Alternative fuels are key to Australia achieving net zero
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The journey to net zero has many paths, says Rupert Maloney, CEFC Executive Director – Alternative Fuels. For industries and sectors that can’t be electrified, alternative fuels are an important option to reduce emissions and a key tool for broadening decarbonisation.
Australia’s transition to net zero emissions is gathering momentum. But while impressive progress is being made in some areas of the economy, particularly through electrification, different solutions are required elsewhere.
Heavy industry, from steel and iron to chemical production for fertiliser use, aviation and shipping all require alternatives to electrification in order to make substantial decarbonisation gains.
Alternative fuels can be a critical part of the solution.
What are alternative fuels?
Encompassing a range of non-fossil sources including those derived from waste and sustainable feedstocks, sustainable fuels also include fuels derived from plant and animal byproducts, as well as hydrogen produced from renewable energy. In aviation and shipping, hydrogen derivatives and sustainable aviation fuels are shaping up as critical alternative fuel options.
It’s estimated that alternative fuels will account for nearly half of final energy use in the global transport sector by 2050. This gives alternative fuels the potential to be key enablers of decarbonisation across Australia’s hard to abate sectors.
Sustainable alternative fuels are vital for our nation’s net zero ambitions, as well as our highly industrialised key trading partners that don’t have access to plentiful renewable energy and biogenic feedstocks, including Japan, South Korea and parts of Europe.
With their ability to decarbonise the economy and potential as a new, multi-billion dollar industry, alternative fuels are in many ways the missing piece of the net zero puzzle.
The hydrogen landscape
Australia’s high quality and low-cost renewable resources provide a comparative advantage which will be a key driver in achieving competitive hydrogen production costs. In addition, we have a strong track record in exporting energy to the world, including as one of the world’s largest exporters of LNG. This skilled workforce can help develop new industries exporting low carbon products to the world.
Our hydrogen pipeline is the largest in the world1, and we have an opportunity to develop a thriving hydrogen industry. Australia is expected to become the second largest net-exporter of low emissions hydrogen by 2030 and the largest by 2050.2
Role of the CEFC
As Australia’s ‘green bank,’ the CEFC has invested more than $25 million in cutting edge green hydrogen companies. Hysata was recognised for its game-changing work in ultra efficient electrolyser systems at COP28, alongside innovative Aussie start-up HydGene which has developed an alternative green hydrogen solution converting biomass sugars to hydrogen gas. These businesses are supporting the creation of this new and important domestic and export industry.
We’ve also backed first movers like Ark Energy and its landmark hydrogen hub to help nurture the demand side, with the decarbonisation of heavy transport a key part of reducing emissions. The facility at Sun Metals’ zinc refinery in Townsville includes a 1 MW hydrogen electrolyser and refuelling station, plus five zero emissions ultra-heavy-duty hydrogen trucks.
We’re continuing to invest in pioneering projects through the $300 million Advancing Hydrogen Fund, to position Australia as a leading innovator, producer and exporter of green hydrogen. Large-scale hydrogen is a particular focus, with these projects closer to fruition than people might realise. As the market matures, there is an increasingly important role for institutional investors to co-invest with the industries that support the production of these low emissions fuel alternatives.
Support for industry
In May, the 2024-25 Federal Budget announced an estimated $19.7 billion for Future Made in Australia priority industries over the next 10 years, including critical minerals and renewable hydrogen.
A Hydrogen Production Tax Incentive for producers of renewable hydrogen aims to support the growth of a competitive hydrogen industry and Australia’s economy-wide decarbonisation, providing a $2 incentive per kilogram of renewable hydrogen produced for up to 10 years on projects that reach final investment decisions by 2030.
The Australian Government Hydrogen Headstart program, which aims to deliver a step change in renewable hydrogen production by underwriting some of the largest electrolyser deployments in the world, is also being expanded to support additional early movers in renewable hydrogen projects.
Australia’s alternative fuels potential
The momentum in the renewable hydrogen space has pointers for the development of Australia’s sustainable fuels sector.
Australia’s role as a major global agricultural producer means we have the potential to be a significant producer of the world’s biofuels feedstocks. It makes sense to move up the value chain into on-shore bioenergy production, rather than exporting the raw materials and paying a premium to import refined products.
The formation of the Jet Zero Council to advise on policy and provide industry leadership to enable domestic Sustainable Aviation Fuel production is an important step to encourage investment and industry uptake.
As Australian business innovators chase market solutions for decarbonisation, including cost and efficiency, governments are addressing policy constraints. While there is still a way to go before the alternative fuel sector is economic, Australia’s experience in developing large-scale solar from a nascent sector into a thriving powerhouse shows us that progress can be swift once policy, investment and technology intersect.
Around the world, markets are shifting towards net zero. Europe has introduced rules mandating all airports supply at least two per cent sustainable aviation fuel as part of their overall mix by 2025, increasing to 70 per cent by 20503.
With their ability to decarbonise the economy and potential as a new, multi-billion dollar industry, alternative fuels are in many ways the missing piece of the net zero puzzle. If Australia can leverage its strengths and experience to add value to the sustainable alternative fuels supply chain, we can establish a new industry that will help us reach our net zero emissions target and position the economy for the low emissions future.
1 DCCEEW, Australia’s National Hydrogen Strategy.
2 IEA, World Energy Outlook, 2022. pp 396 & 399.
3 European Parliament News, 70% of jet fuels at EU airports will have to be green by 2050, 13 September 2023.
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