11 August 2020
The Australian Renewable Energy Agency (ARENA) has recently announced that it has shortlisted seven applicants (with a total hydrogen project value of A$500 million) to submit full applications for the next stage of the A$70 million Renewable Hydrogen Deployment Funding Round.
This is a positive announcement that demonstrates the significant public and private interest in hydrogen. It also coincides with policy and regulatory work (following stakeholder feedback) that the Department of Industry, Science, Energy and Resources is undertaking to establish a hydrogen certification and guarantee of origin scheme in Australia, which was identified as a critical item in the National Hydrogen Strategy if Australia wishes to establish itself as a leading producer and consumer of hydrogen.
Certification schemes are not a new idea. They have been accepted across many industries and sectors (in some form or another) to provide comfort to the purchaser and the public at large that the product is and does what it says it does.
While not new internationally, the guarantee of origin component of a certification scheme – which tracks a product through its supply chain – is new in Australia. The range of factors it can track through varies greatly. In a hydrogen context, the factors to be certified will likely include the scope 1 and 2 emissions produced by each unit of hydrogen.
Technically there is no need to certify hydrogen as the end product is always the same. However, as social and environmental concerns grow, particularly around emissions, investors, lenders and consumers increasingly seek to avoid supply chains which are considered to be ‘tainted’, in order to meet their own sustainability targets. This translates into a requirement for hydrogen to include certification for its emissions and other social and environmental impacts.
While certification increases compliance costs, it allows for price differentiation to occur between hydrogen that is produced by different methods of production. This encourages market interest in renewable hydrogen projects as, in theory, hydrogen produced from these projects should receive a price premium or increased demand.
While there are a number of existing schemes that have the potential to be applied to hydrogen, many lack the sophistication a global hydrogen market requires. For example, the Australian Government’s Carbon Neutral certification program, which applies across a range of products and services, allows products to be certified as carbon neutral once they have achieved carbon neutrality across their lifecycle. This scheme is unlikely to be entirely suitable for hydrogen.
A more suitable scheme might be based on key aspects of Europe’s CertifHy Scheme, which is currently in a pilot phase. The CertifHy Scheme has been designed to allow European consumers to compare the lifecycle emissions of hydrogen fuel with other alternative transport fuels, and is expected to have strong industry buy-in across Europe from industry, investors and lenders.
While the CertifHy Scheme could be a good ‘base’ from which an Australian scheme might be developed, it is not without flaws, which place doubt on its suitability for Australia and other hydrogen markets outside of Europe. For example, the CertifyHy Scheme:
In our view, to maximise the international opportunity that hydrogen presents for Australia, any Australian hydrogen certification and guarantee of origin scheme should be based on the following key principles:
As the old saying goes, timing is everything. It is critical that a certification and guarantee of origin scheme be established by 1 January 2021, as it will allow the first wave of Australian hydrogen projects, which are coming to market in 2021, to plan appropriately. This timing also aligns with ARENA’s own funding timeline, which will require the successful applicants to reach financial close by mid-2021 and commence construction in 2022.
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