Economic and Political Outlook 2021
Check out CEDA's new report featuring insights from economists and political commentators on the year ahead.
I’ve been having a love affair with simple elements, but my affection is fickle. For decades, as an electrical engineer, my favourite element was silicon, number 14 in the periodic table and unique in its ability to control the flow of charge in a circuit. Then, after a few years of involvement in the electric car industry, my affection shifted to lithium, number three in the periodic table and unique in its ability to store electrical energy in a battery. But in the last two years my attention and affection has gravitated to hydrogen, number one in the periodic table and unique in its ability to be used as a fuel and chemical feedstock that suffers from none of the usual side effects. It could provide us with an alternative to our dependence on fossil fuels.
Hydrogen is abundant on our planet. In fact, it’s the most abundant element in the universe. The only problem is that, at least on Earth, it’s chemically bound to other elements. The challenges that limit our capacity to access the energy it holds include the cost of production, doing so at scale and weaning existing energy users off oil, coal and gas.
In 2013, energy use contributed to 72 per cent of global greenhouse gas emissions. At first blush, there are many options for us to decarbonise the energy mix, but for various reasons most of these are not serious contenders. Nuclear energy and new large-scale hydroelectric dams are both unpopular in Australia. There is simply not enough arable land to grow and process biofuels in a cost-effective manner. Geothermal, wave and tidal electricity generation systems do not scale to provide the level of supply needed for industrial economies.
This leaves us with solar and wind. Simple, you may think. But the reality is stark. In 2018 the International Energy Agency reported that oil, coal and gas provided 81 per cent of the global energy mix, with solar and wind only amounting to 1.2 per cent. Do the maths yourself – we will need nearly 70 times more solar and wind energy globally to replace our existing fossil fuel usage.
For some countries, such as Japan and South Korea, scaling up solar and wind to that level is not an option because they do not have sufficient solar and wind resources. Both countries have identified hydrogen as their preferred fuel to supplement and one day replace their fossil fuel imports. Other markets committed to a partial use of hydrogen include California and Europe.
This provides an opportunity for Australia to export hydrogen. And we are uniquely placed to make that hydrogen from renewable sources – we have ample sun, wind and land to generate large amounts of zero-emissions electricity. The electricity is used in a process called electrolysis that splits water molecules and captures the hydrogen.
But the real question is, how do we do it at scale, at a cost competitive price? The Japanese government has already stated that it will in future purchase large quantities of hydrogen if it can be imported at the current landed price of LNG. For several decades, Australia would be supplying LNG and hydrogen into that market, generating new export income.
There is another option for hydrogen production, which is to produce it from coal or natural gas. Producing hydrogen from these sources, if done in conjunction with carbon capture and sequestration, is an attractive option because it increases the diversity of supply (so all our ‘eggs’ are not in any one energy ‘basket’). Unlike some other applications, when carbon capture and storage is applied to the hydrogen production process it is a manageable cost.
Hydrogen is already being used in small projects all over the world as a high density transportable fuel – it’s in long-haul trucks in the US, it powers trains in France, and cars in Japan and South Korea.
And already there is competition – we’re far from being the only runners in this race. Russia, Norway, Qatar and African countries such as Algeria and Morocco, are all keen to be part of the global market supplying hydrogen.
So while the three challenges of producing hydrogen at scale economically, ensuring a diverse supply chain, and competing against other countries are real, I prefer to see them as opportunities.
Exploring these opportunities and other issues is a major focus in the development of the National Hydrogen Strategy by a COAG working group that I am leading at the request of the COAG Energy Council. This strategy will result in a framework to support states, territories, the Commonwealth and Australian business to develop a hydrogen industry that is safe, cost-effective and of benefit to all Australians.
I am confident that Australia can play a part in the development of hydrogen as a fuel source that can contribute to the reduction of global greenhouse gas emissions. But we need to plan, and we need to start now.