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1st December 2024
Nicole Yazbek-Martin
Head of Taxonomy and Natural Capital
Australian Sustainable Finance Institute
L 2/68 Northbourne Avenue
Ngunnawal Country | Canberra
Dear Nicole,
Re: Australian Sustainable Finance Taxonomy V0.1 – Second Consultation
The Australian Hydrogen Council (AHC) welcomes this additional opportunity to engage with the Australian Sustainable Finance Taxonomy.
The AHC is the peak body for the hydrogen industry and our membership includes companies from across the hydrogen value chain. Our members are at the forefront of Australia’s hydrogen industry, developing the technology, skills and partnerships necessary to ensure that hydrogen and its derivatives such as ammonia and methanol play a meaningful role in decarbonising Australian industry.
AHC has been strongly engaged in the development of this work, from our submissions in December 2023[1] and July 2024,[2] as well as through the Taxonomy Advisory Group on Manufacturing and Industry.
Please see below our responses to the relevant consultation questions.
If you wish to discuss any element of this submission in further detail, please contact me at [email protected] or 0436 661 767.
Kind Regards,
Katerina Aleksoska
General Manager, International
Australian Hydrogen Council
DEMONSTRATING TAXONOMY ALIGNMENT
1. As a voluntary tool, do you think further guidance is required to clarify how the taxonomy can be used under existing and emerging regulations? If so, what taxonomy uses do you consider to be a priority to enhance the taxonomy’s voluntary adoption?
In order for the taxonomy to be effective in driving the allocation of capital towards transition and future state activity, it needs to be (or move towards) mandatory adoption.
If the taxonomy is not mandatory, there needs to be greater clarity around how it will (or is intended to be) be used under existing and emerging mandatory disclosure regulations.
Whilst we appreciate that the classification criteria are intended to be high level and applicable across multiple sectors, there is a level of ambiguity in the definitions that creates more ambiguity rather than provides clarification. E.g. “Performance requirements set through technical screening criteria are generally based on emissions intensity thresholds aligned with a 1.5C pathway” relates to performance (and therefore deigns and engineering) criteria as well as reliance on 1.5C modelling
With regard to enabling technologies, the criteria creates narrow definitions and tight timeframes that are likely difficult to meet (for example, the exemption for manufacturing of enabling products until 2030 – this timeframe is unlikely to be met, given the reliance of the manufacturing industries on a number of externalities related to taxonomy conditions that are broader than GHG emissions (e.g. increased penetration of renewable energy on the grid, clean supply chains for rare earth minerals, technical solutions replacing PFAS in electrolyser supply chains).
If the criteria will be used by Australian governments to assess activities eligible for funding support, the taxonomy needs to ensure that the definitions related to hydrogen and derivatives adequately describe current state, the suite of transition decarbonisation activities/technologies and also future state.
One of the queries we have is to what extent the taxonomies will be used by banks and other lenders and investors, given they are voluntary. In particular, will they be required to use the taxonomies as part of their reporting under the mandatory climate disclosures?
AHC also seeks clarification on whether the taxonomies will set out a “shopping list” of activities compatible under the sector decarbonisation plans being developed and that this will then be used to guide government programs and funding, e.g. via the green bonds issuance, for example.
FOR CONSULTATION: MINERALS, MINING AND METALS
7. Are the proposed TSC credible? In this context, credibility of criteria refers to whether a transparent, scientific approach aligned to the Paris Agreement temperature goal was used, informed by the latest technological understanding.
The AHC position is that the proposal for R&D to be considered an eligible transition investment measure should also be included for bauxite and zinc (and perhaps other mining) given that options for the decarbonisation of mining processes is still under development.
FOR CONSULTATION: MANUFACTURING AND INDUSTRY
14. Are the proposed TSC credible? In this context, credibility of criteria refers to whether a transparent, scientific approach aligned to the Paris Agreement temperature goal was used, informed by the latest technological understanding.
If alternative feedstocks are allowed under the green definition for hydrogen production, why are technologies utilising these feedstocks ineligible under the list of decarbonisation measures?
In addition, if gas + CCS is allowed as a “green” production method why are other feedstocks with comparable or better carbon LCA (such as brown coal) explicitly excluded under the taxonomy?
The inclusion of manufacturing of enabling equipment is welcome, as is the recognition that this is in itself a “green” investment because it is an enabler of broader industrial decarbonisation. The AHC and members query the 2030 application of stringent rules and would seek an extension of this timeline to enable the sectors to scale up in Australia.
The criteria regarding low carbon liquid fuels are contradictory – why should hydrogen produced in order to make “renewable” diesel or SAF have different emissions criteria to that of the hydrogen taxonomy?
If there is a recognition that scaling clean hydrogen production for LCLF production will be difficult and require a runway, these criteria should apply to hydrogen production across the board, including for ammonia production.
In addition, the criteria for eligible carbon should include post-combustion industrial sources of CO2 (at least as a transition decarbonisation investment). Further, with regard to Appendix 3.2, (carbon capture and utilisation in hydrogen): if captured CO2 is not to be used in the production of urea or fuels, what is the proposed source of CO2 for LCLF production?
The taxonomy related to ammonia production should also include criteria related to the powering of the ASU.
Plastics are only discussed in the taxonomy in the context of waste and recycling.
Production of plastics for some sectors is likely to continue in the medium term and needs to be addressed in the taxonomy.
In addition, potential non-fossil feedstocks that could be used for the production of plastics and other chemicals (e.g. methanol, polyethylene, formaldehyde) are not discussed.
FOR CONSULTATION: ELECTRICITY GENERATION AND SUPPLY
17. Are the proposed TSC credible? In this context, credibility of criteria refers to whether a transparent, scientific approach aligned to the Paris Agreement temperature goal was used, informed by the latest technological understanding.
The AHC has queried why hydrogen is not explicitly mentioned as an investment option in the energy storage taxonomy, given it is named as a fuel-switching option in other criteria/taxonomies. If the intention is that it is covered in the electrochemical storage criteria, this should be made clearer.
If hydrogen is excluded, the reasoning should be given, particularly in light of other Australian government policies, e.g the CIS doesn’t exclude bids that are based on hydrogen for long duration storage.
FOR CONSULTATION: TRANSPORT
24. Are the proposed TSC credible? In this context, credibility of criteria refers to whether a transparent, scientific approach aligned to the Paris Agreement temperature goal was used, informed by the latest technological understanding.
Re: sunset dates for LCLFs: This is a critical point around treatment of LCLF in the taxonomy – there is an assumption that (almost?) all modes of transport can be electrified and that investment and loans to support liquid fuels should be time limited and phased out.
The real world evidence for this assumption is yet to be seen – all options for decarbonising hard to electrify sectors should remain until credible, proven, reliable, at scale technologies are available.
26. Do you agree with the inclusion of the decarbonisation measures for hard-to-abate activities, and the sunset dates? Where providing recommendations, please provide evidence.
Many of the sunset dates are difficult since they include a certain level of assumptions around technology development, rates of commercialisation and production scale up baked-in to the timeframes. The AHC and member companies note that the implications of current under-investment in the yellow transition decarbonisation technologies is that it is difficult to see how the 2020 targets can be met (with potential implications of the 2030 targets).
27. Does the proposed Sustainable Aviation Fuel blend for air transport adequately balance usability and credibility? Where providing recommendations, please provide evidence.
Aviation criteria focuses largely on zero ‘tailpipe CO2’ emissions, and would perhaps benefit from an approach that considers total CO2 ‘equivalent’ emissions e.g. taking into account NOx, N2O and contrails, which could well be over double the GHG impact compared to tailpipe.
The taxonomy around infrastructure with regard to SAF is difficult – up to 50% SAF can be blended directly with fossil fuels, but the question becomes, will there ever be any blends between 50 and 100% SAF used by aircraft? Or will the existing fleet move to <50% SAF, with new aircraft increasingly 100% SAF capable? The answer to this very difficult to answer question will influence whether the taxonomy supports parallel infrastructure build out, dedicated only to handling 100% SAF, in addition to blended fuels.
As with other parts of the taxonomy, the ‘transition’ measures are more difficult than the green criteria.
FOR CONSULTATION: DO NO SIGNIFICANT HARM
31. Are the proposed generic DNSH criteria and guidance clear, relevant and usable? If your answer is no, please provide suggestions on how they could be improved.
Whilst the taxonomy is related to the flow of capital, the DNSH criteria impact planning and permitting and assessments undertaken by projects.
The consultation paper doesn’t discuss how or if the DNSH will impact or influence regulatory reform – these are critical questions and speak to the usability of the criteria.
The taxonomy should provide clarity on the proposed use of the DNSH and their alignment with other project requirements, for example those proposed under the FMIA criteria.
[1] AHC (2023) Re: Sustainable Finance Strategy, December, https://aidc.org.au/wpcontent/uploads/2023/12/231201-Sustainable-Finance-Strategy_AHC-submission.pdf.
[2] AHC (2024) Re: Australian Sustainable Finance Taxonomy V0.1 consultation, July, https://aidc.org.au/wp-content/uploads/2024/07/240707-AHC-submission-to-ASFI.pdf.
Download the full PDF here.