Will Australia’s ‘hydrogen road’ to Japan cut emissions?

For more than a century the sprawling lignite mines in Australia’s Latrobe Valley provided the fuel that powered the southern state of Victoria. At its peak five coal-fired power plants burnt the soft, brown sedimentary rock — one of the dirtiest sources of energy — casting vast plumes of toxic smoke into the atmosphere that accounted for more than half of the state’s total greenhouse gas emissions.

Now, with global warming focusing minds in a country where climate policy has brought down governments, the first phase of an energy transition is taking place following the closure of two coal plants and a lignite mine in the valley, which is about 120km east of Melbourne. A Japanese-Australian consortium is set to begin producing hydrogen from brown coal in a A$500m ($370m) pilot project seen by its architects as the first step in creating one of the world’s first zero emission energy supply chains.

The brown coal fuelled Hazelwood power station, which sits in Australia’s Latrobe Valley, is the oldest in Victoria © Hamish Blair/Getty/Getty

Kawasaki Heavy Industries, J-Power and Shell Japan have joined Australia’s AGL Energy and several international partners to produce, liquefy and ship hydrogen to Japan. They intend to burn some of the 5bn tonnes of lignite in the valley, enough to power Victoria for more than 500 years, to produce hydrogen. Eventually, they intend to capture the carbon generated by the process and inject it into undersea basins in the nearby Bass Strait. For now, however, their goal is to prove the viability of the supply chain and the emissions will continue to be released into the atmosphere.

The project, which is co-funded by both governments, includes the development of the world’s first liquid hydrogen transport ship. Tokyo hopes it can provide Japan, a nation that imports 90 per cent of its energy, a viable path towards decarbonisation. With investors such as BlackRock calling for a swifter transition, Canberra aims to use it to diversify its fossil fuel dependent economy, which generates A$70bn a year from exporting thermal coal and LNG to Asia.

For decades hydrogen — the lightest and most abundant element in the universe — has been hailed as a revolutionary, clean source of energy capable of supplying fuel for cars, heat for homes and storing electricity. But it has failed to live up to the hype for several reasons: the high costs of production compared with burning fossil fuels; challenges in transporting the fuel; lack of demand; and the inability of hydrogen fuel cells to compete with internal combustion engines or lithium-ion batteries in electric vehicles.

The companies leading the Latrobe project believe it can become a catalyst towards establishing a global hydrogen economy, which is forecast to be worth up to $11tn by 2050, according to Bank of America. The Latrobe plant is just one of several hydrogen megaprojects in the planning or development phase in nations ranging from Saudi Arabia to China and Spain.

“Clean hydrogen presents a massive commercial opportunity,” says Jeremy Stone, a director of the Australian subsidiary of J-Power. “It is also one of the critical technologies required to decarbonise the global energy system, particularly in energy constrained nations such as Japan.

“We simply can’t wait to deal with climate change,” he adds, “which is why this collaborative project in Latrobe is so important. We need to get going now with all forms of clean hydrogen.” 

Hydrogen from brown coal process graphic

‘Mind-bogglingly stupid’

Yet, the scepticism remains. Tesla co-founder Elon Musk has dismissed hydrogen fuel cells as “mind-bogglingly stupid”, saying it is inefficient to use them in a car compared with charging a lithium-ion battery directly from a solar panel. Other critics ask whether producing hydrogen from fossil fuels can ever be made cost effective or clean given that the industry has so far failed to prove the commercial case for carbon capture and storage.

Nevertheless, a growing number of scientists and investors believe the world is on the cusp of a hydrogen revolution due to technological advances reducing the costs of making, storing and deploying it. They hope the plummeting costs of solar and wind energy could finally make the production of emissions-free “green hydrogen” — made by using renewable energy to split water into hydrogen and oxygen — commercially viable.

The Paris agreement on climate change is driving investment in hydrogen, as nations prepare to meet their commitments to cut greenhouse gas emissions. BP and Danish wind energy group Orsted announced plans for a green hydrogen project in Germany in November and Airbus recently unveiled plans for hydrogen powered passenger planes. In October Japan and South Korea pledged to become net zero emission economies by 2050. China has set a similar target for 2060.

The hydrogen energy supply chain project’s Hastings site in Victoria will liquefy, store and load the gas on to a ship for export © HESC

To meet these goals nations will need to deploy massive amounts of solar, wind and hydro power to replace fossil fuels, which still account for four-fifths of global energy production. Renewables already play a vital role in the electricity sector but their intermittent nature is forcing industry to consider flexible solutions involving hydrogen to store, dispatch and ship power when required.

“Electricity is magical, in terms of its versatility and power. But there are some applications where it’s just not the most convenient way of delivering energy to the end user,” says Alan Finkel, Australia’s chief scientist and author of its hydrogen strategy.

He says long distance transportation by truck, train, ship or air and heating buildings — by converting existing pipelines in cities from gas to hydrogen — are key uses for the fuel. Its energy storage potential is vital for Australia, which can ship hydrogen and its derivatives, such as ammonia, to overseas markets to substitute its coal and gas exports, he adds.

“The most marvellous application of hydrogen of all is the ability for us to continue what we’ve been doing for hundreds of years,” he says, “ship energy from a continent where it is plentiful to the continents where it is in short supply.”

Bar chart of Share of energy mix, current (%) showing Japan's reliance on fossil fuels among highest in the world

Japanese demand

The potential market for Australian hydrogen can be found at the base of Tokyo Tower, where the industrial gases company Iwatani has built a filling station for fuel cell cars. It is one of 135 such stations spread across Japan — symbolic of the decades-long bet the country has placed on hydrogen.

For reasons of energy security and industrial strategy, Japan has long regarded hydrogen as the most attractive potential alternative to fossil fuels, and it has an ambitious strategy to build up use of the fuel. Its plans involve mixing hydrogen with natural gas to burn in power stations and having 800,000 hydrogen vehicles on the road by 2030 — a major advance on the 3,757 sold in Japan to the end of 2019.

Yoshihide Suga, Japan’s prime minister, has set 2050 as the deadline for the country to be carbon neutral © Kazuhiro Nogi/AFP via Getty

Yoshihide Suga, the prime minister, has stressed the importance of hydrogen to hitting the country’s 2050 emissions target, describing it as “a vital key to clean energy,” in October, and urging “revolutionary innovation to build up a low-cost, high-volume hydrogen supply chain”.

Japanese demand for hydrogen reflects its almost total lack of domestic hydrocarbons. Its heavy reliance on oil imports from the Middle East is a source of constant worry to industry and national security planners. Coal from Australia, by contrast, is regarded as one of the nation’s most secure energy supplies.

Column chart of Share of energy mix* (%) showing Japan plans to significantly reduce its fossil fuel use

To try to escape from its dependence on fossil fuel imports, Japan invested heavily in nuclear power, but the Fukushima disaster in 2011 has all but shut the industry down. That leaves renewables. However, Japan’s densely populated, mountainous islands are a difficult place to build large solar farms, while its steep continental slope gives little scope for offshore wind.

The country’s all-important car industry has increased its investment in batteries, following the success of Tesla, but it too is still focused on hydrogen. Toyota is launching the second generation of its Mirai fuel cell sedan, which is aiming for a 30 per cent increase in driving range over the original model’s 312 miles, while Honda offers a fuel cell version of its Clarity vehicle. For the delayed Tokyo Olympics in 2021, Japan intends to have fuel cell buses to shuttle visitors around.

“Electric vehicles have certainly been ahead of hydrogen ones in terms of development and adoption but I think hydrogen is catching up due to advances in high pressure hydrogen gas storage fuel tanks, fuel cell technology and hydrogen production from renewable energy,” says John Andrews, a professor at RMIT University in Melbourne.

“Elon Musk has been rather one-eyed on EVs,” he adds. “Hydrogen vehicles are likely to play a complimentary role in the future because they are particularly useful over long distances and for speedier refuelling.”

BP and Danish wind energy group Orsted have plans for a green hydrogen project at Germany’s Lingen Refinery © Kilian Westkamp

The ‘hydrogen road’

The production of hydrogen in Latrobe would be the latest milestone in a decade-long mission for Kawasaki Heavy Industries, the company leading the Australia-Japan supply chain project. In December it launched the world’s first hydrogen carrier, which will ship the fuel the 9,000km from eastern Australia to Kobe, Japan. A gas turbine power plant to be fuelled entirely by hydrogen has already been installed in the Japanese city and will provide heat and power to nearby municipal buildings.

“Kawasaki technology will link production sites to energy consumers, and in so doing give birth to the Hydrogen Road,” says Motohiko Nishimura, head of Kawasaki Heavy’s hydrogen development centre.

He forecasts that supply chains will progressively spread across Asia, much like LNG was imported by Japan, South Korea, China and Taiwan from the 1970s to provide energy. Kawasaki chose Victoria’s lignite deposits as a potential source of energy to produce hydrogen because it offers a cheap and plentiful supply based in a politically stable nation with a long history of shipping energy to Japan, says Mr Nishimura.

Yet, there are plenty of sceptical Japanese experts. “You have to produce the hydrogen, liquefy it, ship it, reconvert it and then use it,” says Hiroshi Kubota, professor emeritus at the Tokyo Institute of Technology. “It’s just a massive waste. This is a kind of national project but I don’t think it is practical or economic for Japan at all.”

Environmental groups have also raised objections to the Latrobe project over its use of brown coal. “The time for digging up dirty, brown coal is over,” says Cam Walker, an activist with Friends of the Earth in Victoria. “We support the development of green hydrogen produced from renewables.”

Mr Nishimura dismisses such criticism. “There is no time to waste in building the skills, infrastructure and market needed to ensure nations can reach their zero emissions goals,” he says. And if the cost of making hydrogen through renewables continues to fall the industry can move away from coal-based hydrogen production. “It will depend on the market,” he adds.

Kawasaki Heavy Industries launched the world’s first hydrogen carrier last year. It will ship the fuel for the Australia-Japan supply chain project © Kyodo Photo via Newscom/Alamy Live News

‘Green’ energy

About 70m tonnes of hydrogen are already produced every year, mainly for use in heavy industries, such as oil refining, ammonia and steel production. In the vast majority of cases it is produced through the burning of fossil fuels and the emissions generated are not captured and stored.

These traditional carbon intensive methods can produce so called “grey” hydrogen at costs of about $1 per kg, which compares with costs of $3-7.5/kg for “green” hydrogen, which is made through the use of renewable energy, according to BofA. But costs of renewable energy and the electrolysers used to generate hydrogen from water are falling rapidly.

“We think we’re reaching an inflection point where green hydrogen could supply our energy needs, fuel our cars, heat our homes and be used in industries that have no economically viable alternative to fossil fuels,” says Haim Israel, global head of thematic investment strategy at BofA. 

“We have a long road ahead of us, but this is an energy revolution that’s happening because it must . . . Together with renewable electricity, green hydrogen gives us a shot at attaining a zero carbon-emission global economy by 2050,” says Mr Israel. 

This transition to a solar, wind and green hydrogen economy poses a challenge for economies reliant on exports of fossil fuels, which are now exploring ways to tap into the emerging sector. 

In July a consortium led by Air Products, ACWA Power and Neom announced plans for a $5bn green renewables and hydrogen plant in Saudi Arabia, which aims to begin shipping ammonia to global markets by 2025. Russia recently revealed plans to export 2m tonnes of hydrogen by 2035, in part motivated by concerns that the EU and other customers are embracing zero emissions policies.

Australia’s ruling Liberal party — a staunch supporter of coal and gas — has already begun preparing for an energy transition. In October Canberra awarded “major project” status to a $36bn renewable energy project, which aims to build the world’s biggest power station and export green hydrogen and ammonia from a remote desert in the outback to Asia.

Airbus has developed a concept aircraft as part of its plans for hydrogen powered passenger planes © Airbus

Called the Asian Renewable Energy Hub, it is backed by Vestas, the wind turbine group, Intercontinental Energy, Macquarie Group and CWP Renewables. It involves building a massive solar and wind farm on a 6,500 sq km site in the Pilbara, a region in Western Australia better known as a source of LNG.

As well as exporting energy, the project would aim to supply iron ore miners and LNG producers in the Pilbara. Hydrogen could also attract new businesses to the region, including the production of “green steel”, says Mr Hewitt.

While analysts question whether hydrogen could reinvigorate Australia’s steel industry — which faces tough competition from Asian rivals — many feel the pivot towards a hydrogen economy is beginning to take place due to the falling costs of renewable energy, electrolysers and fuel cell technology.

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Bernstein, an investment group, forecasts the cost of producing green hydrogen could fall to less than $2/kg by 2030, which is equivalent to $1/gallon for petrol. Fuel cell costs should decline by 80 per cent over the same period to $30/kW, as the hydrogen industry scales up. By the mid-2020s heavy goods vehicles powered by hydrogen fuel cells could be more competitive than diesel trucks and by 2030 fuel cell cars could rival electric vehicles in terms of the total cost of ownership.

“The pivot toward hydrogen is starting to make compelling business sense,” says Neil Beveridge, analyst at Bernstein. “Those that embrace the energy transition may survive and even thrive, while those that do not risk being confined to history.”

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