SYDNEY – Australia will allocate A$2 billion (S$1.8 billion) to support renewable hydrogen projects, as the major fossil fuel exporter attempts to reinvent itself as a clean energy powerhouse.

The funding, announced in the budget late on Tuesday, will provide revenue support to private developers, with the aim of having two or three hydrogen projects up and running by 2030.

Industry leaders and experts said the funding could be a catalyst for more clean energy projects as the country races to cut carbon emissions and grow alternative power resources.

“Competitive hydrogen production contracts are a much-needed market mechanism to provide revenue support for flagship projects, and will help get more and more large hydrogen projects off the ground, so we can scale up to gigawatt scale capacity as soon as possible,” Dr Fiona Simon, chief executive officer of the Australian Hydrogen Council, said in a statement.

Australia has been looking to build hydrogen production to cut its dependence on fossil fuels for energy and help meet the needs of its trading partners looking to cut emissions, but faces tough competition from the United States, Europe and the Middle East.

The new measures are a small effort to lure back investors who have flocked to the US where President Joe Biden’s Inflation Reduction Act – which provides US$374 billion (S$496 billion) in funding for clean energy – is offering tax credits for low-carbon hydrogen projects and cheap loans for renewable projects.

Developers look to tap Australia’s rich wind and solar resources as well as large tracts of land for so-called green hydrogen, a carbon-free energy source tipped to play an important role in the global shift from fossil fuels.

But while the nation has the biggest pipeline of announced green hydrogen projects in the world, so far few have reached financial close. 

Energy Minister Chris Bowen told Parliament on Wednesday the investment was limited to green hydrogen, which is produced from renewable resources.

He said a potential A$300 billion pipeline of Australian green hydrogen projects had been at risk “because of policies internationally like the Inflation Reduction Act”.

Fortescue Future Industries (FFI), the energy unit of the world’s fourth-largest iron ore maker Fortescue Metals Group, called the budget announcement “a great first step”.

FFI is expanding production of green hydrogen and has announced dozens of early stage agreements with governments across the globe over the past few years.

“Green hydrogen will lower emissions, create greater energy security for Australia and create new jobs,” FFI said in a statement.

The Australian iron ore miner has ambitions to become one of the world’s biggest green hydrogen producers and plans to reach final investment decisions on five projects around the world in 2023. BLOOMBERG/REUTERS