Skip to main content

Beware the IRA eating Australia’s renewable hydrogen lunch

Australia is at risk of being left behind in the race to become a clean energy superpower as economies around the world enter into a bidding war for market share and dominance of hydrogen production.

Australia’s natural advantages means we are well-placed to develop a clean energy export market. But analysis of the US Inflation Reduction Act (IRA)’s clean energy incentives in new research from Deloitte Access Economics suggests that without a meaningful response, Australia could lose market share to the US and export 65% less renewable hydrogen by 2050.

The report, Australia’s Hydrogen Tipping Point – The urgent case to support renewable hydrogen production, found that without action, Australia’s scaled renewable hydrogen production will be delayed by a decade until the mid-2030s and our hydrogen industry may never reach a comparable scale to existing fossil fuels. This would have implications for our balance of trade and clean manufacturing aspirations.

The analysis suggests there is a goldilocks zone for policy intervention – around a $2/kg hydrogen production credit, approximately half the level of the maximum credit in the US for renewable hydrogen, reflecting Australia’s underlying comparative advantages and keeping an eye on fiscal objectives.

This would require public investment of $15.5 billion in today’s terms over a decade. If we get it right, Australia would be on track to produce almost 16 million tonnes of renewable hydrogen a year by 2050, with exports worth $17.4 billion a year in today’s terms (a near $50 billion export industry in nominal terms). Crucially, Australia would set in train the creation of new clean industries to offset the decline of our existing fossil fuel industries.

Head of Deloitte Access Economics, Dr Pradeep Philip said:

“We have a wealth of comparative advantages in green industries like hydrogen but we’re at risk of falling behind in the race to net zero. Despite Australia’s clean energy ambitions, the reality is our global competitiveness is declining. The US Inflation Reduction Act looks set to cut Australia’s renewable hydrogen lunch.

“Accelerating Australia’s investment in renewables is the economic imperative. And as the economy decarbonises, renewable hydrogen will play a critical role to meet Australia’s energy needs and drive a more cost efficient economy. Morever, it means that hard to abate areas – concrete, aviation, steel – can actually decarbonise. Without this we could face energy deficits and costs of production in Australia will be higher than they should be.

“We are falling off the pace globally as other economies like the US, EU, and Gulf States deploy massive green industrial policies. In the US alone, new laws provide around $580 billion of taxpayer-funded incentives to turbocharge investment in renewable energy. If we don’t respond, our transition strategy risks going up in smoke.

“Australia will need to take decisive and swift policy action to secure Australia’s global competitiveness – this means an urgent and significant new energy-industrial policy. These new policy settings should aim to maximise public value by building out place-based industrial ecosystems and offering support across value chains to grow value-added economic activity within Australia.

“We’re standing at a crossroads and our future prosperity depends on getting the transition right.”


Deloitte Access Economics Partner, Matt Judkins said:

"We have an incredible opportunity to take advatage of our natural endowments and produce products that meet our zero carbon ambitions – like green steel, green aluminium and zero carbon fertilisers. Development of these new industries will help unlock clean manufacturing at scale in regional Australia, accelerating our climate transition, and increasing our national economic complexity through greater value adding of the products we sell to the world.

“We can’t afford to lose this race. We facing increasing competition for capital, talent, and the inputs into our clean energy value chain, which risks slowing decarbonisation and Australia reaching its net zero targets. Critically we will also forgo the opportunity for co-located hydrogen production to cornerstone the revival of Australian clean manufacturing. This would be a signifcant miss for our future economic prosperity.

“The window to act is closing fast and Australia needs to move now to create a supportive environment, ensuring our competitiveness and laying the foundations for a significant new industry.”

Deloitte wishes to acknowledge that impetus for this research originated in analysis commissioned by Fortescue Future Industries. This report is fully funded and published by Deloitte in its own right, and is based on objective analysis undertaken by Deloitte Access Economics Pty Limited. The view expressed in the report represents that of Deloitte, not anyone else.