Hydrogen power: hype or hope?

Clean energy of the future. Take some hydrogen, burn it or chemically transform it. What do you get? Energy plus water. Keep the lights on, power transport, cut emissions, and produce some steam. All good?

The Hydrogen Strategy Group (HSG) produced a briefing report in August 2018 for the COAG Energy Council titled Hydrogen for Australia's Future (referred to here as the HAF report).

There's lots of very interesting stuff in the report. But there are many questions, too. For those interested, it's available on the web at coagenergycouncil.gov.au/publications/hydrogen-australias-future.

The report says Japan and South Korea plan to bebig importers and users of hydrogen-based energy. The report proposes Australian-produced hydrogen be developed to supply them. Is this hype? The HAF report itself recognises that these potential hydrogen importers are not committed to Australian exports per se. Of course, they want cost-competitive hydrogen from wherever. The report notes we have lots of potential competitors, such as Norway, Saudi Arabia, Brunei, the USA, countries in the Middle East, and Africa.

Is hydrogen cost-competitive? Not now, the report agrees. The report accepts costs need to be reduced and that will require a massive effort. It says more R&D, and, importantly, getting the market activated to generate experience with production processes, will be needed to do that. Technology probably will improve hydrogen's competitiveness. How quickly and how much isn't clear. Technical change is like that. Cost-competitiveness is a hope for the future, not a current hydrogen export foundation for Australia.

How would HAF's proposed hydrogen strategy affect individual nations' 'green' records under production-based hydrogen emissions accounting? How are traded energy emissions recorded? How does this affect incentives to export and import energy?

International trade in energy, and the embodied or resultant greenhouse gas emissions from it, highlight how stupid the emissions accounting system in use globally since 1992 really is. The mooted trade between Australia and Japan in hydrogen, or, alternatively, trade between them in fossil fuels, illustrates this.

Each energy source has greenhouse gas emissions embodied in its production for export, and then emissions in its use as an energy source by importers. Global emissions accounting from the full production cycle must cover both. Compare emissions accounting incentives for trade in hydrogen and fossil fuels.

Australian hydrogen exports have emissions embodied in production (eg, from electrolysis). These add to Australian emissions. Japanese imports of hydrogen, used as energy in its production instead of fossil fuels, give it 100% of the credit for any cuts in emissions from hydrogen use. Production-based emissions accounting punishes exporters and rewards importers. Hydrogen costs will decide the matter, anyway.

Trade in coal or gas has 'fugitive emissions', etc, associated with extraction and production in Australia. These are debited to Australia. They're small relative to emissions from importers' energy use. Incentives are switched. Australia's export emissions are small. Japan's emissions debits from using these imports in production are much larger. Australia's emissions disincentive to export fossil fuels is much smaller than Japan's emissions incentive not to import them. Emissions incentives aside, costs again decide the matter.

Neither exporters nor importers are likely to opt for much international trade in expensive hydrogen over cheaper fossil fuels. But the present production-based emissions accounting framework means inconsistent incentives to exporters and importers for trading in energy if hydrogen becomes cost-competitive.

If cutting emissions globally really is the goal, shouldn't emissions accounting send consistent, trade-neutral, signals and encourage, not impede, a global policy response? Today's model clearly fails that test.