The role of hydrogen in a net-zero economy - Grattan Institute

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The West Australian Government is investigating a Renewable Hydrogen Target for electricity generation in the South-West Interconnected System (SWIS), which would introduce an obligation on electricity retailers and potentially large users to purchase a portion of their electricity from hydrogen-fuelled generation. The mission of the Renewable Hydrogen Strategy is to underwrite domestic demand for renewable hydrogen market, which in turn would support broader industry growth and development objectives and potentially support development of an export industry.

Underwriting demand as well as stimulating supply are key elements of 21st century industry policy, as explored in our recent report, The Next Industrial Revolution. Doing both provides an appropriate balance of risk sharing between the private and public sectors. It is a good way to grow and develop a new industry.

However, without clear end goals and good analysis of the underpinning economic fundamentals of the new industry, such an approach risks wasting public and private capital, and locking the economy into sub-optimal activity at the expense of other sectors. These steps are missing in the current Consultation Paper.

The West Australian Government should pause its investigation of a renewable hydrogen target. Instead it should conduct a thorough examination of the comparative advantages that WA has in a net-zero global economy, and how these can be turned into competitive and strategic advantages.

This analysis should recognise that the nature of the role renewable hydrogen could play in exporting renewable energy is very different from its possible role in balancing a high-renewables electricity grid. And any policy for to support the latter should align with the current stage of renewable hydrogen generation technology, particularly in regard to how renewable hydrogen could be supplied in this application.

The government should separately create a roadmap for decarbonising the SWIS. While electrification may be the primary vehicle on that roadmap, there may be a role for renewable hydrogen in industrial applications for which electrification is unsuited.

Only then it should turn to considering the role that hydrogen production and use can play in transitioning WA from being one of the more carbon intense state economies in Australia to one of the least. This may involve a renewable hydrogen target or it may involve another scheme to underpin demand for green commodities more generally.

Alternatively or as well, it may involve further policy interventions to fully decarbonise the electricity system.

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Tony Wood

Energy and Climate Change Program Director
Tony has been Director of the Energy Program since 2011 after 14 years working at Origin Energy in senior executive roles. From 2009 to 2014 he was also Program Director of Clean Energy Projects at the Clinton Foundation, advising governments in the Asia-Pacific region on effective deployment of large-scale, low-emission energy technologies.

Alison Reeve

Energy and Climate Deputy Program Director
Alison Reeve is the Climate Change and Energy Deputy Program Director at Grattan Institute. She has two decades of experience in climate change, clean energy policy, and technology, in the private, public, academic, and not-for-profit sectors.

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