percent of our that aren’t made domestically. Within the Asian export earnings are related to iron ore and will also and Indo-Pacific region, India, Japan, and South face increased pressure on emissions in the supply Korea are also major steelmakers, producing chain,23 especially China where the NDRC has some 111 million, 99 million and 71 million tonnes issued guidance on achieving carbon neutrality that respectively.28 The largest single producer is China, includes regulatory enforcement favouring low- which makes approximately half of the world’s emissions steel.24 If we fall behind, we risk facing steel (around 1 billion tonnes). In China, 89 per
‘carbon border adjustment mechanisms’ – taxes cent of steel is made using emissions-intensive blast on the carbon embodied in Australian exports that furnaces, compared with just 32 per cent in the

11
Clean and Mean New Directions for Australia’s Steel Industry

US and 58 per cent in the European Union (EU). rest of the Asian region using blast furnaces whilst
Excluding China, 202 Mt of steel is produced in the 150 Mt is made using electric furnaces.29

Table 2: Production of crude steel (2019)31

The suitability of clean steel as an internationally is attracting huge attention around the world.
tradable product, however, would be different There have already been successful demonstration
from standard steel. Certified clean steel would projects, although the technologies and methods
be a premium product, able to attract a higher used remain in their early stages, as discussed
price to satisfy customers who had particular elsewhere. For the Australian steel industry to be
regulatory obligations or business commitments, or both sustainable and competitive, it needs to
who wanted to market their product (e.g. high- decarbonise. That reality does not depend on
end residential construction projects) as carbon climate science alone – the rest of the world is
neutral. The premium nature of clean steel, at least moving to decarbonise their supply chains, and
during the transition period, means that it could so there is a market imperative to decarbonise
be especially suited to export needs. If Australian- irrespective of how urgent we think stabilising the
certified clean steel were able to be exported, climate is. For instance, the EU has a target of
the existing domestic demand might be less of a becoming climate neutral by 2050.32 The UN’s
constraint on the potential growth of the industry. Glasgow Climate Change Summit (COP26), held
in late 2021, declared “near-zero emission steel”
The potential to make steel without emitting GHGs and globally available “affordable renewable

12
and low carbon hydrogen” to be two of just four processes, is limited and likely to shrink. Australia items on the Breakthrough Agenda. More than needs to act lest we be excluded from the industry’s
27 countries including Australia, Japan, Korea, the future. But by acting, we open new opportunities for
EU, the UK, and the US signed on to participate in growth.
the Breakthrough Agenda.33 The market for high- emissions processes, including traditional steel In this race to net zero, other countries are moving
fast (see table 3).

Table 3. Other countries are moving – Emissions Targets34

NB: the above are nationally determined contributions (NDCs) as submitted to the
UNFCCC COP26 in Glasgow in October 2021. There are 165 NDCs in total.

China’s State Council has released plans for the Arc Furnace) and blast furnaces and expanding emissions related to the steel industry to peak by hydrogen in ‘Smart Carbon’. The firm emphasises
2030.35 In January 2021, the Chinese state-owned that hydrogen use plays a central role in its iron and steel company Baowu, the world’s second decarbonisation strategy.41 largest steel producer by volume, announced it would peak emissions in 2023 and achieve carbon The world of steelmaking, as we can see, is neutrality by 2050.36 China has also committed rapidly changing on a global scale. Perhaps the to “bringing its total installed capacity of wind most dramatic and analogous development for and solar power to over 1.2 TW by 2030.”37 Australia is taking place in Sweden, where HYBRIT
The Japanese-maker Nippon Steel and Korean is a green steel technology trailblazer. HYBRIT steelmaker Posco have both pledged net-zero steel is a zero-carbon steel project being developed by 2050.38 These international movements are by a partnership between three Swedish firms, creating significant competitive pressure for the EU SSAB (the steel maker), LKAB (high-tech mining and other Western steel-making countries such as and ore processing) and Vattenfall (a Swedish-
Australia.39 based multinational energy company). They
have used hydrogen instead of carbon during
Indian-owned, but Luxembourg-headquarter the iron reduction process and have already
ArcelorMittal, the world’s largest steelmaker, is also built a pilot hydrogen DRI plant in Sweden.42 among the steelmakers that have pledged net- This pioneering project produced their first 100 zero emissions by 2050. Their immediate green tonnes of decarbonised steel in 2021, which they steel plans are based on a phased introduction of sold to Volvo who made the world’s first vehicle hydrogen into blast furnaces.40 ArcelorMittal has from zero-emissions steel.43 100 tonnes is an one site in Hamburg already making steel with incredible achievement, but it remains a small- electric arc furnaces. The plant uses natural gas scale demonstration: around 14,000 tonnes of to soften the iron ore, but the company intends steel are made each day in Australia. That first to begin using hydrogen instead. ArcelorMittal’s small but crucial step was the outcome of efforts strategy is focused on two main technologies: that began in 2016 in partnership with the Swedish hydrogen in DRI-EAF (Direct Reduced Iron – Electric government – highlighting the critical role that

13
Clean and Mean New Directions for Australia’s Steel Industry

Australian governments must play – and LKAB. prototype of clean steel in Australia. Hydrogen is
SSAB used high quality magnetite, and the Swedish also highly explosive and learning to safely handle
government helped provide the hydrogen.44 The it in iron and steel production will be essential. A
Swedish consortium approached the challenge major safety incident would set back development
by dividing the process into six “work packages” of the industry by many years. The technology has
that could be addressed in parallel rather than been demonstrated at small scale in the pioneering
sequentially, ensuring that slow progress in one case of Sweden, but even there it is not yet
area (such as electricity production) did not economical and has yet to be achieved at scale.49
impede progress in all the other areas. Each work While clean-hydrogen DRI and EAF processes are
package involved different commercial partners the simplest to understand and may be the most
including Vattenfall45, LKAB46, KTH47, and SSAB48, advanced, Australia should not limit itself to one
a combination of large private companies, state- method because, given our existing capacities,
owned enterprises and a public university. The work capabilities and resource endowment, it may not
packages identified include: turn out to be the optimal way to decarbonise.
Moreover, since no technology is yet proven,
1. Renewable electricity production relying on a single option would be a mistake. The
2. Hydrogen production and storage COVID-19 pandemic has given Australians recent
3. Iron ore pellet production experience with the potential costs of betting on a
4. Iron production narrow mix of options. We should not repeat the
5. Steel production mistake when it comes to clean steel.
6. System integration, transition pathways and
policy strategies The challenges we face force us to rely on
imperfect technologies. Australia needs a national
The Swedish approach offers a potentially plan to ensure that it is ready in time to meet
useful framework for Australia to follow a similar decarbonisation imperatives. The first step of which
path toward a zero-emissions steel industry – is to understand what needs to be done and how
significantly unions had major input into the model. to approach a problem of this type. The IEAS’s
Technological Readiness Level and depicted in
The challenge
figure 3 is extremely useful for this purpose.
Like any large problem, we need to break this issue
The most advanced hydrogen projects in
into smaller parts we can more easily manage and
Australia are three 10 MW hydrogen electrolyser
measure progress. Decarbonising Australian steel
demonstration projects. These equate to ‘large
will require progress in at least three areas:
prototypes’, or stage 5 of the IEA’s technological
1. A major increase in firmed renewable electricity readiness level. The most advanced technology for
production; clean steel (SSAB’s) is around the same level, with
2. Building a significant hydrogen industry; and the technology demonstrated in normal conditions
3. Demonstrating and deploying new iron and steel (as opposed to laboratory conditions). However,
technologies at commercial scale. Australia is not yet at the global frontier of that
technology. In both of these core technologies, the
Decarbonising steel will not be easy. It is often most advanced prototype has yet to be proven
referred to as a “difficult to abate sector”. Serious at deliverable scale. The IEA’s scale provides a
policy questions, economic challenges, and roadmap for what needs to be done by 2030
technological problems exist, not to mention the for decarbonised steel to begin being used
critical task of ensuring workers are equipped with commercially. We need successful demonstrations
the skills and expertise, or existing skillsets and of the technology at scale, it needs to work in the
expertise are re-tooled. While renewable electricity circumstances it would be used commercially, and
is a familiar technology, clean hydrogen is yet to be it needs to be made commercial. SSAB expect
demonstrated at scale and there is still no successful to reach stage 8, the “first-of-a-kind commercial

14
Figure 3. Technological Readiness Level – scale applied by the IEA50 demonstration”, by 2026. This presents an the decarbonisation they expect to achieve by opportunity for Australia to build on the research 2030 is made by fundamental changes to the and development undertaken to commercialise steelmaking process, and almost all of the emissions the technology. Yet our steelmakers need to reductions by 2050 come from “breakthrough demonstrate that the technology works in Australian technologies” that are not expected to have any conditions, not simply Swedish terms. We cannot significant impact until after 2030. Making sure wait for them to demonstrate commercial success, that those breakthrough technologies are ready then immediately import their method. To solve such in time is essential if we are to have any hope of a major challenge, we need to break it into smaller, achieving the 2050 targets. That means we need more manageable components, and incremental targets for the action taken now but which will have development which in turn leads to further progress. consequences in 10-30 years. Focusing on the most
To keep us on track, Australia should set a target well understood path to decarbonising steel, we of at least one full-scale prototype by the second assume that very large quantities of cost-competitive half of this decade. We need to be in the early renewable energy and clean hydrogen will be adoption phase by 2030 to provide enough time needed. The following two sections deal with to properly integrate the technology across the two matters that make this a challenge: scale and industry, as we explore in the recommendations firming.
section.
(1) Scale
Now that the federal government finally seems ready to support a target of achieving net-zero As the technology is undeveloped, estimates of the emissions by 2050, it’s time to move with speed to amount of renewable energy needed to produce accomplish these pressing tasks. COP26 demands steel vary. One credible estimate is in the region of intermediate targets of reduced emissions by 3.5 MWh per tonne of steel.51 More recently the
2030. BlueScope’s Climate Action Report, alluded European Parliamentary Research Service estimated to earlier in this report, is consistent with this aim, that about 2.5MWh of renewable electricity per indicating their assessment of the broad timeframe tonne of steel would be needed. The EPRS estimate within which different methods of decarbonisation was based on 50-55 kWh of electricity being can achieve practical results. However, none of required to produce 1kg of hydrogen, and 50kg
of hydrogen needed to produce 1t of steel.52

15
Clean and Mean New Directions for Australia’s Steel Industry

Taking both estimates as a range of 2.5-3.5 MWh The estimated range of efficiency (2.5–3.5 TWh/t)
of renewable electricity per tonne of steel, the 5 implies that decarbonising Australia’s steel industry
million tonnes of steel that Australia produces each may require building dedicated renewable
year would require 12.5 to 17.5 TWh of renewable electricity on a scale of 30-40 per cent of our
electricity, just for steel. By way of comparison, over current entire stock of solar and wind capacity.
the past year Australia generated almost 23 TWh Assuming Port Kembla and Whyalla remain the
from wind and another 24 TWh from solar (about main centres of primary steel production in Australia,
two thirds from rooftop solar and one third from and that both renewable electricity and hydrogen
utility solar).53 That recent generation is significantly was produced locally so as to minimise the costs of
higher than the levels achieved as recently as 10 transport, each region could anticipate that clean
years ago when 6.1 TWh was produced from wind steel will generate renewable electricity demand
and just 1.5 TWh from solar (Figure 4). upwards of 5 TWh per year.

Figure 4. Australian renewable electricity production by fuel type (TWh/year, 1994-2020)54

As Australia has such a strong natural comparative deployed, and that about 30 per cent of the
advantage in renewable energy, there is a potential electricity used in steelmaking from renewable
to expand beyond current production volumes. This hydrogen is needed just for the iron reduction stage,
could involve one of the existing majors scaling up reducing a ton of iron might use around 1 MWh of
their operations, or it could involve a new producer renewable electricity, and 500 million tons would
entering the market. Either way, it is feasible to require 500 TWh of renewable electricity. This
contemplate Australia producing 1 million tons considerable amount is around eleven times more
per year of clean steel above the current average electricity than Australia produced from solar and
production levels. An expansion at that scale could wind over the last year. Such an accomplishment
underwrite demand for an additional 2.5-3.5 TWh would mean that almost forty per cent of the
of renewable energy generation, whether it be world’s iron reduction is achieved at zero emissions,
the Hunter Valley region or Queensland. Australia equating to reducing global emissions by over
could potentially go much further and set a target of three per cent. Obviously the above figures are
producing 500 million tonnes of zero emissions iron only intended to be loosely indicative of the scale
metal by 2035. This scenario is contemplated by the of investment needed. More precise and accurate
EU, describing it as conceivable that iron reduction estimates will only become possible as progress is
occurring in China may shift to Australia.55 Assuming made toward these goals, but understanding the
clean hydrogen is the basis of a technology broad scale of the task is an important step toward

16
giving it the priority and investment that it demands. about. 5 shows electricity production in Australia’s
national electricity market (NEM) over a week. The
Can we achieve such a transformation? We variability from renewables is immediately clear, examine current efforts in the following section, with high contributions from solar, by definition, but first we need to consider another aspect of the during the day.
challenge: firming the supply of renewables.
In this particular week (12–19 January 2022),
(2) Firmed Renewable Electricity Supply renewable energy sources provided as much
as 54 per cent and as little as 14 per cent of
Part of the challenge of building a clean steel
electricity demand at any one time. While batteries industry is economically ensuring a continuous
are incredibly useful, in this particular week they supply of renewable electricity – both to feed
only contributed as much as 100MW twice. That directly into electric arc furnaces, and to generate
compares with an average daily peak of 30 GW hydrogen for use as an industrial fuel. Steelmaking
and an average daily trough of 19 GW. Batteries is a continuous operation. It does not stop at night,
are ideal for optimising the energy market at the as other manufacturing processes do. Partly this is a
level of microseconds up to hours, but are unlikely matter of ensuring a return on capital investment, but
to be sufficient by themselves to guarantee firmed there is also a materials problem with repeatedly
supply to post-carbon industry. The problem is heating equipment to extremely high temperatures
unquestionably solvable: pumped hydro is likely then allowing them to cool again every day.
to contribute a major part of the solution. Gas
Thermal expansion would quickly damage facilities
is playing an important firming role in the grid, making them either dangerous or impossible to
particularly on the east coast; this role may be filled operate. The intermittency of renewables is well
by hydrogen or other storage methods in the future.
known, and there are a range of solutions to
Whichever mix of storage methods is used, we will this challenge, but they do increase cost. They
need significant investments soon.
also have to actually be done, not merely talked
Figure 5. Electricity production on the NEM by source (7-day period, MW)56

17
Clean and Mean New Directions for Australia’s Steel Industry

Part Three | The Current State of Play
Australia produces around five million tonnes of hydrogen direction reduction and an iron melter.
steel each year and about 900 million tonnes
of iron ore57. We are a relatively small producer Recently, expectations about the rate of transition
of steel but the largest exporter of iron ore in the that Australia might achieve have begun to change.
world (nearly 40 per cent of the world’s iron This is especially evident in the Australian Electricity
ore is produced here). Australia also has some Market Operator (AEMO)’s draft 2022 Integrated
of the largest potential supplies of renewable System Plan (ISP) for the National Electricity
energy in the world giving us a great opportunity Market.60 AEMO considered five scenarios for
to decarbonise the steel industry both here and the development of Australia’s electricity market
globally at low cost and to the benefit of working with different rates of decarbonisation. The ‘steady
people and local communities. If Australia progress’ scenario was discarded as “no longer
makes prudent decisions over the next two years, relevant” in light of the national commitment to
we can lay the foundations for a strong and net zero emissions by 2050. The remaining four
sustainably growing industrial sector. However, scenarios in order of ambition are: slow change,
the Commonwealth Department of Industry says step change, progressive change, and hydrogen
that Australia’s efforts to decarbonise steel are superpower. The feedback AEMO has received
“advancing slowly” relative to both 2025 and is that ‘progressive change’ is the most likely
2030 goals. Despite clean steel being a priority scenario, while conversely ‘slow change’ the least
technology in Australia’s Technology Investment likely. The ‘hydrogen superpower’ scenario was
Roadmap, there has been “limited activity in this seen as less likely than ‘step change’ yet hitherto
area” so far.58 Of the current projects supported by scarcely contemplated. It involves developing an
the Australian Renewable Energy Agency (ARENA), enormous hydrogen export industry, which runs the
none are specifically focused on decarbonising risk of pricing our domestic industry out of access
the steel industry. There is one project in progress to their primary low-emissions fuel. If Australia were
in which Rio Tinto is aiming to partially reduce to decarbonise iron reduction using hydrogen
emissions from alumina and there is significant technologies, that would fit under a hydrogen
state-based effort to develop clean hydrogen, superpower scenario. But decarbonising the steel
which is central to the most promising efforts to industry is part of both progressive change and step
produce clean steel, however Australia’s two main change. Under both of these scenarios, AEMO
steelmakers, BlueScope and GFG Alliance, have expects Australia to require around 270 GW of
only been involved in one ARENA-supported installed renewable energy capacity by 2050
project each: GFG Alliance’s efforts to establish (almost triple the currently installed capacity). The
the Middleback Ranges Pumped Hydro plant hydrogen superpower scenario is considerably
to power its facility, and the Australian Industrial more ambitious, reaching 270 GW as early as
Energy Transition Initiative (AIETI), which includes 2035 and continuing up to 800 GW by 2050. The
BlueScope amongst its 16 industry partners.59 majority of the extra 525 GW of installed capacity
would be expected to be utility-scale renewables
BlueScope has also announced memoranda of mainly used for hydrogen production (Figure 6).
understanding (MoUs) with Shell Energy, to work
together to develop a pilot renewable hydrogen
electrolyser at Port Kembla and a hydrogen hub,
and with Rio Tinto, to develop low-emissions
steelmaking processes at Port Kembla, including

18
Figure 6. AEMO scenarios for Australia’s renewable electricity requirements (2023-2050)61

19
Clean and Mean New Directions for Australia’s Steel Industry

AEMO’s draft 2022 ISP provides a well-modelled intensity by up to 20 per cent.63
context within which the decarbonisation of the steel
industry can be expected to progress. Because BlueScope has also stated publicly that it has the
harder to abate emissions are drawn from primary financial flexibility to rapidly adopt breakthrough
steel production and because Australia’s primary technology once it is commercially viable and
steel industry is so concentrated (with two major available at scale, and it would not need to
producers each filling a different industry niche and operate a relined No.6 blast furnace for a full
each operating in a different geographical region 20-year campaign in order to be viable. It has
of Australia) we are able to examine each of the described the reline as a “bridge” to get to low
two major primary steel producers individually. emissions steelmaking, where it can transition to the
There are also significant related opportunities new technology when it is commercially available.
from carbon-free iron ore reduction which will be
The company has indicated that it intends the
scrutinised in the next section.
refurbishment to be done in a way that allows
BlueScope Steel: Port Kembla integrating hydrogen fuel as it becomes available
at commercial scale, yet the manner in which that is
BlueScope’s blast furnace operation located at Port expected to work has not been made publicly clear
Kembla, south of Sydney, is the largest single plant to date. Whether these plans amount to fast enough
for steelmaking in Australia. Because of that fact, action depends on what else is done. The company
the Climate Action Report that BlueScope released has repeatedly described their plans as critically
on 1 September 2021 (the first time BlueScope has contingent upon five “enablers”:
released such a report) is incredibly important.62
BlueScope has adopted a net zero target for 1. Commerciality of emerging and breakthrough
2050 with interim targets for 2030 of reducing technologies;
emissions intensity of their steelmaking processes by
2. Availability of affordable and reliable
12 per cent from their 2018 levels and reducing the
renewable energy;
emissions intensity of all their other operations by 30
per cent with $150 million over five years budgeted 3. Sufficient affordable hydrogen made from
for climate projects. They have appointed a Chief renewables;
Executive of Climate Change (Gretta Stephens),
established a corporate climate team, and linked 4. Availability of other quality raw materials; and
executive remuneration to performance on climate
targets. However, they do not expect significant 5. Appropriate policies to support investment and
emissions reduction before 2030 and decisions prevent carbon leakage.
that must be made within the next year or two will
These enablers are largely outside the control
significantly impact how ready the company is to
of BlueScope alone, which is part of the reason
begin realising serious emissions reductions even
decarbonising steel must be a national, not just
after 2030.
a company priority. Regarding ensuring the
The company is currently undergoing feasibility availability of affordable hydrogen that can
assessments on relining the No.6 blast furnace at be integrated into their production processes,
Port Kembla. Refurbishment is expected to take three BlueScope has estimated that to decarbonise
years with a figure of around $1 billion capital the steel output from its Port Kembla blast furnace
invested. This includes technologies that will be key using hydrogen-based processes will require up
enablers of medium to longer-term opportunities to to 300MW of hydrogen electrolysers (about
reduce Port Kembla Steelworks’ greenhouse gas 100MW/million t). Initially, they have announced
intensity. These opportunities are part of a broader intentions to pilot a 10MW renewable hydrogen
suite of climate-related projects at Port Kembla electrolyser, with two crucial reasons for starting
that have the potential to reduce GHG emissions small.

20
First, there is a lot to learn: how hydrogen is best government’s Renewable Energy Zones policy is produced and stored safely on site, how it should designed to drive an increase in firmed renewable be handled, and most importantly, how hydrogen generation capacity in the State, and it will also behaves in the blast furnace. Both making hydrogen drive demand for renewable energy components.
and using it to make steel are technologies that are BlueScope and its partners recently secured a yet to be commercially demonstrated. Although $55.4 million grant under the Federal Government’s a 10MW pilot is small relative to the anticipated Modern Manufacturing Initiative, to create an ultimate requirements of around 300MW, it is not Advanced Steel Manufacturing Precinct at Port relative to existing commercial experience. Today, Kembla Steelworks, which will see the building of a the biggest operating electrolyser in existence is new fabrication facility to manufacture components
1.2MW, with three 10MW electrolysers expected for the renewable energy, defence and other to begin production in Australia next year. Most sectors, as well as upgrades and modernisation existing hydrogen production is from methane of BlueScope’s Plate Mill. Decarbonising steel steam reforming of oil or gas64 but emissions must production in Port Kembla presents a significant be captured and stored to ensure a zero-emissions task, but BlueScope is increasingly demonstrating product. There is even less experience available its commitment. While there remains a huge for using hydrogen in blast furnaces. Safety issues amount of work to do, it will be essential to ensure need to be resolved, especially when managing that decisions made now are compatible with large amounts of gas around equipment operating decarbonisation plans.
at extremely high temperatures. There are many practical matters arising from the different chemistry In the context of significant technological of hydrogen from coal. Skills need to be developed, uncertainty, it is ideal to have multiple candidate including around safely and productively operating technologies. Just as is the case with COVID-19 and maintaining new processes and equipment. vaccines, investing in one prototype and not
Many issues have to be learned through simultaneously exploring other options is an experience, and ideally, working closely with extreme risk. BlueScope has stated publicly that employee representatives. This inevitably takes time, it is also examining the role of technologies such which is why it is urgent to begin now if we intend to as biochar, which could potentially replace a meet goals by 2030 or 2050. proportion of the pulverised coal injection used in
the blast furnace, with resulting reductions in GHG
The second reason to start small is cost. emissions. In the mid-2000s, BlueScope undertook
Operating 300MW of hydrogen electrolysers research & development with industry partners and requires a significant amount of electricity. The CSIRO, including to examine the use of renewable costs of hydrogen are likely to fall significantly carbon sources as fuels and reductants. This as the industry increases in scale, but that has work included piloting pyrolysis-based biochar not happened yet. BlueScope’s 10MW pilot production. Ensuring this work continues will be both electrolyser will also incur significant annual economically and environmentally worthwhile.
operating costs (separate from upfront capital investment). Although this is a significant operational GFG Alliance cost, it is small by comparison to their annual
GFG Alliance consists of Liberty Steel and InfraBuild electricity bill (which runs into the tens of millions of
among other entities. Liberty Steel was formerly dollars). To deploy hydrogen at scale, renewable
called Arrium until the company was purchased electricity generation needs to be multiples of its
by GFG Alliance in 2017.65 GFG Alliance is well current level.
positioned to take advantage of emerging clean
Several potential government funding sources for steel technologies. InfraBuild (the smaller of GFG the development of renewable hydrogen projects Alliance’s two major steelmakers in Australia) are available, including the NSW Government’s is already fully electric and Liberty has plans hydrogen hubs and hydrogen roadmap funds. The to introduce fully clean hydrogen and electric

21
Clean and Mean New Directions for Australia’s Steel Industry

processes. Yet the best thought-out plans and “existing contracts” as the only source of delay.
good intentions are undermined if they cannot be Emissions from the second stage in their process is
converted into tangible, commercially viable results. slightly more challenging to abate. However, the
gas used in the reheat furnaces to prepare the steel
Liberty for rolling into products can potentially be replaced
with hydrogen. InfraBuild have indicated interest
Liberty’s main operations produce steel long
in becoming base customers for hydrogen hubs
products at their facility in Whyalla in South
in Victoria or the Hunter Valley in NSW. As with
Australia.66 Currently, Whyalla uses an emissions-
Liberty, the challenge is converting good intentions
intensive blast furnace, however the company has
and aspirations into commercially successful results.
adopted a target of achieving carbon neutrality
by 2030, which they call “CN30”. Plans were Pilbara
announced in 2020 to replace their blast furnace
with an electric arc furnace (EAF) facility using Because iron ore and renewable electricity
hydrogen fed direct reduced iron (DRI) in the iron are the main ingredients for clean steel, and
ore reduction processes. The Whyalla blast furnace because Australia has some of the most abundant
is rated at 1.2m tons per year but the planned endowments of each, we cannot ignore the
EAF facility is expected to have the capacity potential for upgrading Australia’s iron ore exports
to produce 2m tons per year. This increase in into clean iron. If Australia is to decarbonise our
production capacity alone would represent a 15 steel industry, we need to invest in large quantities
per cent increase in Australian steel production. of renewable electricity and hydrogen as well as
The main constraint on this transition is the supply of develop the skills and capability to reduce iron ore
renewable hydrogen and the company is currently without producing GHG emissions. The question
assessing options for either buying renewable then follows; why not apply it to all the iron ore we
electricity or building their own generating capacity. produce? Australia has the potential to demonstrate
Ensuring that progress materialises is a critical task. emissions-free iron-ore reduction using renewable
energy and hydrogen processes in the Pilbara, a
InfraBuild region known for its vast mineral deposits in northern
Western Australia. If Australia could produce
InfraBuild is a low-carbon steel maker that uses
emissions-free reduced iron for export, it could
100 per cent recycled scrap metal and has two
become an even bigger supplier of iron than it
EAFs: one in Sydney at Rooty Hill and the other
already is. Conversely, missing this opportunity risks
in Melbourne at Laverton plus four rolling mills
providing that market position to Brazil or Africa,
which include reheat furnaces that consume gas.
each of which also have major iron ore reserves
They describe their process as GREENSTEEL™. In
and significant renewable energy potential.
essence, scrap steel is used instead of iron ore,
meaning there is no need to reduce iron ore. The The Australian steel and manufacturing industries
steel is melted for recycling using an EAF, which would benefit from lower costs due to economies
consumes significant amounts of electricity – the of scale if Australia can develop very large clean
NSW government describes InfraBuild’s Rooty energy and hydrogen production. Some producers
Hill plant as “one of the largest electricity users may also potentially benefit from lower relative
in NSW” using 310 GWh per year.67 Although costs of reduced iron compared with international
this much electricity consumption can produce competitors. Transporting DRI requires strict safety
significant emissions when the electricity is measures to prevent explosions, including treatment
generated from coal, it is also not complicated to before transport and close monitoring while in
transition to renewables.68 InfraBuild have plans to transit.
largely eliminate their Scope 2 emissions from their
EAF within two years by transitioning their electricity
supply to 100 per cent renewables, describing

22
As there are already major renewable energy Fortescue Metals Group and Fortescue Future projects under development in the Pilbara (such as Industries the 26 GW ‘Asian Renewable Energy Hub’69), the missing links in this supply chain are building the DRI Fortescue is primarily an iron-ore mining firm but has capacity. This is likely best done in collaboration begun investing strongly into hydrogen and other with steelmakers who already have decades of renewable energy technology. Emissions from steel experience in reducing iron ore. made from Fortescue’s iron ore are considered
“Scope 3 emissions” from the perspective of the
Another hurdle that will need to be overcome is to firm. They estimate their annual Scope 3 emissions develop and implement the technology to cost- from crude steel manufacturing are equivalent to effectively manufacture direct reduced iron from the around 250 million tons of CO2.70 Fortescue’s hematite ores that predominate in areas such as the subsidiary, Fortescue Future Industries (FFI) have set
Pilbara. To date, magnetite ores have been more a target of producing 15 million tons of renewable suitable for hydrogen DRI production worldwide hydrogen per year by 2030, increasing to 50 due to their higher grade once processed and million tons. The company has also “secured lower impurities. Using hematite ores in DRI exclusive access” to over 300 GW of renewables production is a focus of BlueScope’s MoU with Rio capacity.71 By contrast, in 2020 the IEA estimated
Tinto. that the total announced low-carbon hydrogen
production for this year was 0.55 million tons, and
that almost 8 million tons/year would be needed
by 2030 under their “sustainable development
scenario” (Figure 7). FFI are planning to meet that
goal twice over.

Figure 7. Low-carbon hydrogen production (2010-2030)72

FFI’s stated commitments to renewable energy are are flexible and light weight modules.74 The 1 GW massive: equivalent to 15 times the annual electricity Powerfoil factory would be producing 1 GW of consumption from all sources on the National solar film per year for large-scale users, such as
Electricity Market (NEM).73 Within that ambition utility solar or to power FFI’s hydrogen electrolysers.
is a 60 percent stake in HyET Group, which is Currently, the only solar PV manufacturer in Australia developing a 1 GW “Powerfoil factory”. HyET’s is is Tindo Solar, which produces 150 MW of solar a Dutch company and their Powerfoil solar panels panels per year.75 HyET also producer hydrogen

23
Clean and Mean New Directions for Australia’s Steel Industry

compression systems (compression is a required
part of the hydrogen storage process).76 In its
most recent full year results, FMG announced they
expect to ship 180-185 million tons of iron ore this
financial year.77 While FMG’s stated plans are
ambitious, were they able to reduce their iron ore
locally with clean hydrogen, the impact on global
emissions would be tremendous, as would be the
impact on developing an Australian hydrogen
industry and providing low cost material inputs to
the steel and manufacturing sectors.

Other hydrogen commitments

Developing a clean steel industry demands
commercially available renewable energy and
clean hydrogen, each still underdeveloped. There
has been a huge number of hydrogen related
announcements over the last two years which will
only increase further. Developments in hydrogen
technology and costs have spurred commitments
and investments from governments and the private
sector around the world, not least from Australian
states and territories. However there remains a
daunting schedule of work. According to ARENA,
ATCO Australia’s Clean Energy Innovation Park
(CEIP) aims to “create Australia’s first commercial
scale green hydrogen supply chain”. Hydrogen
will be trucked to gas network injection points.
The Park will build a 10 MW electrolyser that can
produce 4 tonnes of hydrogen per day.78 ARENA
is also supporting two other 10 MW electrolysers
– among the largest renewable hydrogen
demonstration projects in the world.79

24
Recommendations
1. Develop and implement a National Clean 1. Utility-scale renewable energy generation,
Steel Roadmap storage, transmission and distribution
2. Large scale clean hydrogen production,
The Commonwealth Government working in transmission, storage, and tandem with state governments, steelmaking 3. Low or zero emissions iron reduction and companies and employee stakeholders, including, steelmaking.
but not limited to, the Australian Workers’ Union, should establish a Clean Steel Taskforce with the The National Clean Steel Roadmap should include specific aim of creating a National Clean Steel scheduled National Interim Activity Targets in
Roadmap. The taskforce should be established and recognition that several years of progress will be funded in the 2022-23 Commonwealth budget required before any “results” can be expected.
and begin operations no later than 1 July 2023. Steelmakers and other producers of difficult to
The taskforce should take submissions from relevant abate emissions are putting forward plans to reduce parties, be informed by overseas best-practice, their emissions by 2050, but these tend to rely on notably the case of Sweden, and deliver the Clean technology that is not yet proven. Interim milestones
Steel Roadmap to the Commonwealth Government are needed to ensure the foundational work is no later than December 2022. The Roadmap should being done as early as possible. Importantly, these enunciate clear parameters around decarbonising should not be focused solely on medium and long steelmaking and other industrial heat sources such term outputs, like a 2030 emissions reduction target; as concrete and a range of chemicals, support a they need to focus on the activity that longer-term range of technologies in order to reduce risk given targets depend on. For instance, targets to ensure current technological uncertainties, detail precise producers have contracted access to sufficient steps for interlinking the developing hydrogen renewable hydrogen supplies within the timeframe industry into the steel and iron production process, needed. Targets to ensure producers are trialling the and set clearly defined and monitored targets for technology that they will eventually need to work transitioning to clean steel production. In addition, with. And targets to ensure they are developing the Roadmap must make funding provision for and the local skills required. The precise details of such outline the ways in which the existing steel and iron plans should be left to the companies themselves, workforce will be retrained and/or redeployed, but they should commit to the intermediate steps as well as clearly establishing Occupational that will credibly make their long-term plans viable.
Health and Safety guidelines to account for new The tasks where short-term progress is required workplace settings. include building sufficient renewable energy at
the appropriate locations; building hydrogen
The National Clean Steel Roadmap should include electrolysis at scale, ensuring the hydrogen can be clear awareness that central to the challenge is the stored safely, piloting the use of hydrogen in iron need to develop and deploy commercially and at reduction, demonstrating steel production with iron scale multiple new, unproven technologies within a made from renewable hydrogen, and ensuring narrow timeframe. The plan must facilitate scheduled the entire production process is well integrated.
progress for technological development and Progress should be made on each of these fronts in deployment in three areas (linked to activity targets parallel, and the Commonwealth should legislate elaborated adjacent): short-term targets on each of the above.

25
Clean and Mean New Directions for Australia’s Steel Industry

2. Establish national accreditations for clean four initial steps that require financial and logistical
hydrogen and clean steel government support:

The federal government should establish a national 1. Build and secure local dedicated renewable
zero-emissions accreditation scheme for hydrogen energy supply at scale (with storage).
and other industrial products. The accreditation 2. Maximise and secure hydrogen production
process should allow the market to distinguish capacity.
between zero-emissions products and those that are 3. Piloting hydrogen integration with the blast
not zero-emissions. Market discrimination will help furnace.
facilitate an economic return on emissions reduction 4. Policies to prevent ‘leakage’.
investments, while reducing ‘carbon leakage’,
whereby supply shifts to producers that are not part These have been identified by the company as
of emissions reduction efforts. essential conditions that will need to be met in order
for their decarbonisation plans to succeed. Progress
The Commonwealth Government should codify a has begun, but it remains insufficient and dependent
zero-emissions accreditation scheme for hydrogen upon conditions that are not guaranteed, with no
and related industrial products and mandate interim targets or clear accountability for reaching
clearly enunciated short-term targets for building critical milestones. The region around the Port
infrastructure and production. It is intended that Kembla blast furnace has been designated as a
these two steps be integrated with the development renewable energy zone by the NSW government.
and implementation of the proposed National Incremental targets at one to two years for installing
Clean Steel Plan outlined above. A clean steel renewable energy would ensure we stay on track
accreditation should also be developed. It should to install sufficient capacity to supply the necessary
be graded and have a forward-scheduled clean hydrogen in the required timeframe. Support
tightening of standards set in line with expectations should be provided for pilot projects and trials, such
of the international frontier. Governments should as the pilot renewable hydrogen electrolyser at the
commit to procurement policies that demand Steelworks and trials to produce iron and steel more
high levels of clean steel accreditation as well as cleanly using hydrogen and other reductants such
minimum standards set in building codes. Both as biochar.
procurement-standards and minimum standards
should be indicated as much in advance as Port Kembla gas terminal
possible – ideally several years. Accredited clean There are plans to upgrade the port to facilitate
steel will be a premium product relative to other natural gas imports to help supply the gas facility
steel products. For this reason, the economics of that will be built adjacent to the port and blast
exporting steel should become more attractive. furnace. But if the area is to become a major
Therefore, the national accreditation scheme should hydrogen production area, it will need to become
be constructed so as to ensure international buyers an exporter of hydrogen, not an importer of LNG.
can have confidence in clean certification. This demands that the Commonwealth and NSW
government ensure the Port Kembla Gas Terminal
3. Strategic Government Investment to support is fitted for hydrogen, and capable of operating as
steelmakers in decarbonising an export terminal. The Port Kembla Gas Terminal
is a ‘Critical State Significant Infrastructure’ (CSSI)
a. New South Wales: Decarbonise Port Kembla project since 2018. It received planning approval
steel operations in 2019.80 The federal government announced
Australia’s largest steelmaking facility is BlueScope’s $30 million support for the $250 million project
Port Kembla Steelworks. The NSW and federal in October “as it progresses to Final Investment
governments should collaborate with BlueScope Decision”. The terminal is intended primarily as an
to decarbonise that operation at speed. There are import terminal to ensure an economical supply of

26
gas to the eastern seaboard. Ensuring the terminal c. Explore the potential of a futures market for is constructed to specifications that enable handling clean steel hydrogen will be essential for linking BlueScope’s Part of the challenge is the difficulty in finding steel facility to reliable hydrogen supplies. The port demand for a product that does not exist, and should also have the capacity to operate as an finding willing investors for a product that has export terminal. The economics of hydrogen will be no proven consumers. One solution could be to made far better if major production areas are able create a futures market for clean steel. A futures to sell excess supply to national or international market would allow buyers to contract for clean markets. steel deliveries after a certain date, such as 2030.
Payment would be conditional upon delivery,
Blast furnace hydrogen trials reducing the risk to buyers. The ability for producers
BlueScope should include specific planning for to demonstrate to investors that a market exists could integrating the No.6 blast furnace with hydrogen reduce the risk to investors, facilitating the early technology. This needs to include a timeline as progress future production depends on.
well as clear estimates of the amount of hydrogen required and any early steps that will best be d. Grow the industry with a new small facility managed at the beginning of the no.6 blast producing only premium clean steel furnace relining process. Trials should proceed Clean steel will be a premium product for at least with hydrogen from whatever source is available. the next twenty years. Because of this, clean steel
Developing multiple technologies should proceed has the potential to be successfully exported in with parallel processes, not sequential processes large quantities. A new DRI-EAF facility producing
– meaning that current proposed trials should be in the range of 1 million tons per year would advanced as quickly as possible. Should trials be a small facility relative to the Port Kembla of hydrogen use in steelmaking begin only when operations, but could be established in a shorter there are abundant supplies of renewable energy time than is required to fully transition Australia’s and affordable clean hydrogen, progress on entire steel industry. An additional 1 million tons decarbonising steel would not begin until it was per year of steel production would represent too late for a national financial and manufacturing around 20 per cent growth for the industry and dividend. could directly employ in the region of an additional
1,200 permanent full time workers after the initial b. South Australia: Make Whyalla Australia’s construction phase finished (using the Whyalla
first clean steel demonstration project steelworks as a rough benchmark).81 The federal
GFG Alliance’s Whyalla facility is well placed to government should work with industry, other levels become the first producer of clean primary steel of government and employee representatives to in Australia. Whyalla are planning to replace its establish a commercial clean steel demonstration aging blast furnace with Electric Arc Furnace (EAF) project as a premium product. Existing producers technology using iron from a Direct Reduced Iron may be involved, but the project can also
(DRI) facility. Their planned DRI will source iron ore encourage new market entrants, helping reduce from GFG’s on iron ore mines in South Australia the high degree of market concentration. Choosing and will initially reduce the iron using natural gas. a relatively small production volume will make
The company plans to transition to clean hydrogen it possible to establish the necessary renewable production over time. The EAF will run directly on electricity and clean hydrogen production within a electricity produced from renewables, while the DRI relatively short time frame. The government should will need clean hydrogen as early as possible. The be ambitious, aiming for commercial operations to first large scale commercial production of clean begin as early as 2028. To expedite the process, steel will be a significant milestone. the right location will be essential. Strong potential
for rapidly establishing local renewable energy
and hydrogen production will be necessary as

27
Clean and Mean New Directions for Australia’s Steel Industry

well as access to suitable port facilities. A location Australia. Decarbonising Australian steelmaking
such as the Hunter Valley could be ideal given the could grow the industry in several ways. If
advanced plans for clean hydrogen production. Australian construction standards and government
procurement requirements demanded certified low-
e. Western Australia – Establish pilot-at-scale carbon or carbon-neutral steel, we could expect to
decarbonised iron-metal production in the see a shift in domestic consumption towards locally-
Pilbara made steel rather than imported steel if competitors
Western Australia has a unique opportunity to had not decarbonised in line with Australian
decarbonise a major portion of the global iron producers. Clean steel will be a premium product
industry at the source. Doing so would require and, accordingly, be suitable and highly lucrative
enormous investment in renewable energy and as an export. Major steel users in our region such
hydrogen production as well as introducing a new as Japan, Korea, India, China and others all have
export-dedicated iron reduction industry to WA. decarbonisation obligations that mean they are
Fortescue Future Industries has demonstrated a potential importers of certified clean steel. The
desire to lead on this front. The WA and federal same imperative also makes them highly attractive
governments should collaborate, helping match investors, especially in a country such as Australia
funding and ensure appropriate policy settings with a stable investment environment and regulatory
are in place. The WA and federal government system. All that is missing is a federal government
should invite international collaborators. Japan, that is committed to decarbonisation and committed
Korea and Indian firms should be encouraged to to the long-term future of the steel industry and its
participate in early-stage processes to ensure a workers. As we suggested earlier Australia can
diverse market. The scale of renewable electricity potentially increase its production of steel and steel
production required to achieve this vision is products by an achievable 1 million tonnes to an
tremendous. Estimating the amount of renewable overall 6.5 million tonnes a year, which would be
electricity needed to reduce all of Australia’s iron a fantastic a win-win outcome for business and
ore production (about 900 million tons each year) workers by increasing industry revenue to over $30
using hydrogen made from electrolysers powered billion a year and adding around 1200 jobs in
by renewables is impossible to do precisely, since steel manufacturing and many more downstream –
there have not been any large-scale demonstrations good, secure, and well-paying jobs.
of the technology. But estimates of the relevant
order of magnitude are in the region of seven The opportunity for Australia from decarbonising
times greater than Australia’s current total electricity steel is not limited to just the steel industry.
production.82 To produce that much hydrogen from Competitive Australian certified clean steel would
renewable electricity, it needs to be done where the be the anchor customer for major investments
best large scale renewable resources are. Australia in renewable energy and hydrogen production
happens to have those resources where they’re as well as the basis for a growing market for
needed. We should not hold back. fabricated products, including the fabricated
policy that supports investment in decarbonisation renewable energy components that themselves will
and avoids risk of carbon leakage. be needed as inputs to the industry. It would help
Australia diversify our economy and our exports,
The opportunity for Australia making the country more resilient. And it would
help deal with the hardest to abate nine per cent of
This report has outlined what we believe global emissions; an imperative if we want a future
governments, working hand in hand with business not impoverished by climate change. There is much
and labour, has to do to secure the future of work to coordinate and time is of the essence. If we
Australia’s steel industry. Yet this plan goes beyond shy away from this task, we risk losing a great deal.
protecting what we already have: we have the But if we roll up our sleeves, work together, and get
opportunity to create a serious economic boon for it done, there is so much more to gain.

28
Endnotes
1 Based off data taken from Australian Steel Institute, ‘Our Industry’, https://www.steel.org.au/about-us/our-industry/

2 Australian Bureau of Statistics (2021) ‘Labor Force Survey: Table 6’ , https://www.abs.gov.au/statistics/labour/employment-and-unemployment/labour-force-australia-
detailed/latest-release

3 Australian Steel Institute, ‘Our Industry’.

4 Australian Steel Institute (2021) “Capabilities of the Australian Steel Industry to Supply Major Projects in Australia”

5 Worrall, L, Gamble, H, Spoehr, J & Hordacre A-L. 2021. Australian Sovereign Capability and Supply Chain Resilience: Perspectives and Options. Adelaide: Australian
Industrial Transformation Institute, Flinders University of South Australia, https://www.flinders.edu.au/content/dam/documents/research/aiti/Australian_sovereign_
capability_and_supply_chain_resilience.pdf

6 Australian Government Department of Defence, “Sovereign Industrial Capability Priority and Capability Improvement Grants Program”, media release, 15 October 2021,
https://news.defence.gov.au/media/media-releases/sovereign-industrial-capability-priority-and-capability-improvement-grants

7 Australian Government Department of Industry, Science, Energy and Resources, “Sovereign Manufacturing Capability Plan: Tranche 1”, 2021, https://www.industry.gov.
au/data-and-publications/sovereign-manufacturing-capability-plan-tranche-1

8 Michael Pooler, ‘Cleaning up steel is key to tackling climate change’, Financial Times, 2 January 2019, https://www.ft.com/content/3bcbcb60-037f-11e9-99df-
6183d3002ee1

9 Michael Pooler, ‘‘Green steel’: the race to clean up one of the world’s dirtiest industries’, Financial Times, 15 February 2021, https://www.ft.com/content/46d4727c-
761d-43ee-8084-ee46edba491a

10 Petra Stock, ‘Volvo receives “world first” delivery of fossil-free steel for car making’, Renew Economy, 24 August 2021, https://reneweconomy.com.au/volvo-receives-
world-first-delivery-of-fossil-free-steel-for-car-making/. For a review of developments see Matthew Hutson, ‘The Promise of Carbon-Neutral Steel’, The New Yorker, 18
September, https://www.newyorker.com/news/annals-of-a-warming-planet/the-promise-of-carbon-neutral-steel

11 Ross Garnaut, Super-Power: Australia’s low carbon opportunity, Latrobe University Press, Melbourne, 2019.

12 Garnaut, Super-power, p. 126.

13 Wood, Dundas and Ha, Start with Steel.

14 BlueScope, “Climate Action Report”, September 2021, https://www.bluescope.com/bluescope-news/2021/09/bluescope-climate-action-report/

15 Cliona O’Dowd, ‘Hydrogen a huge export opportunity for Australia, Alan Finkel says’, The Australian, 27 October 2021, https://www.theaustralian.com.au/business/
hydrogen-a-huge-export-opportunity-for-australia-alan-finkel-says/news-story/2d02482ff6fe4961c83ce5946e2d1267

16 Nick Dyrenfurth and Dominic Meagher, Power State: Building the Victorian Hydrogen Industry, John Curtin Research Centre Policy no. 6, October 2020, https://www.
curtinrc.org/s/power-state;

17 Valentin Vogl, Max Ahman, Lars Nilsson, “Assessment of hydrogen direct reduction for fossil-free steelmaking”, Journal of Cleaner Production, v203, 1 December, 2018,
https://www.sciencedirect.com/science/article/pii/S0959652618326301

18 International Energy Agency, “Hydrogen Tracking Report”, November 2021, https://www.iea.org/reports/hydrogen

19 Pooler, ‘‘Green steel’: the race to clean up one of the world’s dirtiest industries’.

20 International Energy Agency, “Iron and Steel Tracking Report”, November 2021, https://www.iea.org/reports/iron-and-steel

21 UK Cabinet Office and Lord Agnew, “Firms must commit to net zero to win major government contracts”, 7 June 2021, https://www.gov.uk/government/news/firms-
must-commit-to-net-zero-to-win-major-government-contracts

22 Killian Dorney and Robert Read, “Contracting for net zero”, Baele & Co International Construction and Insurance Law Specialists, October 2021, https://beale-law.
com/article/contracting-for-net-zero/

23 Daniel Hurst and Adam Morton, ‘“Not engaging isn’t the answer”: Australia under pressure as US follows EU lead on carbon tariffs’, Guardian Australia, 16 July 2021,
https://www.theguardian.com/environment/2021/jul/16/not-engaging-isnt-the-answer-australia-under-pressure-as-us-follows-eu-lead-on-carbon-tariffs

24 People’s Republic of China, National Development and Reform Commission (NDRC), “Working Guidance for Carbon Dioxide Peaking and Carbon Neutrality in Full and
Faithful Implementation of the New Development Philosophy” 24 October, 2021, https://en.ndrc.gov.cn/policies/202110/t20211024_1300725.html

25 World Steel Association, ‘2020: World Steel in Figures’, 30 April 2020, https://www.worldsteel.org/en/dam/jcr:f7982217-cfde-4fdc-8ba0-795ed807f513/
World%2520Steel%2520in%2520Figures%25202020i.pdf

26 Ibid.

27 World Steel Association, ‘2020: World Steel in Figures’.

28 World Steel Association, ‘Steel Statistical Yearbook 2020 concise version.’

29 World Steel Association, ‘Steel Statistical Yearbook 2020 concise version.’

30 Most EU countries’ exports are to other EU countries. While ‘exported’ steel is 90 per cent of all steel produced in the EU, most of these exports remain in the EU such that
the EU imports 97 per cent the value it produces. These figures distort the interpretation of the table so have been excluded.

29
Clean and Mean New Directions for Australia’s Steel Industry

31 World Steel Association, ‘Steel Statistical Yearbook 2020 concise version.’

32 European Commission, ‘2050 long-term strategy’, https://ec.europa.eu/clima/eu-action/climate-strategies-targets/2050-long-term-strategy_en

33 COP26 World Leaders Summit: Statement on Breakthrough Agenda, UN Climate Change Conference, UK, 2 November 2021, https://ukcop26.org/cop26-world-
leaders-summit-statement-on-the-breakthrough-agenda/

34 UNFCCC NDC Registry, https://www4.unfccc.int/sites/NDCStaging/Pages/Home.aspx; Australian Government Department of Industry, Science, Energy and
Resources, ‘Australia’s Nationally Determined Contribution: Communication 2021’, 2021, https://www4.unfccc.int/sites/ndcstaging/PublishedDocuments/Australia%20
First/Australia%20Nationally%20Determined%20Contribution%20Update%20October%202021%20WEB.pdf; Japan’s Nationally Determined Contribution (NDC);
https://www4.unfccc.int/sites/ndcstaging/PublishedDocuments/Japan%20First/JAPAN_FIRST%20NDC%20(INTERIM-UPDATED%20SUBMISSION).pdf; The Republic
of Korea’s Enhanced Update of its First Nationally Determined Contribution, 23 December, 2021; https://www4.unfccc.int/sites/ndcstaging/PublishedDocuments/
Republic%20of%20Korea%20First/211223_The%20Republic%20of%20Korea’s%20Enhanced%20Update%20of%20its%20First%20Nationally%20Determined%20
Contribution_211227_editorial%20change.pdf; UNFCCC, ‘China’s Achievements, Noew Goals and New Measures for Nationally Determined Contributions’, 2021,
https://www4.unfccc.int/sites/ndcstaging/PublishedDocuments/China%20First/China%E2%80%99s%20Achievements,%20New%20Goals%20and%20New%20
Measures%20for%20Nationally%20Determined%20Contributions.pdf; Germany and the European Commission, ‘Update of the NDC of the European Union and its
Member States’, 17 December, 2020; ttps://www4.unfccc.int/sites/ndcstaging/PublishedDocuments/Spain%20First/EU_NDC_Submission_December%202020.
pdf; Hanna Duggal, ‘Infographic: What has your country pledged at COP26?’, AlJazeera, 14 November 2021, https://www.aljazeera.com/news/2021/11/14/
infographic-what-has-your-country-pledged-at-cop26

35 Chinese State Council, ‘Action Plan for Carbon Dioxide Peaking Before 2030’, 27 October 2021, http://english.www.gov.cn/policies/latestreleases/202110/27/
content_WS6178a47ec6d0df57f98e3dfb.html

36 Edmund Downie, ‘Getting to 30-60: how China’s biggest coal power, cement, and steel corporations are responding to national decarbonization pledges’, Center
on Global Energy Policy, Columbia University, August 2021, https://www.energypolicy.columbia.edu/sites/default/files/file-uploads/China%20biz%203060%20
report,%20designed,%20post-pub,%2009.28.21.pdf

37 UNFCCC, ‘China’s Achievements, Noew Goals and New Measures for Nationally Determined Contributions’, 2021, https://www4.unfccc.int/sites/ndcstaging/
PublishedDocuments/China%20First/China%E2%80%99s%20Achievements,%20New%20Goals%20and%20New%20Measures%20for%20Nationally%20
Determined%20Contributions.pdf

38 Tim Buckley, ‘Coking coal’s decline likely to follow path of thermal coal’s demise’, Renew Economy, 22 December 2020, https://reneweconomy.com.au/coking-coals-
decline-likely-to-follow-path-of-thermal-coals-demise-79747/

39 America Hernandez, ‘EU steelmakers under pressure as global green steel race accelerates’, Politico, 2 February 2020, ,

40 https://www.politico.eu/article/eu-steelmakers-under-pressure-global-green-steel-race-accelerates/

41 Edie Newsroom, ‘Steel and aviation sectors plot pathway to net-zero by 2050’, Edie, 14 October 2021, https://www.edie.net/news/6/Steel-and-aviation-sectors-plot-
pathway-to-net-zero-by-2050/

42 ArcelorMittal, ‘Media Release: ArcelorMittal Europe to produce ’green steel’ starting in 2020’, 13 October 2020, https://corporate.arcelormittal.com/media/news-
articles/arcelormittal-europe-to-produce-green-steel-starting-in-2020

43 Hybrit, ‘Fossil-free steel – an opportunity!’, https://www.hybritdevelopment.se/en/; SSAB, ‘HYBRIT: A new revolutionary steelmaking technology’, https://www.ssab.
com/fossil-free-steel/hybrit-a-new-revolutionary-steelmaking-technology

44 Stock, ‘Volvo receives “world first” delivery of fossil-free steel for car making’.

45 Ibid.

46 Vattenfall is a Swedish state-owned electricity producer with a mix of technologies including solar, wind, hydro, coal, nuclear and others.

47 LKAB, is a Swedish government owned mining (iron ore) company.

48 RTH is the Royal Institute of Technology, a Swedish public university.

49 SSAB is a private Swedish company, but one of the largest shareholders is the Government of Finland.

50 SSAB, ‘FAQs: the big questions answered’, https://www.ssab.com/fossil-free-steel/faqs-the-big-questions-answered, World Steel Association, ‘Steel
Statistical Yearbook 2020 concise version’, November 2020, https://www.worldsteel.org/en/dam/jcr:5001dac8-0083-46f3-aadd-35aa357acbcc/
Steel%2520Statistical%2520Yearbook%25202020%2520%2528concise%2520version%2529.pdf

51 International Energy Agency, ‘Iron and Steel Technology Roadmap: towards more sustainable steelmaking’, p. 84, October 2020, https://www.iea.org/reports/iron-
and-steel-technology-roadmap

52 Valentin Vogl, Max Ahman, and Lars J. Nilsson, ‘Assessment of hydrogen direct reduction for fossil-free steelmaking’, Journal of Cleaner Production, vol. 203, pp. 736-745,
1 December 2018, https://www.sciencedirect.com/science/article/pii/S0959652618326301

53 European Parliamentary Research Service, ‘The Potential of Hydrogen for Decarbonising Steel Production’, December 2020, https://www.europarl.europa.eu/RegData/
etudes/BRIE/2020/641552/EPRS_BRI(2020)641552_EN.pdf

54 Clean Energy Council, ‘Clean Energy Australia Report’, 31 March 2021, https://www.cleanenergycouncil.org.au/resources/resources-hub/clean-energy-australia-
report

55 Department of Industry, Science, Energy and Resources, ‘Australian Energy Update 2021’, 14 September 2021, https://www.energy.gov.au/publications/australian-
energy-update-2021

56 European Parliamentary Research Service, ‘The Potential of Hydrogen for Decarbonising Steel Production’, December 2020, https://www.europarl.europa.eu/RegData/
etudes/BRIE/2020/641552/EPRS_BRI(2020)641552_EN.pdf

57 https://opennem.org.au/energy/nem/?range=7d&interval=30m

58 Australian Government, ‘Iron Ore’ https://www.ga.gov.au/scientific-topics/minerals/mineral-resources-and-advice/australian-resource-reviews/iron-ore

30
59 Department of Industry, Science, Energy and Resources, “State of Hydrogen 2021”, Commonwealth of Australia, 2021, https://www.industry.gov.au/sites/default/files/
December%202021/document/state-of-hydrogen-2021.pdf

60 Australian Renewable Energy Agency (ARENA), “Australian Industry Delivery Stage Project”, January 2021, https://arena.gov.au/news/funding-boost-for-initiative-to-
reduce-industrial-emissions/

61 Australian Electricity Market Operator (AEMO), ‘Draft 2022 Integrated System Plan for the National Electricity Market’, 10 December 2021, https://aemo.com.au/
consultations/current-and-closed-consultations/2022-draft-isp-consultation

62 Australian Electricity Market Operator (AEMO), ‘Draft 2022 Integrated System Plan for the National Electricity Market’, 10 December 2021, https://aemo.com.au/
consultations/current-and-closed-consultations/2022-draft-isp-consultation

63 BlueScope, BlueScope Climate Action Report, September 2021, https://www.bluescope.com/bluescope-news/2021/09/bluescope-climate-action-report/

64 BlueScope ASX Release, 21 February 2022: https://s3-ap-southeast-2.amazonaws.com/bluescope-corporate-umbraco-media/media/3575/1h-fy2022-bluescope-
results-asx-release.pdf

65 N. Muradov, ‘Low carbon production of hydrogen from fossil fuels’, Compendium of Hydrogen Energy, 2015, pp. 489-522, https://www.sciencedirect.com/science/
article/pii/B9781782423614000170

66 ABC News, ‘Whyalla steelmaker Arrium to be sold to British company Liberty House’, 5 July 2017, https://www.abc.net.au/news/2017-07-05/arrium-to-be-sold-to-
british-consortium/8679960

67 Liberty GFG, ‘New brand unites Liberty businesses in Australia and globally’, https://www.libertygfg.com/liberty-news/new-brand-unites-liberty-businesses-in-australia-
and-globally/#:~:text=LIBERTY%20is%20Australia’s%20largest%20manufacturer,a%20leading%20metals%20recycling%20business.

68 Department of Energy, “Clean Energy Knowledge Sharing Initiative: Case Study: InfraBuild Steel”, July 2020, https://www.energy.nsw.gov.au/sites/default/
files/2020-07/InfraBuild%20Steel%20case%20study.pdf

69 InfraBuild, ‘Building Sustainable Communities’, https://www.infrabuild.com/en-au/technical-library/sustainability-hub/

70 Asian Renewable Energy Hub, https://asianrehub.com/

71 FMG Fortescue, ‘Climate Change Report FY21’, p.33, https://www.fmgl.com.au/docs/default-source/announcements/fy21-climate-change-report.
pdf?sfvrsn=b26e27f9_4

72 Fortescue Future Industries, ‘Dr Andrew Forrest AO calls for a global hydrogen accreditation scheme’, 17 September 2021, https://ffi.com.au/news/dr-andrew-forrest-
ao-calls-for-a-global-hydrogen-accreditation-scheme/

73 International Energy Agency, ‘Hydrogen – Tracking Report’, June 2020, Paris, https://www.iea.org/reports/hydrogen-2

74 Giles Parkinson, ‘Forrest strikes deal with UK billionaires for biggest renewable hydrogen play in UK’, Renew Economy, 31 October 2021, https://
reneweconomy.com.au/forrest-strikes-deal-with-uk-billionaires-for-biggest-renewable-hydrogen-play-in-uk/; ‘Open NEM’, https://opennem.org.au/energy/
nem/?range=7d&interval=30m

75 ‘Hyet Solar’, https://www.hyetsolar.com/projects/

76 David Carroll, ‘Fortescue eyes 1 GW solar PV module manufacturing plant’, PV Magazine, 7 October 2021, https://www.pv-magazine-australia.com/2021/10/07/
fortescue-eyes-1-gw-solar-pv-module-manufacturing-plant/

77 HyET Hydrogen, ‘Partnership HyET Hydrogen and H2H Energy’, 4 December 2020, https://hyethydrogen.com/news/partnership-hyet-hydrogen-and-h2h-energy/

78 FMG Fortescue, ‘FYI21 Full Year Results’, p. 20, 30 August 2021, https://www.fmgl.com.au/docs/default-source/announcements/fy21-results-presentation.
pdf?sfvrsn=ecda8d6e_4

79 ArenaWire, ‘Hydrogen electrolyser projects take first steps’, 26 May 2021, https://arena.gov.au/blog/hydrogen-electrolyser-projects-take-first-steps/

80 ArenaWire, ‘Three hydrogen projects share in $103 million of funding’, 5 May 2021, https://arena.gov.au/blog/three-hydrogen-projects-share-in-103-million-of-
funding/

81 NSW Government Media Release, ‘Port Kembla Gas Terminal Approved’, 29 April 2019, https://www.nsw.gov.au/media-releases/port-kembla-gas-terminal-
approved

82 Andrew Spence, ‘Deal set to save Whyalla steelworks’, InDaily, 5 May, 2021, https://indaily.com.au/news/2021/05/05/refinancing-deal-may-have-saved-whyalla-
steelworks/

83 Jonathan Pye speaking at Lau China Institute, Kings College London (2021).

Clean and Mean: New Directions for Australia’s Steel Industry, John Curtin Research Centre Policy Report no. 8.
Copyright © 2022. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, transmitted, in any form or by any means, without prior permission in writing of the John Curtin Research Centre or as expressly permitted by law, by license, or under terms agreed with the John Curtin Research Centre.
ISBN: 978-0-6489886-3-2 www.curtinrc.org www.facebook.com/curtinrc www.twitter.com/curtin_rc

31

First Mover Moment

Making the Most of Australia’s Hydrogen Opportunity

August 2022
T H E M C K E L L I N S T I T U T E

About the McKell Institute
The McKell Institute is an independent, not-for-profit research institute dedicated to identifying practical policy solutions to contemporary challenges.

T H E M C K E L L I N S T I T U T E

About this Report
This project has been prepared by the McKell Institute for the Australian Workers’ Union.

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Contents

Foreword ...................................................................................................................................................... 3

Executive Summary ....................................................................................................................................... 4

Key Findings .................................................................................................................................................. 6

Summary of Recommendations ..................................................................................................................... 7

Glossary of Terms .......................................................................................................................................... 8

Part 1: Understanding Hydrogen & Australia’s Hydrogen Opportunity........................................................... 9
The effectiveness of carbon capture and storage technology is uncertain................................................ 10
The lifecycle emissions of blue hydrogen production need to be considered ........................................... 11
Blue hydrogen is currently cheap to produce, but scope for further cost reductions is limited................ 12
Blue hydrogen costs can be minimised only by increasing scale ............................................................... 12
The factors driving the cost of green hydrogen are undergoing rapid change .......................................... 13
Like blue hydrogen, increasing scale is necessary to minimise the cost of green hydrogen...................... 13

Part 2: Examining the Demand for Hydrogen ............................................................................................... 15
Oil Refining ................................................................................................................................................. 15
Industrial Feedstocks .................................................................................................................................. 16
Electricity Generation and Storage ............................................................................................................ 16
Case Study: The Sir Samuel Griffith Centre ............................................................................................... 18
Transport .................................................................................................................................................... 18
Mixing with gas and heating....................................................................................................................... 19
Manufacturing ............................................................................................................................................ 19
T H E M C K E L L I N S T I T U T E

Export ......................................................................................................................................................... 20

Part 3: The First Mover Opportunity ............................................................................................................ 21
Scale effects are transferable between blue and green hydrogen ............................................................ 21
Reducing hydrogen production costs quickly is key ................................................................................... 22
Moving first on hydrogen will create a renewable manufacturing advantage .......................................... 22

Part 4: Australia’s Current Approach to Hydrogen ....................................................................................... 24
Policy at the federal level ........................................................................................................................... 24
Policy at the state level .............................................................................................................................. 25
Case Study: The Latrobe Valley Hydrogen Energy Supply Chain Project ................................................. 27

Recommendations ...................................................................................................................................... 28

Conclusion................................................................................................................................................... 30

Appendix: Evaluating the long-term efficiency of hydrogen applications in Australia................................... 31
Hydroelectric dams can also play a role in stabilising the grid ................................................................... 32
Low-carbon options for light vehicle transport are already available ........................................................ 33
Trucks and heavy vehicles are also heading towards electrification.......................................................... 34
The shipping and aviation industries will need hydrogen power to decarbonise ...................................... 34
Hydrogen is incompatible with current gas appliances and network infrastructure ................................. 35
Displacing gas with hydrogen is inefficient compared to alternatives .......................................................
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Foreword
Australia is in the midst of a remarkable energy transition. With the election of the Albanese
Government in 2022, Australia is now committed to a 43 per cent emissions reductions pledge, on 2005 levels, by 2030 and is targeting net-zero emissions by 2050.

Such a transformation creates profound opportunities for Australia – a country that has always enjoyed advantages when it comes to energy production.

For decades, Australia’s coal and natural gas industries have given the country an edge. These energy sources have fuelled local industry, and served as valuable exports to the rest of the world. But it is clear that the insatiable demand for these fossil fuels will decrease over time as the world seeks new, cleaner forms of energy to power their economies.

Despite the challenges associated with this transition, Australia is uniquely positioned to emerge as an energy superpower in this new paradigm.

One of the most lucrative opportunities for Australia in a world on the path to net zero will be the export of hydrogen. Hydrogen can be used as an industrial energy source or feedstock, much like oil or gas, but the burning of hydrogen itself results in no greenhouse gas emissions.
This provides a clean alternative for industrial manufacturers that current rely on emissions- intensive coal or natural gas in manufacturing processes. As well as enabling an export boom,
T H E M C K E L L I N S T I T U T E the availability of cheap domestically made hydrogen would give Australian manufacturers a competitive edge in producing green industrial goods.

Producing hydrogen, however, is itself energy intensive. And while great strides have been made in advancing green hydrogen production — the production of hydrogen using emissions-free energy — it is likely that green hydrogen will not be produced at scale in
Australia well into the 2030s. Currently, commercial-scale hydrogen production utilises fossil fuels, which would require carbon capture technologies in order to reduce emissions.

This creates a conundrum for Australian policymakers: while Australia is well positioned to emerge as a green hydrogen export leader in the 2030s, there are still short-term steps that need to be taken. Global demand for hydrogen will increase in the next decade, but in order for Australia to capitalise on this, the domestic hydrogen industry needs to see rapid development of its own.

This report explores this challenge, and advances three key recommendations that can be adopted in order to set up Australia as a hydrogen export leader in the coming decades.
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Executive Summary
This report begins by outlining the hydrogen opportunity in Australia and the world. As addressing climate change becomes a more urgent global priority, governments around the world have begun pursuing alternative energy policies in order to meet their Nationally
Determined Contributions (NDCs) – the emissions reductions that countries have committed to undertake under the United Nations Framework Convention on Climate Change.

A significant proportion of greenhouse gas emissions can be abated with electrification powered by solar, wind, storage, hydro, and other clean sources such as geothermal, however some carbon-intensive industries and practices will require an alternative fuel. For example, providing energy at the massive scale needed for Australia’s heavy industry – like making steel, concrete, cement, and aluminium – remains challenging.

For this reason, hydrogen presents an exciting opportunity. Although energy intensive to produce, hydrogen is emissions free when burned, and if clean energy production methods are utilised, hydrogen can be a low or zero-emissions fuel. With a vast natural endowment of clean energy possibilities, and an economy built around natural resource exports, Australia is ideally positioned to capitalise on this opportunity.

Part 2 of this report then examines the current and future global market for hydrogen, noting the myriad applications of hydrogen that will drive demand as the world transitions towards
T H E M C K E L L I N S T I T U T E net zero. Although it is expected that demand for hydrogen will increase massively during the
2030s, it is already in wide use today, and this existing demand can be leveraged and expanded upon to help Australia’s domestic industry scale up this decade.

Part 3 then outlines the first mover advantage Australia should chase today so that the forecast green hydrogen export opportunities can be met in coming decades. It is essential
Australia implements its plans for a future green hydrogen export economy. This ideal outcome can be made more certain by facilitating the timely development of the associated infrastructure, networks and customer bases required for this export economy. By developing scale, maximising hydrogen production, and ultimately driving down costs this decade,
Australia can meet the moment and become a first mover in global markets for hydrogen, and the range of green manufactured goods it can produce.

Part 4 details the various approaches that Australian governments have taken to date on the hydrogen opportunity. Over the past decade, all Australian governments have begun to recognise the immense opportunities that hydrogen production and exports will bring. Some governments have already invested in capital works have already been invested in by some
THE governments in order to bring production online in coming years. McKell
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Finally, the report makes three key recommendations aimed at guiding national hydrogen policy in the coming decade. It argues that governments should prioritise scale, work with industry to identify the most appropriate way in which domestic hydrogen production to help grow domestic manufacturing, and design a national Hydrogen Domestic Reservation
Mechanism today, to avoid future supply shortfalls when hydrogen is an essential input for
Australian heavy industry.

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Key Findings

1. Australia is well positioned to become a major player in the global hydrogen market if
it takes advantage of all-available hydrogen production opportunities in the short,
medium, and long term.

2. Though the global market for hydrogen is forecast to expand greatly in the next
decade, there is already existing demand for hydrogen that Australia is well positioned
to leverage in the near term.

3. Achieving scale in hydrogen production will be key to enabling an Australian hydrogen
export economy to materialise. A near term policy priority for the Commonwealth and
state governments should be maximising clean hydrogen production scale,
irrespective of whether it is production of blue or green hydrogen.

4. Even as Australia pursues its medium-term emissions target of a 43 per cent reduction,
existing industrial fossil fuel users will continue to require clean and efficient heat, as
well as chemical feedstocks. In the 2030s, Australian-produced green hydrogen is
expected to meet this demand. In the interim, however, blue hydrogen with effective
carbon capture and storage can offer a less emissions intensive alternative to natural
gas and coal.

5. To realise Australia’s vision to become a renewable energy superpower, jobs will be
created in manufacturing utilising renewable energy. Scaling up clean hydrogen
T H E M C K E L L I N S T I T U T E

production and developing renewables means a considerable amount of new
equipment and infrastructure will be necessary. This presents an opportunity to
stimulate blue-collar employment by manufacturing these capital goods domestically.

6. To be considered ‘blue’ and not ‘grey’, hydrogen producers rely on carbon capture
and storage (CCS) solutions to minimise carbon emissions associated with the
production of non-green hydrogen. To date, CCS in Australia has had a patchy record.
This alone should not preclude the development of blue hydrogen projects, so long as
CCS is unequivocally demonstrated to be effective prior to project approval.

7. While Australia is well positioned to capture a portion of the medium term hydrogen
export market, there are numerous infrastructure deficits that currently stand in the
way of Australian exports of hydrogen, irrespective of its type. Ports and shipping
solutions, in particular, are in need of considerable development, and require the
scaled production of hydrogen to become economically feasible. While governments
should work to address this infrastructure and scale deficit in a coordinated fashion,
and to do so this decade, developing a domestic market for hydrogen should also be
an immediate priority.

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Summary of Recommendations
Recommendation 1: The Australian Government should prioritise the expeditious scaling of hydrogen production this decade, irrespective of type, in order to maximise the opportunity for a clean hydrogen export economy to succeed in the 2030s and beyond.

For Australia to develop the supportive infrastructure, skilled workforce, transportation systems and customer relationships to enable green hydrogen exports in the future, governments need to prioritise the scaling of the hydrogen industry this decade.

Recommendation 2: The Australian Government should explore ways to accelerate the use of hydrogen in existing industrial processes to support domestic renewable energy manufacturing.

Utilising cheap and abundant hydrogen can give Australia a competitive advantage when it comes to the manufacturing , including the manufacturing of clean-energy products.

Recommendation 3: Develop a Hydrogen Reservation Mechanism, safeguarding future industrial uses of hydrogen from domestic shortfalls during global energy shocks.
T H E M C K E L L I N S T I T U T E

To ensure Australian industry is not adversely impacted by domestic hydrogen supply shortfalls in the future, as has been seen in 2022 with gas shortfalls, the Australian
Government should consider designing and legislating a national Hydrogen Reservation
Mechanism during this term of parliament.

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Glossary of Terms

TERM ACRONYM DEFINITION
Hydrogen The first element on the periodic table, which is highly
combustible, colourless, odourless, and emissions free in its
gaseous form
Liquified LNG Natural gas that has been cooled to a liquid form for ease of natural gas transport. Made up of predominantly methane, natural gas is
what services residential and industrial gas heating as well as
gas-fired power stations
Steam methane SMR Also referred to as grey hydrogen, the most commonly used reformation hydrogen production method, which uses natural gas and steam
as inputs
Coal Also referred to as brown hydrogen, a hydrogen production gasification method using coal, water, and air as inputs
Carbon capture CCS Necessary to create blue hydrogen, technology which prevents and storage fossil fuels from releasing carbon dioxide into the atmosphere,
usually by capturing carbon and storing it underground
geological formations
Autothermal ATR An alternative method of producing hydrogen from natural gas reforming which allows for higher carbon capture rates
Electrolysis Also referred to as green hydrogen, a process which uses
electricity to split water into its separate hydrogen and oxygen
components
Electrolyser The electrical component required for electrolysis
T H E M C K E L L I N S T I T U T E

Alkaline AE Electrolyser technology which has historically been the most electrolyser commercially viable
Polymer PEM Electrolyser technology which has potential to become the electrolyte cheapest available membrane electrolyser
Battery electric BEV A purely electric vehicle, powered by a rechargeable battery vehicle
Electrification Replacing technologies that depend on fossil fuels with
electricity, with the aim of using renewable electricity
Conversion loss Loss of energy associated with converting a fuel from one state
to another
Fuel cell Used to power hydrogen vehicles and store hydrogen for energy
usage, an electrochemical component which converts hydrogen
into electricity
Hydrogen The concept of mixing clean hydrogen with natural gas in order enrichment to reduce the carbon footprint of residential and industrial gas
usage
Ammonia A gas used in fertiliser and other products, which requires
hydrogen as an input, and can also be used to transport
hydrogen, or turn hydrogen into a fuel for vehicles
Industrial feedstock A raw material or resource used in industrial production THE ell
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Part 1: Understanding Hydrogen & Australia’s Hydrogen
Opportunity
Key Points

1. Hydrogen is emerging as a fuel of the future. It is emissions free when burned, and can replace
traditional uses of fossil fuel in heavy industry such as natural gas.

2. There are three primary types of hydrogen: green, where renewable energy is used to produce
hydrogen; blue, where fossil fuels are used to produce hydrogen but emissions from the process
are captured; and grey or brown, where fossil fuels are used to produce hydrogen, but the
emissions are not captured.

3. Achieving scale in the production of hydrogen quickly will be critical if Australia is to capitalise on
its advantages in hydrogen production.

Hydrogen, in its gaseous form, is highly combustible, colourless, odourless, and emissions free. These properties make hydrogen an attractive solution to the problem of reducing the world’s dependence on fossil fuels. However, despite being the most abundant element in the universe, hydrogen cannot be directly captured from nature, and must be produced using some form of energy.
T H E M C K E L L I N S T I T U T E

A number of possible methods are available to produce hydrogen, which vary in their emissions intensity and cost. Since hydrogen produced using low-emissions methods can be used in in a variety of applications such as energy, heating, transport, and industrial production, considerable support for low-emissions hydrogen has emerged from both government and businesses aiming to reduce their carbon footprint. The merits of these various uses of hydrogen is discussed further in Part 2 of this report.

The predominant methods of hydrogen production at present are steam methane reformation (SMR) and coal gasification. These methods, commonly referred to as “grey” and
“brown” hydrogen respectively, use natural gas and coal as inputs. By burning fossil fuels, these processes create carbon dioxide emissions, unless carbon capture and storage (CCS) is used in conjunction with them to create low-carbon “blue” hydrogen.

Blue hydrogen generation offers the opportunity to decarbonise current hydrogen production while largely retaining their current fuel sources and industrial processes. Being able to utilise existing coal and gas network infrastructure helps keep production costs down, which proponents cite as a key benefit of adopting blue hydrogen.1 THE
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Global CCS Institute (2021), Global Status of CCS 2021, Global CCS Institute, p. 57

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Figure 1: The hydrogen colour system

Alternatively, “green” hydrogen can be produced using a process called electrolysis, which has existed for more than 200 years. It works by using electricity to split water into its
T H E M C K E L L I N S T I T U T E hydrogen and oxygen components. The key piece of technology which facilitates this is called an electrolyser. Given the only outputs from this process are hydrogen and oxygen, if the electricity used to power the electrolyser is generated from renewable resources, then the entire process is emissions-free.

There are a number of green hydrogen projects in Australia which are either planned or under construction. Of these operational projects, four involve mixing hydrogen into gas networks, four involve using hydrogen as a form of energy generation or storage, and four involve mobility applications (mainly transport and refuelling).2

The effectiveness of carbon capture and storage technology is uncertain

Blue hydrogen is an attractive option – the Australian Federal Government has flagged a broad ‘clean hydrogen’ strategy, where both green and blue hydrogen with substantial CCS are supported.3 However, the effectiveness of CCS in practice is subject to some uncertainty.

2
CSIRO (2022), Hydrogen Map, https://www.csiro.au/en/work-with-us/use-our-labs-facilities/Hydrogen-
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Using steam methane reformation (SMR), which is currently the most widely used grey hydrogen production method, it is technologically feasible to capture 90% of emissions.
Autothermal reforming (ATR) technology is an alternative method which produces more concentrated carbon emissions; 95% or more of the emissions from this process can be captured. However, these upper estimates for capture rates using both methods are yet to be demonstrated in practice.4

The International Energy Agency (IEA) reports 16 operational blue hydrogen projects in the world, 10 of these being at a commercial scale.5 There is only one operational CCS project in
Australia – the Gorgon Gas Plant operated by Chevron. This project does not involve hydrogen production, and over the first five years of its operation, reported a capture rate of 68%, short of its targeted 80%.6

However, research and development into CCS technology is taking place. The Global CCS
Institute reported in September 2021 that in addition to the 27 commercial-scale operational
CCS facilities around the world, 106 were either under development or construction, and that
71 of these were undertaken in the first nine months of 2021. While theoretical carbon capture rates are yet to be demonstrated in blue hydrogen production, this volume of new
CCS projects may well achieve these targets in coming years.

The lifecycle emissions of blue hydrogen production need to be considered
T H E M C K E L L I N S T I T U T E

Even with effective CCS, greenhouse gas emissions still take place at other points in the blue hydrogen lifecycle. In particular, methane which is 30 times more potent than carbon dioxide in terms of contribution to the greenhouse effect, leaks throughout the gas transportation process.7 Methane leakage is already an issue for industrial users of gas. However, the issue must also be considered in the development of supply chains for a low-emissions product.

Estimates of the emissions intensity of blue hydrogen vary according to the extent to which they factor in this issue.8 Incorporating lifecycle emissions, the theoretical capture range for

4
IEA (2021), Global Hydrogen Review, IEA, p. 129
5
IEA (2021), Global Hydrogen Review, IEA, p. 130
6
Readfearn (2021), Australia’s only working carbon capture and storage project fails to meet target, The
Guardian, https://www.theguardian.com/australia-news/2021/nov/12/australias-only-working-carbon- capture-and-storage-project-fails-to-meet-target
7
Myhre, G. et al. (2013), Anthropogenic and Natural Radiative Forcing, in Stocker, T. (eds.), Climate Change
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2013: The Physical Science Basis. Contribution of Working Group I to the Fifth Assessment Report of the McKellte
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T H E M C K E L L I N S T I T U T E lifecycle carbon and methane emissions in hydrogen production ranges from approximately
55% using current industrial practices, to near-complete (99.9%).9

Blue hydrogen is currently cheap to produce, but scope for further cost reductions is limited

Advances in CCS technology may increase carbon capture rates, but may not have a marked effect on the cost of producing blue hydrogen, due to CCS being ‘embedded in the hydrogen extraction and purification process’.10 The main factors driving the cost of blue hydrogen are the cost of the fuel inputs, and the scale of production plants.

Coal and gas have been historically both widely available and affordable in Australia, due to extensive network infrastructure and many of the capital expenditure costs required for their production having been recovered. This is a key contributor to recent CSIRO estimates for the cost of blue hydrogen being as low as $2.27/kg using SMR and $2.57/kg using black coal gasification, which is close to being competitive with brown and grey hydrogen.11

However, future uncertainty around the cost of fossil fuels, particularly in light of recent geopolitical instability which caused large increases in gas prices, may lead to blue hydrogen costs increasing. This, together with likely cost reductions in renewable energy used for green hydrogen production (discussed further in section 3), poses the risk of blue hydrogen investments becoming ‘stranded assets’.12
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Blue hydrogen costs can be minimised only by increasing scale

The greatest scope for reduction in the cost of blue hydrogen is through scale effects brought about by increasing plant size and network efficiency. Expanding the size of production plants would reduce average fixed costs, and developing hydrogen transportation technology and infrastructure would reduce the need for hydrogen production sites to be co-located with end-uses.13

The hurdle in attaining these economies of scale (which also faces green hydrogen production) however, is a ‘chicken-and-egg’ problem between hydrogen producers and potential users. Large-scale investment in hydrogen production won’t take place until demand is sufficiently large, but demand won’t be sufficiently large until hydrogen cost has fallen due to large-scale production.

9
Zhou, Y. et al. (2021), Life-cycle Greenhouse Gas Emissions of Biomethane and Hydrogen Pathways in the
European Union, ICCT, p. iii
10
Bruce, S. et al. (2018), National Hydrogen Roadmap, CSIRO, p. 20
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IRENA (2020), Geopolitics of the Energy Transformation, IRENA, p. 93 Institu
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Bruce, S. et al. (2018), National Hydrogen Roadmap, CSIRO, p. 17

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The factors driving the cost of green hydrogen are undergoing rapid change

Despite demonstrated technical feasibility, the key factor preventing wide adoption of green hydrogen production is the cost involved. It is currently more expensive to produce hydrogen via electrolysis than it is using fossil fuels, although this cost landscape is a dynamic one.

Developments in electrolyser technology are likely to affect the cost of green hydrogen. While alkaline (AE) electrolysers have to date been the most commercially viable, it is expected that newer polymer electrolyte membrane (PEM) electrolysers, which have the potential to reduce green hydrogen costs, will soon be the more competitive option.14

The main driver of green hydrogen cost however, is the cost of the renewable electricity used in its production.15 In Australia, this has fallen significantly over the last decade, and further cost reductions are predicted.16 The extent of these cost reductions will in part depend on the wider energy strategy that is pursued in Australia.

Upfront capital expenditure on generation and network infrastructure (transmission and storage) plays a significant role in renewable electricity cost. With a limited existing renewable network to connect to, individual green hydrogen projects will have to incur these capital expenditure costs, making it hard to compete financially with fossil fuel hydrogen projects which are well serviced by the existing energy grid.
T H E M C K E L L I N S T I T U T E

If, however, renewable generation and network infrastructure is already widespread (as part of Australia’s strategy to decarbonise the electricity sector), the cost of sourcing electricity will become less of a hurdle for the viability of green hydrogen. The newly elected federal government’s Powering Australia Plan has signalled important funding measures to help develop this network infrastructure.17

Like blue hydrogen, increasing scale is necessary to minimise the cost of green hydrogen

After electricity cost, the other main determinants of green hydrogen costs are scale effects similar to those which affect blue hydrogen costs.18 Increasing the size of green hydrogen production plants, increasing the capacity utilisation of electrolysers, and expanding transportation infrastructure, all result in reductions in the per-kilogram cost of green hydrogen. These capacity and scale effects can only be attained by increasing production, which in turn will require cheap and widely available renewable electricity, as outlined above.

14
Bruce, S. et al. (2018), National Hydrogen Roadmap, CSIRO, p. 13
15
IRENA (2020), Green Hydrogen Cost Reduction, IRENA, p. 8
16
Longden, T. et al. (2020), Green hydrogen production costs in Australia: implications of renewable energy
THE and electrolyser costs, ANU CCEP Working Paper 20-07, p. 6 McKellte
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Australian Labor Party (2021), Powering Australia, https://www.alp.org.au/policies/powering-australia Institu
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Bruce, S. et al. (2018), National Hydrogen Roadmap, CSIRO, p. 14

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With the above sources of cost reduction taken into account, the CSIRO has estimated that the costs of green hydrogen using ‘PEM and AE could be reduced to $2.29-2.79/kg and $2.54-
3.10/kg respectively’.19 Realising these costs would make green hydrogen competitive with alternative hydrogen production methods, while creating less emissions.

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Bruce, S. et al. (2018), National Hydrogen Roadmap, CSIRO, p. 19

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Part 2: Examining the Demand for Hydrogen
Key Points

1. Hydrogen is already used widely in industrial applications, and there are a number of other
future possibilities for hydrogen utilisation.

2. Despite some of these potential uses not being the most efficient long-term method of
decarbonising their respective industries, they should remain in consideration for the short-
term scaling up of the Australian hydrogen industry.

While the majority of current hydrogen demand is generated by specific industrial uses, there are a range of other potential applications which are technically feasible. With the availability of blue or green hydrogen, many of these applications would present opportunities to de- carbonise some of Australia’s most emissions-intensive industries, such as transport and energy.

Global hydrogen consumption in 2020 was 90 Mt – almost all of which was used for either oil refining, or as an industrial feedstock.20 Less than 5 Mt was produced using low-carbon technology. Under the IEA’s ‘NetZero by 2050’ scenario, this demand would grow to over 200
Mt by 2030, and over 500 Mt by 2050, with the majority of this hydrogen being low-carbon.21
T H E M C K E L L I N S T I T U T E

Any analysis of the long-term suitability of hydrogen for industrial applications should examine alternative solutions to the same decarbonisation problem. In some instances, electrification can provide a solution which is more efficient in terms of cost and emissions.
Notwithstanding, some applications which are not optimal in the long-term may provide the opportunity for the rapid expansion of the domestic hydrogen industry.

While this section describes each application of hydrogen and its merits at a summary level, further detail evaluating the long-term efficiency question is provided in the appendix.

Oil Refining

The largest single use for hydrogen in 2020 was oil refining, making up 41% of total of total demand. Substituting blue or green hydrogen for carbon-intensive hydrogen production methods in this context would be a clear avenue through which emissions reduction could take place. It is important to note here that the extent of the emissions reduction will likely be limited by the fact that global oil demand itself will decrease as renewable alternatives
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IEA (2021), Hydrogen, IEA, https://www.iea.org/reports/hydrogen Institu
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IEA (2021), Global Hydrogen Review, IEA, p. 44

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T H E M C K E L L I N S T I T U T E proliferate. However, the CSIRO has suggested that hydrogen could also play a role in treating renewable fuels, such as those derived from biomass.22

Industrial Feedstocks

The other main contributor to existing hydrogen demand is as an industrial feedstock, i.e.
using hydrogen directly as a raw material in production. The most prominent of these is ammonia production, which is used to make fertiliser, and was responsible for 36% of total hydrogen demand in 2020.23 Given its widespread requirement in the agricultural industry, ammonia is expected to become one of the largest sources of demand for clean hydrogen.24

Hydrogen is also used as a raw input into other products such as methanol, glass, and food products like margarine. While these applications consume comparatively less hydrogen than ammonia production, they still present important opportunities to replace brown or grey hydrogen with clean alternatives. In total, industrial feedstocks made up 57% of total hydrogen demand in 2020. Given that hydrogen is an essential input into these processes, these are the applications which currently have the most scope for clean hydrogen to play a role in emissions reduction.

Electricity Generation and Storage

Being responsible for more greenhouse gas emissions than any other sector in Australia,
T H E M C K E L L I N S T I T U T E electricity generation is a priority for de-carbonisation. Hydrogen can be used to generate electricity either by being converted into fuel cells, or creating heat which powers gas turbines. If clean hydrogen is used in either of these methods, the end electricity created would be considered renewable.

In countries with the sufficient renewable generation capacity, the loss of energy associated with converting renewable electricity into green hydrogen and then back again, means it would be more efficient in terms of both energy use and cost, to use the renewable electricity directly.25 This is the case in Australia, where there is an abundance of potential solar and wind generation, as well as open space to house renewable infrastructure.

However, countries without these natural endowments will need to import their renewable electricity, and converting Australian renewable electricity to hydrogen for generation is a means to achieving this.

22
Bruce, S. et al. (2018), National Hydrogen Roadmap, CSIRO, p. xviii
23
IEA (2021), Hydrogen, IEA, https://www.iea.org/reports/hydrogen
24 THE
Department of Industry, Science, Energy, and Resources (2021), State of Hydrogen, Australian Government,
McKellte p. 12 Institu
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Bruce, S. et al. (2018), National Hydrogen Roadmap, CSIRO, p. 35

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While electricity generation is not likely to be a major source of hydrogen demand in the long run in Australia, hydrogen does have the potential to play a role in the development, scaling and integration of storage, which is one of the central challenges involved with the transition away from fossil fuels.

Coal and gas fired power plants can theoretically operate at any time, providing a degree of reliability and certainty for the energy grid – particularly in providing ‘peaking’ capacity.
Renewable generation, on the other hand, can only take place at certain times of the day, or in some cases, months of the year, when the relevant source of energy (the sun or the wind) is available. This means that significant storage infrastructure is required if electricity grids are to be reliably powered by renewables.

At present, the most common form of energy storage is batteries. As of April 2022, a total of
47,672 batteries have been installed for use with small scale (mostly residential) solar energy systems in Australia,26 and a number of large-scale batteries are either in operation or under construction.27 The downside to batteries however, is that the timeframe within which they can discharge their stored energy is usually a matter of hours. This means that batteries work well at stabilising the daily fluctuations in renewable energy availability, but are unable to deal with prolonged or seasonal fluctuations.28

Clean hydrogen on the other hand, which can be considered an alternative form of ‘stored’ renewable energy, has a storage timeframe which would stabilise renewable generation over
T H E M C K E L L I N S T I T U T E the longer term. ‘Stationary’ hydrogen fuel cells can also be used to provide backup power for potential outages.29 The Sir Samuel Griffith Centre at Griffith University, which uses solar generation to operate independently of the energy grid, demonstrates the feasibility of using batteries and stationary hydrogen in tandem to service short-term and long-term energy storage needs.30

26
Clean Energy Regulator (2022), Postcode data for small-scale installations, Australian Government, http://www.cleanenergyregulator.gov.au/RET/Forms-and-resources/Postcode-data-for-small-scale- installations
27
Clean Energy Council (2021), Energy Storage, Clean Energy Council, https://www.cleanenergycouncil.org.au/resources/technologies/energy-storage
28
Steilen, M. and Jorissen, L. in Mosely, P. T. and Garsch, J. (eds.) (2015), Electrochemical Energy Storage for
Renewable Sources and Grid Balancing, Elsevier, p. 144
29 THE
IEA (2021), Global Hydrogen Review, IEA, p. 100 McKell
30
CSIRO (2020), Sir Samuel Griffith Centre, CSIRO HyResource, https://research.csiro.au/hyresource/sir-Institute samuel-griffith-centre/

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Case Study: The Sir Samuel Griffith Centre

Griffith University’s Sir Samuel Griffith Centre is a unique showcase of how a large building’s power needs can be met entirely with renewable electricity, by using both batteries and hydrogen as energy storage. Onsite solar panels generate electricity when the sun is shining, and any generation in excess of demand is used to recharge the building’s 1024 lithium-ion batteries, and power an electrolyser to create hydrogen. The batteries are used to service short-term energy demand when solar generation stops at night. Then, when there are any prolonged shortfalls in generation, due to bad weather events for example, the hydrogen is converted into fuel cells and used to service this long-term demand.

Transport

Following electricity generation, the transport sector is Australia’s next-largest contributor to greenhouse gas emissions. An element of decarbonising this sector, particularly in cities, revolves around the redesign of transport infrastructure and incentives, in order to encourage environmentally friendly modes of transport such as public transport, cycling, and walking.31
However, many current transport uses are essential for the functioning of Australia’s economy, and in these cases emissions reduction can only take place through the use of alternative fuels, such as clean hydrogen or renewable electricity.
T H E M C K E L L I N S T I T U T E

For cars and other light vehicles, battery electric vehicles (BEVs) have already seen much wider uptake than hydrogen fuelled cars due to the same underlying conversion loss issue that inhibits hydrogen as a source of energy generation.

With larger and heavier road vehicles, the efficiency advantages of BEVs are less clear cut as the range and physical size of batteries become an issue. This has resulted in some interest and investment in hydrogen-powered heavy vehicles for industrial purposes, while the truck and bus industries have so far leant towards the BEV alternative.32

With shipping and aviation, the size and range issues of batteries makes them nearly impossible to use, meaning that hydrogen, in the form of either fuel cells or ammonia, may be necessary to decarbonise these industries.

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Climate Council (2018), Waiting for the Green Light: Transport Solutions to Climate Change, p. 27 Institu
32
See appendix 5.3

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Mixing with gas and heating

Owing to its ability to be readily implemented, a frequently suggested application of hydrogen is integration into the existing gas network, also known as hydrogen enrichment. This would involve using clean hydrogen, a gas itself, to either replace, or mix in with the natural gas
(predominantly methane) which is currently used for a range of residential and industrial heating purposes.

Hydrogen enrichment is one of the more immediate possible applications of clean hydrogen, and can therefore play a role in transitioning heating away from fossil fuels. However, it should not be used to lock in household gas use in the long run when electrification alternatives are available.33 A more than 20% hydrogen mix in the gas network would be incompatible with both current network infrastructure and household and industrial appliances, and would pose potential safety risks. Furthermore, the energy and emissions efficiency of hydrogen enrichment is significantly lower than the alternative of electric heat pumps.

While electric heat pumps offer a promising alternative to gas for households in the long-run, replacing the entire stock of gas heating and cooking equipment in households will take significant time. A hydrogen-gas mix therefore offers a short-term emissions advantage.

Manufacturing T H E M C K E L L I N S T I T U T E

There are several technologies that would allow emissions-intensive manufacturing processes to substitute clean hydrogen for the fossil fuel inputs they currently use in production. In steel manufacturing, for example, hydrogen can replace the carbon-rich gases that are currently used for iron ore reduction and heating blast furnaces.34 Although the technology required for this is not likely to exist at a commercial scale until the 2030s, it represents an important opportunity for the steel industry to significantly reduce its emissions.35

Similarly, clean hydrogen can displace gas as the fuel used for high temperature heating in aluminium manufacturing (although low and medium temperature heating are better suited to electrification).36 Although only nascent technology, hydrogen can also be used in cement production – combusting fuel using the oxygen by-product from green hydrogen, instead of the current approach which uses air, would reduce nitrous oxide emissions.37

33
See appendix 5.4
34
IEA (2021), Global Hydrogen Review, IEA, p. 59
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Bruce, S. et al. (2018), National Hydrogen Roadmap, CSIRO, p. 52 McKellte
36
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Sandstrom, J. et al. (2021), Closing the gap for aluminium emissions, Mission Possible Partnership, p. In
37
Nhuchhen, D. R. (2022), Decarbonization of cement production in a hydrogen economy, Applied Energy, 317

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All of the industries listed here are currently large contributors to Australia’s greenhouse gas emissions.38 With the necessary advancements in technology and commercial feasibility, clean hydrogen could play a crucial role in reducing these emissions.

Export

In this section, the discussion has largely been framed within an Australian context. Australia has a vast endowment of potential renewable energy supply compared to other nations, which means that electrification is often more feasible than it is elsewhere. Beyond natural constraints, other factors which are different across countries, such as the state of existing network infrastructure, may also mean that hydrogen use is more advantageous overseas than it is here. Given Australia’s natural comparative advantage in green hydrogen production, there is a significant opportunity to develop an export industry servicing countries with strong clean hydrogen demand.39

The only barrier to the development of such an industry is the actual transportation of hydrogen internationally. At present, the cheapest method for transporting hydrogen is having it compressed and run through pipelines, as demonstrated by existing projects in
Europe.40

Exporting hydrogen from Australia, however, necessitates transport via sea, in which case the hydrogen must be liquified, rather than compressed.41 This process is slightly more expensive,
T H E M C K E L L I N S T I T U T E and although not currently commercially viable, feasibility has been demonstrated by a recent successful shipment of liquified hydrogen from the port of Hastings in Victoria, to the port of
Kobe in Japan.42 Other research has also suggested that by 2050 the international transport of hydrogen could be conducted through ammonia conversion.43

With further technological developments, export demand has the potential to be a lucrative use of clean hydrogen produced in Australia. Yet the export opportunity is not limited to hydrogen itself – it also includes the potential to export any manufactured goods that utilise clean hydrogen as an input, such as steel, aluminium, and cement.

38
Wood, T. et al (2022), The next industrial revolution, Grattan Institute, p. 6
39
IEA (2021), Global Hydrogen Review, IEA, p. 126
40
EU Joint Research Centre (2021), Assessment of Hydrogen Delivery Options, European Commission
41
Bruce, S. et al. (2018), National Hydrogen Roadmap, CSIRO, p. 36
42 THE
HESC (2022), Successful Completion of Pilot Project Report, McKellte https://drive.google.com/file/d/127L2epevYr7XNEx2XEY-iI05x9llL-A1/view Institu
43
DNV (2022), Hydrogen Forecast to 2050, DNV, p. 6

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Part 3: The First Mover Opportunity
Key Points

1. Australia has plans to be a green hydrogen exporting economy in the 2030s. To facilitate this
medium term ambition, work needs to be done today to increase the scale of hydrogen
production.

2. The economic benefits of scale achieved by expanding blue hydrogen production are likely
transferrable to green hydrogen.

3. Utilising hydrogen as an industrial feedstock in Australia this decade could provide a
competitive advantage for Australian manufacturers, and enable the emergence of a
competitive renewable energy manufacturing sector in Australia this decade.

Part 2 outlined an ideal long-term scenario in which the potential key applications of hydrogen were exports, shipping and aviation, long-term energy storage, and impossible-to- electrify domestic industries. To meet this aspiration for Australia’s hydrogen industry, we will require both blue and green hydrogen production in the short-run in order to scale up the hydrogen industry.
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Scale effects are transferable between blue and green hydrogen

The opportunity for Australia to become the global leader in hydrogen exports can only be taken advantage of if this scaling up of industry takes place with urgency. With multiple countries endowed with the resources necessary to be leading clean hydrogen exporters, it is essential that Australia is able to produce hydrogen at low cost. As discussed in part 1 of this report, the key path to achieving cost reduction is through expanding the scale of production.

Many of these scale effects are transferrable between green and blue production technologies, so a short-run approach which focuses on expanding the clean hydrogen industry as a whole, rather than preferencing either technology, may be the quickest way to achieve this.

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Reducing hydrogen production costs quickly is key

Green hydrogen will likely not have a clear cost advantage over blue until 2030, once renewable energy costs have fallen.44 Until this is the case, and as long as there is uncertainty surrounding the costs of both technologies, the adoption of either green or blue hydrogen should be encouraged wherever they are the most commercially viable. This focus on expanding scale and reducing production costs as rapidly as possible will ultimately best position Australia to become a hydrogen export leader.

A rapid increase in scale will not only require an agnostic approach to production technology, but also the establishment of significant domestic hydrogen demand. While becoming an export leader is a key objective, exporting hydrogen is not currently technologically possible at a commercial scale, for reasons discussed above. Therefore, the immediate expansion of hydrogen supply needs to come off the back of local demand.

Moving first on hydrogen will create a renewable manufacturing advantage

Expanding the domestic hydrogen industry also creates the potential to strengthen Australia’s manufacturing sector. The economic opportunities exist here in green manufacturing industries which use hydrogen as an input, as well as the expansion of the hydrogen industry itself.

The scaling up of Australia’s clean hydrogen industry, and the renewables sector more
T H E M C K E L L I N S T I T U T E broadly, will require an enormous amount of new capital goods. Hydrogen production equipment and transportation infrastructure, CCS facilities, ports and shipping infrastructure, and renewable energy generation and network infrastructure, all need to be supplied in order to realise the ambitions of a hydrogen export economy.

The installation, construction, and rollout of this infrastructure will provide a much-needed stimulus to employment in the resources sector as fossil fuel jobs decline. It is also important however, that Australia maximises this stimulus by manufacturing these capital goods domestically as well.

With hydrogen or gas being a necessary input into the manufacture of various industrial goods, having low-cost hydrogen available through large-scale domestic production would enable these goods to be produced cheaply in Australia (and to reduce emissions in those industries that currently rely on coal or gas). As well as strengthening existing manufacturing industries such as ammonia production, low-cost domestically produced hydrogen would

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Longden, T. et al. (2020), Green hydrogen production costs in Australia: implications of renewable energy and electrolyser costs, ANU CCEP Working Paper 20-07

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T H E M C K E L L I N S T I T U T E help establish the new clean industrial processes outlined in part 2, such as green steel, aluminium, and cement production.

Developing these manufacturing industries would also mean that the hydrogen export opportunity expands, from simply revolving around hydrogen itself, to including the export of value-added goods that utilise Australian hydrogen in their production. The size of the export market for these green manufactured goods will continue to increase as NetZero commitments proliferate and global demand shifts towards cleaner production processes – for example, under the IEA’s ‘announced pledges’ scenario, demand for steel utilising clean hydrogen increases fivefold by 2050.45

A crucial problem for Australia’s energy transition is creating blue-collar jobs in low-carbon industries. Many of the ‘renewable jobs’ which are often advocated for involve the establishment of renewable technology and infrastructure, but provide little prospects for longer term employment in green industries.

The strengthened manufacturing sector described here, created by producing cheap hydrogen at a large scale domestically, would provide long-term, low-carbon employment for
Australian blue-collar workers. Greater domestic production of industrial goods would also insulate Australia against the international supply chain shocks which it is currently exposed to due to a dependence on imports.
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Acting as a first mover into scaling up hydrogen production will not only put Australia in position to become a global hydrogen export leader, but it will also generate economic benefits through an enlarged manufacturing sector. Conversely, if Australia fails to act quickly in establishing cheap domestically produced hydrogen, it risks losing not only these opportunities, but also the existing industries which depend on hydrogen as an input.

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45
IEA (2021), Global Hydrogen Review, IEA, p. 59

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Part 4: Australia’s Current Approach to Hydrogen
Key Points

1. States and the Commonwealth Government have begun to implement policies and strategies
aimed at guiding the development of the hydrogen industry.

2. The 2019 National Hydrogen Strategy, chaired by Dr. Alan Finkel, outlined the potential for
‘clean hydrogen’, a technology-neutral definition which encompasses both green hydrogen
and blue hydrogen with proven CCS.

3. There are live projects underway today in Australia producing hydrogen, such as the
Hydrogen Energy Supply Chain project in the La Trobe Valley.

A number of policies which support the expansion of Australia’s hydrogen industry have been announced at both the federal and state level. While the implementation of many of these policies is still underway, it is clear nonetheless that developing a strong hydrogen industry is a priority at multiple levels of government.

Policy at the federal level
T H E M C K E L L I N S T I T U T E

The Australian Government has earmarked the hydrogen industry and the use of CCS as
‘critical to Australia’s technology led approach to reducing emissions’.46 Australia’s National
Hydrogen Strategy was published in 2019, and seeks to ‘take advantage of increasing global momentum for clean hydrogen and make it our next energy export’.47 The path to achieving this in the strategy is establishing low-cost hydrogen production via the scale effects discussed in part 1 of this report.

The main pillar of the strategy is the use of hydrogen hubs - ‘clusters of large-scale demand’ which aim to bring about these scale-effects and push down costs. The government has so far announced $464 million for hydrogen hub project grants. While the export market for hydrogen is still in a developmental phase, the aforementioned large-scale demand will need to be composed of domestic uses in the short-term.

Given that many of the candidates and/or recipients of hydrogen hub grants are gas network operators, it is likely that hydrogen enrichment in gas networks will play a significant role in

46
Department of Industry, Science, Energy and Resources (2021), Future hydrogen industry to create jobs, lower emissions and boost regional Australia, Australian Government,
THE https://www.minister.industry.gov.au/ministers/taylor/media-releases/future-hydrogen-industry-create-jobs-
McKellte lower-emissions-and-boost-regional-australia Institu
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COAG Energy Council (2019), Australia’s National Hydrogen Strategy, Commonwealth of Australia, p. viii

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T H E M C K E L L I N S T I T U T E establishing domestic demand.48 To further enable this end-use, the government has also agreed to reform the national gas regulatory framework.49

We also note that all of the hydrogen hub implementation grants have so far been awarded to green rather than blue hydrogen projects.50

Aside from hydrogen hub grants, the federal government has made several other funding announcements which support the development of an Australian hydrogen industry. $300 million has been allocated to fund CCS projects, with a separate $300 million set aside for hydrogen research, development, and demonstration activities.51

Policy at the state level

Each of the state jurisdictions has published their own reports outlining a hydrogen strategy.
While the specifics of each state’s approach differ slightly, the overarching federal objective of increasing the scale of hydrogen production in order push down costs and establish a long- term export industry is consistent in all of them.

The states also share a similar approach to the end-uses of hydrogen – while harnessing export demand is still the ultimate long-term aim, hydrogen enrichment, industrial feedstocks, electricity grid stabilisation, and transport, are all identified as key potential sources of short-term domestic demand.
T H E M C K E L L I N S T I T U T E

One key difference, however, is where the national strategy adopts a technology-neutral approach in which ‘clean hydrogen’ is defined as both blue and green, the state strategies largely omit (with some exceptions) any explicit role for blue hydrogen production.

New South Wales published its Hydrogen Strategy in 2021, which includes further funding for hydrogen hubs, support for hydrogen research and development, and its own regulatory changes aimed at making investment in hydrogen projects more favourable.52

48
HyResource, Australian Clean Hydrogen Industrial Hubs Program, CSIRO, https://research.csiro.au/hyresource/australian-clean-hydrogen-industrial-hubs-program/
49
Department of Industry, Science, Energy and Resources (2021), Extending the national gas regulatory framework to hydrogen blends and renewable gases, Australian Government, https://www.energy.gov.au/government-priorities/energy-ministers/priorities/gas/gas-regulatory-framework- hydrogen-renewable-gases
50
HyResource, Australian Clean Hydrogen Industrial Hubs Program, CSIRO, https://research.csiro.au/hyresource/australian-clean-hydrogen-industrial-hubs-program/
51
Department of Industry, Science, Energy and Resources (2021), State of Hydrogen, Australian Government,
THE p. viii McKellte
52
Department of Planning, Industry, and Environment (2021), NSW Hydrogen Strategy, NSW Government, tu
Instipp.
9-11

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It is the only state which directly addresses the lack of a role for blue hydrogen in its strategy, on the basis that ‘by the time blue hydrogen production is operational in NSW, it is unlikely to have a price advantage over green hydrogen. Hydrogen production forecasts expect green hydrogen to be competitive with blue hydrogen around 2030’.53

Victoria published its Renewable Hydrogen Industry Development Plan in 2021, with a particular focus on developing the skills and training necessary to underpin a hydrogen industry.54 The use of hydrogen in the gas network is identified as a key application of hydrogen given the state’s extensive gas network.

This published plan only deals with green hydrogen production, although Victoria’s flagship hydrogen project involves a plan to export blue hydrogen to Japan. As referenced in part 2 of this report, the Hydrogen Energy Supply Chain project has recently demonstrated the successful shipment of hydrogen to the Port of Kobe. The hydrogen in question was produced using Latrobe Valley coal, with plans in place for a CCS facility to be installed at the production site so the hydrogen is blue rather than brown.

Queensland published its Hydrogen Industry Strategy in 2019, which also focuses on education and training in the hydrogen industry, and outlines a ‘pro-business approach’.55
This includes the state’s Hydrogen Investor Toolkit, and funding assistance to several large- scale private sector hydrogen projects.

The strategy highlights the state’s existing resource export infrastructure and proximity to
T H E M C K E L L I N S T I T U T E

Asia as factors which will enable an export industry in the long run. While the strategy focuses on green hydrogen, it acknowledges the potential role of blue hydrogen as a transition fuel.

South Australia published its Hydrogen Action Plan in 2019, with a strong emphasis on green hydrogen production given the state’s renewable energy generation capacity.56 More recently, the South Australian government announced its landmark Hydrogen Jobs Plan, a
$593 million government operated hydrogen power station, electrolyser, and storage facility.57

53
Department of Planning, Industry, and Environment (2021), NSW Hydrogen Strategy, NSW Government, p.
15
54
Department of Environment, Land, Water, and Planning (2021), Renewable Hydrogen Industry Development
Plan, Victorian Government
55
Department of State Development, Manufacturing, Infrastructure, and Planning (2019), Queensland
Hydrogen Industry Strategy, p. 10
56
Department for Energy and Mining (2019), South Australia's Hydrogen Action Plan, Government of South
Australia
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Department for Energy and Mining (2022), Hydrogen Jobs Plan, Government of South Australia, McKellte https://www.energymining.sa.gov.au/industry/modern-energy/hydrogen-in-south-australia/hydrogen-jobs-Institu plan

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South Australia has also signed an international export memorandum of understanding with the Port of Rotterdam in the Netherlands. This involved conducting a feasibility study that showed that South Australian hydrogen could supply up to 10% of Rotterdam's hydrogen requirements in 2050.58

Western Australia published its Renewable Hydrogen Strategy in 2021, which, like
Queensland’s strategy, emphasises the potential for a thriving hydrogen export industry given the state’s existing resources infrastructure.59 The Western Australian government has also announced further funding for hydrogen hubs, as well an additional $61.5 million to support the development of a green hydrogen industry in its 2021-22 budget.60

While Western Australia’s hydrogen strategy makes no mention of blue hydrogen or CCS, the state is home to the only functioning CCS operation in Australia – the Gorgon Gas Plant, as mentioned in Part 1 of this report.

Tasmania published its Renewable Hydrogen Action Plan in 2020, which includes $50 million in support for green hydrogen projects. 61 The plan focuses on the Bell Bay Advanced
Manufacturing Zone as a key technological cluster which can be used to scale up the hydrogen industry, particularly through the production of green ammonia.

Case Study: The Latrobe Valley Hydrogen Energy Supply Chain Project
T H E M C K E L L I N S T I T U T E

The Hydrogen Energy Supply Chain (HESC) project, situated in Victoria’s Latrobe Valley, is a pilot project currently producing hydrogen using coal, with further plans for CCS facilities in order to produce blue hydrogen. Its primary purpose, however, is to ‘demonstrate an integrated hydrogen supply chain, encompassing production, storage and transportation and delivering liquefied hydrogen to Japan’.62 As part of this demonstration, HESC has constructed the first ever liquified hydrogen carrier ship, which, in early 2022, completed a successful shipment of hydrogen from Victoria to Japan.63 This project represents the type that can help develop the infrastructure and supporting systems to accelerate the export of green hydrogen in the 2030s and beyond.

58
Department of Energy and Mining (2022), Hydrogen export hubs, Government of South Australia, https://www.energymining.sa.gov.au/industry/modern-energy/hydrogen-in-south-australia/hydrogen-export- hubs
59
Department of Jobs, Tourism, Science, and Innovation (2021), $61.5 million boost for WA’s renewable hydrogen industry, Government of Western Australia
60
Government of Western Australia (2021), $61.5 million boost for WA’s renewable hydrogen industry,
Government of Western Australia
61
Department of State Growth, Tasmanian Renewable Hydrogen Action Plan,
62
CSIRO, 2022. ‘Hydrogen Energy Supply Chian – Pilot Project’.
THE https://research.csiro.au/hyresource/hydrogen-energy-supply-chain-pilot-project/ McKellte
63
HESC (2022), Successful Completion of Pilot Project Report, Institu https://drive.google.com/file/d/127L2epevYr7XNEx2XEY-iI05x9llL-A1/view

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Recommendations

Recommendation 1: The Australian Government should prioritise the expeditious scaling of hydrogen production this decade, irrespective of type, in order to maximise the opportunity for a clean hydrogen export economy to succeed in the 2030s and beyond.

For Australia to develop the supportive infrastructure, skilled workforce, transportation systems and customer relationships to enable green hydrogen exports in the future, governments need to work to scale the domestic hydrogen industry in the near term. This would best be achieved by pursuing a technology neutral approach in the short-term, enabling blue hydrogen production to come online this decade to meet existing international demand. By scaling the production of hydrogen, private investment in the supportive infrastructure required by future hydrogen exporters is more likely to be realised, positioning
Australia well at the turn of the decade.

Recommendation 2: The Australian government should explore ways to accelerate the use of hydrogen in existing industrial processes to support domestic renewable energy manufacturing.

Key to meeting Australia’s ambitions as a renewable energy superpower is the development of a scaled domestic renewable energy powered manufacturing industry. While Australia is quickly embracing renewable technologies, the country’s renewable energy manufacturing
T H E M C K E L L I N S T I T U T E capacity remains nascent. Hydrogen offers an alternative energy source and feedstock to natural gas and coal. Working with industry, the Australian government and other key industrial stakeholders can collaboratively work towards a future in which existing industrial feedstocks, such as natural gas and coal, are largely replaced by more-affordable hydrogen.
An abundance of cheap Australian hydrogen would allow local manufacturing to thrive in a
NetZero world, and help Australian manufacturers maintain a competitive advantage in a global market. Developing this hydrogen market will also help Australia’s domestic hydrogen industry scale this decade.

Recommendation 3: The Australian government should develop a Hydrogen Reservation
Mechanism, safeguarding future industrial uses of hydrogen from domestic shortfalls during global energy shocks.

To ensure Australian industry is not adversely impacted by domestic hydrogen supply shortfalls in the future, the Australian Government should consider designing and legislating a national Hydrogen Domestic Reservation Mechanism during this term of parliament.
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The 2022 global energy shock, ostensibly triggered by the rogue behaviour of a major petrostate, Russia, invading a neighbouring state, has caused substantial hardship for
Australian energy consumers. This includes for industrial uses, who rely on industrial feedstock such as natural gas or coal to produce industrial outputs, including manufactured goods. As global energy prices skyrocketed through 2022, the structure of Australia’s natural gas market created supply shortfalls in Australia, which led to significant energy price spikes for both household and industrial consumers. This occurred despite Australia begging the largest exporter of natural gas in the world, and came about as a result of the natural gas industry in much of Australia being free of any domestic reservation mechanism that safeguards supply for domestic consumption.

In Western Australia, a domestic gas reservation mechanism is in place, and has been since
2005. This mechanism has successfully reserved 15 per cent of the natural gas supply within the state, enabling local industry and household consumers to be somewhat inoculated from the extremes of the global energy market. The absence of such a mechanism in Australia’s east coast gas markets has seen gas producers continue to export much of their natural gas output, seeking higher prices internationally, and effectively driving up the price of an increasingly scarce local supply.

Australian Governments can learn from the mistakes made in failing to sufficiently reserve
Australia’s gas outputs, and design a reservation mechanism for the emerging Hydrogen industry. T H E M C K E L L I N S T I T U T E

Such a mechanism should be designed in a way that it doesn’t stifle investment and innovation in hydrogen production, but reserves a percentage of Australia’s domestic hydrogen production when that production reaches a certain scale. The create certainty for industry, the Australian Government should consider pursuing a collaborative process during this term of parliament, allowing for legislation to be passed by 2025 that has buy-in from industrial producers and future users of hydrogen.

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Conclusion
Australia has had an historic advantage when it comes to energy production. Rich in fossil fuels, Australia has been able to leverage this natural endowment into incredible wealth, while providing affordable energy to consumers until recent years.

But the changing global energy market requires Australia to get creative, and to position itself to capitalise on the emerging opportunities associated with the global transition towards net zero.

Hydrogen represents a major export opportunity for Australia, and also an opportunity to decarbonise domestic manufacturing within Australia in the coming decades.

This report has examined that opportunity, and argued that there is no time to waste if
Australia is to capitalise on this historic opportunity.

T H E M C K E L L I N S T I T U T E

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Appendix: Evaluating the long-term efficiency of hydrogen applications in Australia

Part 2 outlined the various possible uses of hydrogen. However, the many industrial and household users of energy are likely to face a plethora of other options, including renewable electricity, storage such as battery and pumped hydro, and biofuels. Increasing domestic scale will best allow Australia to capture demand for hydrogen here and overseas, although this doesn’t mean we should lose sight of what hydrogen usage looks like in an ideal long-term scenario.

There is significant variation in global hydrogen forecasts. While IEA estimates suggested that hydrogen demand in 2050 would be over 500 Mt, Deloitte analysis predicts it could still be less than 100 Mt under a scenario where rapid technological development in electrification occurs.64 However, this latter outcome is not currently reflected in market announcements by the public and private sectors, which amount to at least 250 Mt of hydrogen in 2050.

The level of hydrogen demand which is released will in large part depend on how many of the proposed uses are actually adopted. This appendix provides further detail regarding the alternative applications of hydrogen discussed in part 2, to examine whether they are likely to provide long-term opportunities for an emerging Australian hydrogen industry.
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5.1: Oil Refining and Industrial Feedstocks

As discussed previously, oil refining and industrial feedstocks are applications of hydrogen which already see wide usage, and cannot be electrified. Given clean hydrogen is the only available means to decarbonising these industries, the merit of using hydrogen here is clear cut.

5.2: Energy Storage

Given battery technology predominantly allows for only short-term energy storage, as displayed by table 1, hydrogen can be used as a long-term storage solution to the inherent variability of renewable electricity generation.

Table 1: Energy Storage Properties
Max power Storage duration Conversion efficiency
rating (MW)
Lithium-ion battery 0.1 - 100 1 min - 8h 85 - 98%
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64
Deloitte (2019), Australian and Global Hydrogen Demand Growth Scenario Analysis, Deloitte, p. 4

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Lead-acid battery 0.001 - 100 1 min - 8h 80 - 90%
NaS battery 10 - 100 1 min - 8h 70 - 90%
Flow battery 1 - 100 2-10h 60 - 85%
Hydrogen 0.01 - 1000 mins - weeks 25 - 45%
Source: Irany, R. et al. (2019), Energy Storage Monitor, World Energy Council, p. 11

It is clear that hydrogen has technical advantages over battery storage an option for longer- term peaking requirements (for example, extended periods where renewable sources are not generating). However, when considering the use of hydrogen for this grid firming role, alternatives must still be examined given the underlying efficiency issues associated with hydrogen energy conversion.

Table 1 also reports a 25-45% conversion efficiency of hydrogen as a means of renewable energy storage. The data in this table is from 2015, yet despite significant research and development in the field in the time since, recent IEA estimates suggest that this round-trip efficiency is still only at 40%.65 This is due to the inherent physical properties of hydrogen and the conversion process, meaning that technical advancements will not be able to raise this efficiency.

Hydroelectric dams can also play a role in stabilising the grid

A potential alternative for long-term storage is pumped hydro. Hydroelectric dams ‘store’ renewable energy by using the excess supply of power during peak generation times to pump
T H E M C K E L L I N S T I T U T E water from a lower reservoir to up an upper reservoir. When demand needs to be serviced, the water from the upper reservoir is then released down through turbines which generate electricity. The round-trip energy efficiency of this process is between 70-85%, almost double that of stationary hydrogen.66

Important downsides to pumped hydro include high costs and potential negative ecological impacts. Australia is well-positioned to minimise the environmental effects due to its large endowment of potential pumped hydro sites, 67which means low-impact sites, such as those which don’t interact with river systems, can be chosen. 68 High costs are a more significant issue however, due to the inherently capital intensive nature of pumped hydro projects – this has been demonstrated recently by the Snowy Hydro 2.0 project, whose construction is projected to take over 10 years and has already cost more than $10 billion.69

65
IEA (2021), Global Hydrogen Review, IEA, p. 101
66
Environmental and Energy Study Institute (2019), Fact Sheet: Energy Storage, p. 3
67
Department of Planning, Industry, and Environment (2020), NSW Electricity Infrastructure Roadmap, NSW government, p. 8
68
Blakers et al. (2022), Batteries get hyped, but pumped hydro provides the vast majority of long-term energy
THE storage essential for renewable power – here’s how it works, The Conversation McKellte
69
Woodley, T. (2022), Five years on, Snowy 2.0 emerges as a $10 billion white elephant, Sydney Morning Institu
Herald

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The costs of hydrogen storage, on the other hand, vary. Storing pure hydrogen in underground salt caverns is relatively cheap,70 whereas conversion to fuel-cells requires precious metals and is therefore more expensive.71 In a fast-changing research and technological environment, it is possible that the lower cost of hydrogen storage could outweigh the energy efficiency benefits of pumped hydro storage. Hydrogen should therefore remain as a possible candidate for long-term storage and firming in an Australian electricity grid powered by renewables.

5.3: Transport

Whether battery-powered electric vehicles (BEVs) or hydrogen fuelled vehicles are the more efficient solution to decarbonising the transport sector largely boils down to a trade-off between the greater energy efficiency of batteries against their size and weight. This trade- off varies significantly with the size and type of vehicle in question.

Low-carbon options for light vehicle transport are already available

Cars and light commercial vehicles make up over 60% of Australia’s transport emissions, due to both higher per-capita car usage and higher emissions per-vehicle than comparable
T H E M C K E L L I N S T I T U T E countries.72 While clean hydrogen-powered vehicles using fuel cells have been touted as a potential replacement for carbon-emitting internal combustion engines, BEVs have already proven themselves as the more popular option. Development in BEV technology, infrastructure, and commerce, has rapidly outpaced that of hydrogen cars in recent years – in 2021 global BEV sales reached 6.6 million,73 as opposed to just 15,500 for hydrogen cars.74

Hydrogen vehicles face the same conversion loss issue that hampers hydrogen energy storage. Where battery-powered cars utilise 80% of the electricity delivered to them, the process of converting electricity to hydrogen, then to fuel cells, which then powers a car, results in only 38% of the original electric power being retained.75 While proponents of hydrogen cars cite the range and refuelling time of BEVs as a reason to adopt the former, advancements in battery technology and the proliferation of BEV charging stations are expected to address these issues.

70
Londe, L. (2018), Hydrogen caverns are a proven, inexpensive and reliable technology, cH2ange
71
Environmental and Energy Study Institute (2019), Fact Sheet: Energy Storage, p. 5
72
Climate Council (2018), Waiting for the Green Light: Transport Solutions to Climate Change, pp. 6-12
73
Paoli, L. and Gul, T. (2022), Electric cars fend off supply challenges to more than double global sales, IEA
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74
Munoz, J. F. (2022), The Hydrogen Powered Car Is Alive: Sales Up By 84 Percent In 2021, motor1.comTM cKell
75
Baxter, T. (2020), Hydrogen cars won’t overtake electric vehicles because they’re hampered by the laws titute
Insof science, The Conversation

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Trucks and heavy vehicles are also heading towards electrification

The choice between battery power and hydrogen power becomes more complicated in the context of larger vehicles – the size and weight of the batteries required reduces their energy efficiency (although it is still significantly higher than fuel cell engines), and compromises the available payload for trucks.76 Given the long-haul nature of many heavy vehicle trips, the range issue mentioned above is also of more importance.

Fully electric buses are already in operation in multiple states around Australia,77 78 and the trucking industry both in Australia,79 and abroad,80 has thrown its support behind electric battery power over hydrogen power, citing the low energy efficiency and resulting high cost of the latter as a key factor. However, for larger heavy vehicles (such as those used in the mining and construction industries), several large industrial operators have begun ordering hydrogen vehicles, noting their advantages.

The shipping and aviation industries will need hydrogen power to decarbonise

The size, weight, and range issues associated with batteries become greater still when considering how to sustainably power the shipping and aviation industries. While battery- powered planes and ships are in operation, 81 82 current technology only permits journeys of modest distances, and with minimal cargo. The use of hydrogen in the form of fuel cells,
T H E M C K E L L I N S T I T U T E synthetic fuels, or ammonia, although only nascent technologies, has greater potential to de- carbonise the long-haul freight task carried out by shipping and aviation, and will be key to decarbonising this sector.83

5.4: Mixing with Gas and Heating

Hydrogen enrichment is one of the applications of hydrogen which is most ready to adopt, and has featured prominently in the hydrogen strategies of Australian governments as a result. While this does offer a short-term decarbonisation opportunity, there are a number of efficiency issues which mean that hydrogen enrichment is a suboptimal long-term solution, and should therefore not be used to prolong the operation of gas networks.

76
Bruce, S. et al. (2018), National Hydrogen Roadmap, CSIRO, p. 39
77
Spence, A. (2021), Electric bus company gears up for zero-emission growth, The Lead South Australia
78
ARENA (2021), New electric buses roll out on Sydney streets, ARENAWIRE
79
EVC and ATA (2022), Electric trucks: Keeping shelves stocked in a net zero world
80
Grundler, M. and Kammel, A. (2021), Why the future of trucks is electric, Traton
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AIRBUS, Electric flight, https://www.airbus.com/en/innovation/zero-emission/electric-flight McKell
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Yara, Yara Birkeland, https://www.yara.com/news-and-media/press-kits/yara-birkeland-press-kit/ Institute
83
IEA (2021), Global Hydrogen Review, IEA, p. 101

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Hydrogen is incompatible with current gas appliances and network infrastructure

In residential settings, the appliances which are connected to the gas network, such as stovetops, heaters, and boilers, are all designed to suit the energy content of natural gas. This means they can only operate with a maximum 20% hydrogen mix without being upgraded.84
A large-scale household gas appliance retrofit to accommodate a higher hydrogen mix would be costly, but not impossible – the conversion of over 40 million appliances from ‘town gas’ to natural gas took place in the UK over the course of the 1970s.85 Higher levels of hydrogen content in household appliances would also present significant safety risks – it has been estimated that household explosions would be over four times more likely if methane was replaced with pure hydrogen.86

In industrial settings, the lack of any standardisation in gas appliances means that any switch to hydrogen, while possible, could not be coordinated at a large scale as in the household case. Conversion of appliances would be ‘site specific and ad hoc’, and at the discretion of operators.87

The use of hydrogen in the gas network also presents problems for gas network infrastructure. The hard steel that is currently used in gas pipelines is susceptible to embrittlement from exposure to hydrogen.88 Upgrading pipelines to a more suitable material
(polyethylene) is expensive, although the CSIRO has suggested that these upgrades are likely to take place in Australia irrespective of a transition to hydrogen.89 Hydrogen also has a higher
T H E M C K E L L I N S T I T U T E leakage rate than methane, meaning additional ‘leak detection and flow control systems’ would be required.90

Displacing gas with hydrogen is inefficient compared to alternatives

While the above practical hurdles associated with hydrogen gas enrichment are inconvenient but ultimately solvable, more fundamental issues arise when considering the efficiency of using hydrogen in the gas network. For a given volume, the energy content of hydrogen when used for heating is three times lower than that of methane.91 This means that for a 20% hydrogen mix, only 7% of the total energy delivered would be hydrogen-based, and therefore carbon emissions would only be reduced by 7% (assuming that the hydrogen used is

84
Bruce, S. et al. (2018), National Hydrogen Roadmap, CSIRO, p. 46
85
Sansom et al. (2019), Transitioning to hydrogen, IET, p. 7
86
Department for Business, Energy, and Industrial Strategy, Work Package 7 Safety Assessment: Conclusions
Report, UK Government, pp. 85-86
87
Bruce, S. et al. (2018), National Hydrogen Roadmap, CSIRO, p. 47
88
H21, Leeds City Gate (2016), p. 12
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IEA (2021), Global Hydrogen Review, IEA, p. 148 Institu
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Mansilla, C. et al. in Azzaro-Pantel, C. (Eds.) (2018), Hydrogen Supply Chains, Elsevier Academic Press, p. 281

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T H E M C K E L L I N S T I T U T E completely emissions-free).92 This also means that a greater volume of hydrogen will be required to perform the same heating task, and with customers paying for gas on a volumetric basis, their bills would increase by 13%.

Factoring in the production of the hydrogen itself raises further concerns for energy and emissions efficiency. If the hydrogen that is mixed in with natural gas is blue, it has been estimated that, unless the energy used in the blue hydrogen production process is renewable,
‘the greenhouse gas footprint of blue hydrogen is more than 20% greater than burning natural gas or coal for heat’.93 This is largely due to the fugitive methane emissions that occur in the blue hydrogen production process. We note that the estimate here has been subject to criticism, but predominantly from sources which assume rates of carbon capture which are yet to be demonstrated.94 95

If the hydrogen in the gas network is green, rather than blue, then the direct electrification alternative (electric heat pumps) is more energy efficient. The IEA notes that ‘PV-powered heat pumps require 5-6 times less electricity than a boiler running on electrolytic hydrogen to provide the same amount of heating’.96 A concern with the potential large-scale use of electric heat pumps is the cost of reinforcing the electricity network.97 It is true that a significant amount of renewable generation and storage would be required to service total heating demand through electric pumps. However, as noted above, even more would be needed to produce the amount of green hydrogen necessary to meet the same task.
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Despite the relative inefficiency of hydrogen enrichment, section three highlighted that four out of the seven operational green hydrogen projects in Australia are used to this end. All four of these projects however, are operated by gas companies. Where gas companies can continue to utilise much of their current capital, network infrastructure, and technical expertise with the integration of hydrogen into the gas mix, electrification alternatives provide to them very little commercial opportunity. Therefore, the existence of these projects is not evidence that hydrogen enrichment is an optimal solution to decarbonising the gas sector – it merely demonstrates attempts by gas companies to (understandably) decarbonise their operations in a way which ensures their commercial sustainability.

92
IEA (2021), Global Hydrogen Review, IEA, p. 88
93
Howarth, R. W. and Jacobson, M. Z. (2021), How green is blue hydrogen?, Energy Science and Engineering,
9(10), p. 1676
94
Gardarsdottir, S. (2021), Assumptions Matter When Assessing Blue & Green Hydrogen, SINTEF blog, https://blog.sintef.com/sintefenergy/assumptions-matter-when-assessing-blue-green-hydrogen/
95
Romano, M. (2021), Misleading paper on blue hydrogen revised, with modified conclusions, LinkedIn,
HE https://www.linkedin.com/pulse/misleading-paper-blue-hydrogen-revised-modified-matteo-romano/TM cKell
96
IEA (2021), Global Hydrogen Review, IEA, p. 87 Institute
97
Bruce, S. et al. (2018), National Hydrogen Roadmap, CSIRO, p. 49

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