De-mystifying economic policy for Hydrogen – “The 5 Levers”, with GHD

Introduction to Ariel:

Ariel Elboim a Senior Advisor for GHD working in the future energy market. A consultant for 10 years, Ariel has worked on the decarbonisation of infrastructure, and renewable energy projects across various sectors, including energy, water and transport. For the past 5 years, his focus has been dedicated to accelerating the growth of the hydrogen industry in Australia. He plays an active role not only through his project work for both private and public clients but also through his engagement with industry, including his position as H2Q Hydrogen Queensland Policy Advocacy Taskforce Lead.

1.45 – About GHD & Ariel’s work

GHD is a globally recognised organisation operating in the markets of engineering, architecture, digital, water, energy, environment, and transport. Above 11,000 employees across 5 continents and 120+ offices.

Over the last 4 years, Ariel has been working holistically to accelerate the growth of the hydrogen industry in Australia, and that’s been looking at strategic, tactical, operational projects, and more recently, at policy and policy mechanisms and how they can be conducive to the growth of the industry in Australia.

3.00 – The work H2Q Hydrogen Queensland is doing to help translate what industry sentiment is and how that can help inform government policy. They have been doing a lot of engagement and report writing over the last year with a white paper that was released over Christmas.

4.15 -Summary of the 5 levers & examples around the world

Lever # 1 – Tax Regulation

What can the government do in terms of regulatory standards and requirements to influence proponent behaviour, and what kind of tax levers can they use to influence taxpayers’ behaviour? 

Regulatory standards and requirements that the government can implement to influence behaviour, or what kind of tax incentives or penalties can the government implement to also influence behaviour?

06.00 – Carbon prices around the world & the Safeguard Mechanism

08.20 – Lever #2 – Tax credits & subsidies

Tax credits and subsidies are an incentive-based policy instrument that provides market-compatible forms of direct government intervention.

09.00 – U. S. Inflation Reduction Act

This offers a tax credit of up to $3 per kilogram of hydrogen produced. That $3 per kilogram is based on the carbon intensity of the product.

10.06 – What can Australia do, even without having such ‘deep pockets’ as the US?

11.20 – Lever #3 – Market based schemes

Market-based schemes are interesting because they’re an amalgamation of different mechanisms and they usually consist of a pull mechanism or a lever that tries to pull investment into the market, and a push mechanism, so it pushes proponents to do something.

12.30 – Lever # 4 – Contracts for Difference

This lever is getting a lot of attention across the world at the minute, especially in the hydrogen space. CFDs, Contracts for Differences, are financial contracts between a supplier and a purchaser of energy, provided a certain price. The Contract for Difference stipulates that the purchaser will pay the seller the difference between the market value at the time of contracting.

Essentially a market price is agreed upon, usually called the strike price, and this is based on several factors. It could be the level of CO2 emissions that are being abated. It could be the cost of the fossil fuel plus a green premium, whatever the market decides is a strike price, but everyone agrees that’s the baseline.

14.45 – Review periods for Contracts for Difference

“Contracts for Difference usually last for about 10, 12, 15 years and by that point, the market will have readjusted to an equilibrium. And then you reassess it.”

17.00 – “The biggest issue in the hydrogen space at the minute and the reason projects aren’t getting past FID, or to FID, is because the premium on hydrogen just isn’t suitable so you’re not able to guarantee a revenue guarantee revenue stream and is probably the biggest killer to projects, from my understanding.”

19.15 – Lever #5 – Financing Arrangements

Australia has been pursuing this lever for the last three or four years in terms of getting the hydrogen industry.

Essentially finance is provided as a means to mitigate the inherent risk in developing new projects, new industries, and creating new sectors.

21.20 – Backing of funding in Australia

“There’s a difference between picking winners and making strategically good choices. The example is, that we’re not going to see a major hydrogen passenger vehicle industry market in Australia anytime soon because the progress that EVs are making is just staggering.

However, if you look at large industries that are hard to abate, like I mentioned steel and iron and alumina, etc. they are clear good strategic options for hydrogen to be implemented.”

23.30 – Disadvantages of using each of these mechanisms/examples of where they’ve not been rolled out successfully

●      Carbon leakage

●      Carbon Border Adjustment Mechanism
   

25.30 – Will we get to the stage where Scope 1, Scope 2, and Scope 3 emissions are going to be monitored for all countries and organisations?

“One of the actions of the National Hydrogen Strategy was to create a guarantee of origin scheme, which essentially was a certificate to say that the hydrogen that you’ve produced is, has this carbon intensity.

And that essentially is going to accompany every kilogram of hydrogen in the future that is produced in Australia. So that indicates that the carbon emissions will be monitored very closely.”

26.15 – Recommendations for Queensland & Australia

“An export industry based on an already established export-import relationship is a way to go. Australia doesn’t have that much to decarbonize in the grand global scheme.

One of the key things to look for would be economic prosperity, and that lies in the export opportunity.”

31.45 – Are the policies Australia has in place at the moment sufficient?

“Australia has announced a total of about $35 billion total to support hydrogen. And if you compare that too globally, which is about 350 billion, I think it’s less than 10 percent of Australia’s investment globally. And that’s what it comes down to at the end of the day, the money.”

“Australia does have a bit of catching up to do and that’s why we’re at such a pivotal moment.”

33.30 – Hydrogen Head Start Program

The Program is essentially a $2 billion government fund to underwrite project operational costs by providing a production credit for every kilogram of hydrogen produced.

The Energy and Jobs Plan: Only a small fraction of the energy job plan fund has been tapped into because for it to be applied to, there has to be a GOC, a Government Owned Corporation, involved in that project.

35.30 – Ariel’s hopes and dreams and wishes for the industry

“I would like to see some projects go into the operational phase. I think that’s what everyone’s waiting for. People don’t realise how hard it is to get to a financial investment decision, like the work it takes to get there. And given the market conditions, how hard it is to come out with a levelized cost or an MPV or an IRR that is palatable for investors.”

36.45 – Requests for the audience

If the audience is interested, then do more reading and research (see links below) and educate yourself, as the industry is moving so quickly.

Links for reference:

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