A $2 billion program aimed at driving domestic green hydrogen production is a centrepiece in the government’s plan to make Australia a ‘renewable energy superpower’.

But the measure, announced in Tuesday’s federal budget, falls short of what’s needed to incentivise hydrogen production in Australia, a recent report shows.

What’s been announced:


Labor says its $2 billion Hydrogen Headstart program will provide revenue support for large-scale hydrogen production and attract investment into the industry through "competitive hydrogen production contracts" – likely in the form of tax rebates.

"These will help bridge the commercial gap for early projects and put Australia on course for up to a gigawatt of electrolyser capacity by 2030 through 2 to 3 flagship projects," the budget papers say.

Green hydrogen plant

The race is on to become a global leaders in hydrogen production. Picture: AP

But a recent report from Deloitte estimates a public investment of $15.5 billion over the next decade is needed to compete with US President Joe Biden’s Inflation Reduction Act (IRA) – a law passed last year providing US tax credits of up to $3 a kilogram to heavily subsidise hydrogen production in the US. Read more about the IRA here.

Canada and the EU have also announced major investment in the sector in the race to become a global hydrogen leader.

While creating hydrogen gas has historically been a carbon-intensive process, green hydrogen is produced using renewable energy sources, which eliminates most of the carbon emissions from the process. However, the process is still seen as too costly to compete with fossil fuels like oil, natural gas and coal, so government support is needed to attract investment.

Deloitte Access Economics estimates a “Goldilocks zone for policy intervention” in Australia would be a production credit of around A$2 a kilogram of hydrogen.

“This would require public investment of $15.5 billion in today’s terms over a decade. If we get it right, Australia would be on track to produce almost 16 million tonnes of renewable hydrogen a year by 2050, with exports worth A$17.4 billion a year in today’s terms,” the February report said.

Details of the government’s Hydrogen Headstart program – including any credit-per-kilogram rebate – will be developed over the coming months, in consultation with the industry.

Expressions of interest into the program are expected to open in the first quarter of 2024, although successful projects won’t receive the ongoing subsidy until 2026-27.

The budget paper outlines the following measures to kickstart hydrogen production:

  • $2 billion Hydrogen Headstart program, including $5.6 million to analyse the implications of the US IRA and other global measures “to ensure the competitiveness of Australian manufacturing and attract capital investment.
  • $38.2 million Guarantee of Origin scheme, to enable exporters to certify their renewable status – in particular hydrogen.
  • $2 million to establish a fund to support Indigenous communities to engage with hydrogen companies in the planning process.

Fortescue to benefit from hydrogen plan


ASX-listed mining giant Fortescue Metals Group (FMG) – which is in the early stages of transforming into a diversified iron ore and clean energy company – has emerged a major winner from Tuesday’s budget through its renewable energy subsidiary Fortescue Future Industries.

Andrew Forrest

Andrew 'Twiggy' Forrest's Fortescue is investing heavily in green hydrogen. Picture: AP

Fortescue's green energy initiatives are at an early stage, but the company has big ambitions and has committed to investing 10% of net profit in clean energy, specifically hydrogen – which Morningstar mining analyst Jon Mills estimates equates to about USD 2.7 billion over the five-year forecast period.

Mills says the announcement is a positive for miner, given hydrogen projects are economically unviable without government assistance.

“To the extent it improves the returns of green hydrogen projects, which aren’t economic at the moment without government assistance like the USD 3/kg tax credit recently implemented in the US, then it’s a positive for Fortescue,” Mills says, noting the extent of the benefit will be contingent on the value of the subsidy.

“But iron ore is still likely to dominate the company’s earnings for the foreseeable future.”

Comparing the Hydrogen Headstart program to Biden’s US $369 billion IRA, Fortescue non-executive director Elizabeth Gaines says the measures are a “good start”.

“In terms of whether this is enough, I think it's a great signal that the government is taking the energy transition seriously,” Gaines told the ABC on Tuesday night.

“If I contrast that to the Inflation Reduction Act in the US that was introduced late last year that's a $369 billion support package, so $2 billion is a really good start,” she said.

“I think it is a recognition of the foresight that Fortescue has had to actually recognise that renewable energy and green hydrogen is going to play an important role in the energy transition and Australia has an opportunity to play an important part in that energy transition and contribute not only domestically to hydrogen production, but also to a growing export market.”

Fortescue was trading at a 37% premium to Morningstar’s fair value estimate of $15.00 per share ahead of Tuesday night's budget.