Australia’s hydrogen strategy has been a mix of ambition, overreach, and slow reality checks.
The initial plan, launched in 2019, aimed to position the country as a global hydrogen powerhouse, talking up its potential as an energy carrier for transport, heating, and even power generation, all while maintaining Australia’s role as a massive energy exporter.
The problem is, the plan was built on a fundamental misunderstanding of how energy transitions actually work and unrealistic assumptions that green hydrogen would be cheap.
In addition to the understandable if misplaced motivated thinking on the part of Australian policy makers and business leaders to keep the energy export dollars flowing, there was another reason why the assumptions were so wrong. Major trusted organisations, including CSIRO and the International Energy Agency fluffed it.
Chart of CSIRO & IEA annual electrolyzer system capex projections adapted from Andrew Fletcher submission to CSIRO
I assembled this graphic of increasing price projections for electrolyser capex recently, based on reporting from Europe and Australia assessing the annual increases in expectations of hydrogen prices in the future.
The 2024 real costs of green hydrogen were three to four times the 2020 projections. BNEF recently tripled its 2050 cost projections, and they are still too low. Rumor has it that the IEA’s first cost projection work up was assigned to an intern.
Yes, trusted organisations got it badly wrong, and they’ve been very slow to correct their numbers. This isn’t because the science and economics are hard, by the way. Australia’s Bruce McCabe did the napkin math in the 2000s. Long time climate solutions researcher and communicator Joe Romm published a book on it in 2004, The Hype About Hydrogen.
I’ve done the techno-economic workups against case studies on several continents and keep getting the same answer: hydrogen can be green, but it can’t be cheap.
The Albanese government, to its credit, has been refining this vision, shifting away from the idea that hydrogen will be piped into homes or used to fuel passenger cars and instead focusing more on where it might actually make sense: industrial feedstocks.
Federal energy minister Chris Bowen has been clear that hydrogen should underpin new clean industries, particularly in green steel and ammonia production (well-aligned with reality) and synthetic fuels (not well aligned with reality), rather than being treated as a magical replacement for fossil fuels across the board, per the government’s original rhetoric.
The $2 billion Hydrogen Headstart program is meant to bridge the cost gap between producing hydrogen from renewables and what the market is willing to pay, acknowledging that without intervention projects would remain commercially unviable, according to the government’s own statements.
And yet, the hydrogen hopium persists.
Australian Hydrogen Council CEO Fiona Simon published a lengthy op-ed in Hydrogen Insight recently, expanding a much shorter one in The Australian. She strove for a tone of optimism in the face of the global reality check on hydrogen as an energy carrier, saying “We have seen black swans fly into the nascent hydrogen industry: outcomes that were not impossible, but they were not predicted.”
Yes, actually, they were predicted and predictable. Realistic energy analysts around the world put up their hands on the subject and were ignored. Simon’s op-ed naturally spent a lot more time on energy use cases for hydrogen than the actual industrial feedstock use cases. Contrary to Simon’s claim, we never needed hydrogen for the energy transition.
The original National Hydrogen Strategy’s insistence that hydrogen could replace gas in household heating or serve as a widespread transport fuel was never realistic.
The ACT’s energy minister has flatly stated that there is no viable future where hydrogen replaces mains gas, and international analysis backs that up. The International Renewable Energy Agency has found that blending hydrogen into domestic gas networks is costly and ineffective, with abatement costs exceeding $500 per tonne of CO2 reduced in some cases.
Hydrogen for passenger vehicles is even worse, per real-world comparisons: a hydrogen-powered car uses about three times more energy per mile driven than a battery-electric vehicle due to conversion inefficiencies, and yet some Australian policy makers still talk about fuel cell cars like it’s 2005 and not 2025.
Hydrogen as a direct energy carrier has always been a bad idea, but its use as an industrial feedstock is another story entirely.
Australia is the world’s largest iron ore exporter, and the global steel industry is facing massive pressure to decarbonise. In the future, steel won’t be made by burning coal in blast furnaces; it will quite possibly be produced using green hydrogen in direct reduction processes, stripping oxygen from iron ore without CO2 emissions.
I say ‘quite possibly’ because there are a handful of zero-hydrogen, electricity-only solutions commercialising now. Fortescue has demonstrated molten oxide electrolysis, an electrochemical approach to the problem, as has Boston Metals. The Chinese researcher who created a new aluminum process a couple of decades ago has applied it to iron ore with promising results.
Instead of simply shipping raw ore and hoping foreign steelmakers do the hard work, Australia has a real opportunity to process more of its resources at home, adding value and reducing the risk of being cut out of a green steel supply chain that increasingly favors integrated production.
Alan Finkel, lead of the original hydrogen strategy, has made it clear that Australia should be selling green iron and steel rather than just hydrogen molecules, a far more economically and logistically viable approach. He’s also now bearish on hydrogen for transportation, so his tune has changed a lot.
Then there’s ammonia. As a chemical, ammonia is easier to store and transport than hydrogen, and it’s a global commodity used primarily in fertilisers. Making it with green hydrogen instead of fossil fuels eliminates a massive emissions source, and Australia already has ammonia production capacity that could be transitioned to green inputs.
This makes far more sense than trying to ship hydrogen halfway across the world, especially since shipping costs alone would likely add $2 per kilogram to the final price of delivered hydrogen, as Finkel and others have pointed out, while still understating it in my opinion.
The government’s partnership with Germany to export green ammonia would be a step in the right direction if it were for fertiliser, but energy buyers aren’t going to be interested in paying a massive premium.
I’ve done the math on this a couple of times, and green ammonia as an energy carrier would be up to 10 times the cost per gigajoule as LNG, which is currently the most expensive form of energy countries use. Origin Energy just pulled out of its Hunter Valley Hydrogen Hub because the numbers didn’t add up – an ominous sign for anyone still banking on large-scale hydrogen exports as a sure thing.
The economic reality is that green hydrogen still costs around $5-6 per kilogram to produce in Australia, per industry estimates, and that’s not going to change much. To be competitive in general energy markets, it would need to be closer to $1–2 per kilogram delivered, and delivery is expensive.
Even the government’s own incentives, such as the planned $2 per kilogram production credit, implicitly acknowledge that hydrogen isn’t viable without subsidies.
The focus should be on using hydrogen where it delivers the highest economic value with the maximum emissions reductions for the lowest cost, and that’s in industrial applications. Green steel and ammonia will have premium buyers willing to pay for low-carbon products, while hydrogen power plants and hydrogen trucks won’t be able to compete with electricity.
Australia’s massive energy export numbers skew perspectives on what’s actually possible in a net-zero world. The country currently exports four times more energy than it consumes domestically, and politicians dream of simply swapping fossil fuel exports for hydrogen exports and then expanding them, something the 2023 Net Zero Australia study run by a consortium of universities leaned into.
That’s not going to happen. Every major economy will be electrifying directly wherever possible because it’s vastly more efficient, the need for imported energy will be far smaller than today’s imports of coal, oil, and gas, and most of it will be supplied by HVDC cables between nations, like Mike Cannon-Brookes’ in-progress Sun Cable to Singapore.
Even the European Union, which is pouring billions into hydrogen, expects only a fraction of its future energy needs to come from hydrogen imports, something that’s increasingly realised to be a dead end.
That’s why Australia’s National Hydrogen Strategy, as it currently stands, is flawed – it assumes rising energy exports when the rest of the world is working to reduce them.
The next iteration of Australia’s hydrogen strategy needs to take the blinders off.
Hydrogen will be a crucial industrial input, but not a general-purpose fuel. Trying to force it into every application will waste money and delay progress where electrification is the clear winner.
The government is making the right moves by prioritising industrial applications, but more clarity is needed to prevent resources from being diverted into boondoggles like hydrogen home heating or fuel cell vehicles.
Australia can still be a hydrogen superpower, but only by exporting green commodities like steel and ammonia, not by chasing the outdated dream of bulk hydrogen exports.
The hype needs to be replaced with a sober, realistic assessment of where hydrogen truly fits in a decarbonised economy, before billions are wasted on projects that will never be cost-competitive.
