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Brad Archer
Chief Executive Officer
Climate Change Authority
John Gorton Building, King Edward Terrace
Parkes ACT 2600
Dear Mr Archer,
Re: Climate Change Authority Issues Paper: 2025 Annual Progress Report
The Australian Hydrogen Council (AHC) welcomes the opportunity to input into the Climate Change Authority’s (the Authority) strategic recommendations and 4th Annual Progress Report.
The AHC is the peak body for the hydrogen and derivatives industry in Australia and our membership includes companies from across the 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 play a meaningful role in decarbonising Australian industry.
It is an opportune moment to review Australia’s emissions abatement progress and ambition. With the renewed Albanese Government (including amended portfolios), the Productivity Commission’s interim reports, and the imminent release of Australia’s 2035 climate targets, there is appetite to review, reform and implement robust policy for long term climate action.
Significant policy and legislation supporting domestic decarbonisation has been passed and implemented, but there remain gaps and opportunities for further reform. The advice for the Authority’s 2025 Annual Progress Report should focus on improving the implementation of existing policy, and lay out the next steps to realise our current and future emissions targets.
Progressing existing policies
The AHC is supportive of the Future Made in Australia (FMIA) agenda, which centres electrification, low carbon liquid fuels (LCLF) and hydrogen within the industry policy, and incentivises production of hydrogen and clean fuels through a range of mechanisms such as the Hydrogen Headstart competitive grants program, the Hydrogen Production Tax Incentive (HPTI) and the FMIA Innovation Fund, which includes $250 million in grant funding for LCLF, amongst a raft of other measures and reforms.
Hydrogen and LCLFs are and will be critical for the long-term decarbonisation of hard to electrify and difficult to abate sectors of the economy, such as for the reduction of iron ore in steelmaking, or for high temperature heat processing of bauxite into alumina to make aluminium, as a feedstock for future marine and aviation fuels, or to support food security via low carbon ammonia fertilisers.
Production of hydrogen and derivatives can also boost economic productivity. Investment in the industry has the potential to unlock local and regional decarbonisation, boost Australia’s economic prosperity, open new export markets, facilitate economies of scale for FMIA priorities, align and prepare Australia for international decarbonisation policies, and promote long term productivity growth as it incentivises innovation, infrastructure and skills. The Australian Government has committed to developing the hydrogen industry and now its strategic role is to derisk investments into it.
This includes incentivising investment along the value chain, compounding the attraction and risk sharing between parties. For example, while there is ambition and policy for the supply of hydrogen, there are limited demand side measures to enable long term, confident offtake agreements. AHC has previously advocated for public procurement obligations for green metals, mandates for low to zero carbon ammonia for miners to use in explosives, and a mandate or demand mechanism for low carbon liquid fuels.[1]
In the absence of a carbon tax, however, Australian industry is missing the economy wide decarbonisation signal to drive reform and investment. Legislation such as the Safeguard Mechanism are therefore left to do much of the heavy lifting. Though the targets for net zero are mandated and the Safeguard Mechanism also binds facilities and companies to 4.9% per annum emission reduction target, the scheme currently allows significant purchase of carbon offsets, hampering the long-term decarbonisation efforts.
The challenge of deployment goes deeper into how Australia values carbon. At this stage of the Safeguard Mechanism, with a high threshold for inclusion, high emissions caps, and the low price for offsets, it is limited in its capacity to support new, expensive and riskier markets. While the Powering the Regions fund has a specific Safeguard Transformation stream to incentivise investment, it does not negate this risk, particularly because the facilities covered by the Safeguard Mechanism are extensive assets that are generally nearing reinvestment stages. They are often in critical industries and will be looking to reinvest in safe, reliable and bankable technologies to protect their operations. The AHC has spoken significantly of the flight risk of emissions intensive Australian industries if the supports are not available upon reinvestment,[2] but this was put eloquently by the Grattan Institute’s Alison Reeve who suggested that the capital cycle is:[3]
…30 years or more. This means each industrial facility has roughly one chance between now and our net-zero deadline to make major changes to its operations so that it can survive in a net-zero economy. If that chance is missed, emissions are locked in for another 30 years.
Investment risk for the hydrogen and derivates industry is tied to, and emerges from, lack of certainty around Australian carbon policy. There have been a number of examples of divestment or delay of projects in the market over the last two years. This includes the decision by Incitec Pivot to sell off its fertiliser division and its continued divestment from Australia towards the United States,[4] as well as the flow on impact of Fortescue’s abandonment of its planned investment in Gibson Island. Australia’s sole polyethylene manufacturer, Qenos, also closed its Australian operations. These divestments have reduced Australian sovereign capability and led to 100% of Australia’s urea and polyethylene being imported, impacting fertiliser, chemicals, packaging and freight industry supply chains.
The nascent hydrogen industry needs long term commitment and demand signals to invest, and the industries that will require hydrogen to decarbonise need wrap around support to derisk their investments into less established technologies that can switch to using hydrogen or LCLFs.
Next stage reform
Alongside these efficiency reforms, there are three pieces of current work that it is necessary for the Australian Government to progress. Each of these are carbon policies that complements the industry policy that the Albanese Government has been committing to.
Following on from the above discussion of the Safeguard Mechanism, it is integral that this policy is strengthened and expanded. AHC is supportive of the current Productivity Commission proposal to expand the Safeguard Mechanism coverage by reducing the emissions threshold.[5] This gets Australia closer to an economy-wide carbon policy, which the AHC has been advocating for many years. The Productivity Commission suggests that this expansion would not only bring in new facilities but also strengthen the pace and incentives for facilities already covered by the Safeguard Mechanism. This is a welcomed shift for Australia’s key carbon accounting policy.
However, the proposed expansion of the Safeguard Mechanism to include the next tranche of industries and facilities will compound the existing issues if not also addressed. Without significant additional funding and ambition, simply expanding the Safeguard Mechanism to cover additional facilities will not bring the necessary reductions in industrial carbon emissions, nor will it incentivise fuel switching from fossil fuels to hydrogen and LCLFs.
This expansion of the Safeguard Mechanism should then also be supported by system planning. These facilities that will newly be covered, may not have a clear industry decarbonisation pathway or may rely on one that is delayed out of their control (such as waiting for transmission build out or the conclusions of trials currently underway). This could lead to a market of credit swapping rather than true decarbonisation, or the perverse flight risk of Australian industries relocating and reinvesting operations elsewhere to access greater incentives. Furthermore, the Powering the Regions fund would need to be increased to fairly support an increase in covered facilities. Modelling will be required to understand which industries would be covered in this expansion, including their locations, timeline for potential solutions, and available incentives. Each of these unique facilities and industries may need to be wrapped around in a case management approach to support Australia’s economic diversity and facilitate a just transition.
There is also a need to strengthen the Australian Government’s Carbon Leakage Review and its consideration of a carbon border adjustment mechanism (CBAM). This policy would safeguard domestic decarbonisation efforts undertaken by government and industry, and ensure that these investments are not undermined by cheaper, more emissions-intensive, parallel imports. However, industry awaits further information on the Australian Government’s appetite to progress this mechanism, and retain concerns about the limited scope of the CBAM within the Carbon Leakage Review, including the inadequate consideration of hydrogen and its derivatives, and the flow on implications if not covered by this policy.[6] This is how we protect Australia’s transition, and the delay is itself a risk to investment.
Finally, we urge the Australian Government to vigorously support, and vote in favour of, the adoption of the International Maritime Organisation’s Net Zero Framework at the next meeting of the IMO’s Marine Environment Protection Committee (MEPC) in October 2025. This mechanism (a form of emissions accounting) is in the final stages of discussion before the formal vote, and is already sending a strong signal not only to the maritime industry but also any exporters or fuel producers. This has the potential to accelerate the pace of decarbonisation globally and influence the green premium by implementing long term demand. It is imperative that Australia formally supports and votes for the adoption of this policy for sustained investor confidence. If this is adopted, the Australian Government has a role in supporting the parties affected, and setting them up for success by accelerating the availability of maritime fuels, namely ammonia and methanol, at scale.
Progressing these three policies is the logical next step to unlock lasting climate action and is paramount for the Authority to cover in its 2025 Annual Progress Report and advice.
These are each a glimpse into AHC positions (see further relevant reading below)[7] and we would be pleased to share additional details with the Authority. We look forward to engaging with you further through this process.
If you wish to discuss any element of this submission, please contact me at [email protected].
Kind Regards,
Natasha Cerexhe
Policy Manager
Australian Hydrogen Council
[1] AHC (2025) 2025-26 Pre-budget submission, submission, January, https://aidc.org.au/wp-content/uploads/2025/02/25-26-AHC-Pre-budget-submission.pdf.
[2] AHC (2024) Carbon Leakage Review – consultation paper 2, submission, 3 December, https://aidc.org.au/wp-content/uploads/2024/12/241203-Carbon-Leakage-Review-2-AHC-submission.pdf.
[3] Reeve, A. (2025) Net zero: from ambition to action, Grattan Institute, speech, 21 August, https://grattan.edu.au/news/net-zero-from-ambition-to-action/.
[4] Evans, S. (2024) ‘Incitec Pivot unwinds fertiliser business as write-offs spike to $1b’, Australian Financial Review, 11 November, https://www.afr.com/companies/manufacturing/incitec-pivot-unwinds-fertiliser-business-as-writeoffs-spike-to-1b-20241111-p5kphl.
[5] Productivity Commission (2025) Investing in cheaper, cleaner energy and the net zero transformation – interim report, Australian Government, August, https://www.pc.gov.au/inquiries/current/net-zero/interim/net-zero-interim.pdf.
[6] AHC (2024) Carbon Leakage Review – consultation paper 2, submission, 3 December, https://aidc.org.au/wp-content/uploads/2024/12/241203-Carbon-Leakage-Review-2-AHC-submission.pdf.
[7] Many of these topics will also be covered in our response to the Productivity Commission. Once published, this will be accessible here: AHC (2025) AHC Submissions, https://aidc.org.au/ahc-submissions/. We also urge the Climate Change Authority to see further relevant AHC policy positions regarding investment, deployment, and common user infrastructure, including:
AHC (2025) 2025-26 Pre-budget submission, submission, January, https://aidc.org.au/wp-content/uploads/2025/02/25-26-AHC-Pre-budget-submission.pdf ;
AHC (2025) Future Made in Australia Innovation Fund – Program design and consultation, submission, 6 June, https://aidc.org.au/wp-content/uploads/2025/06/250606-ARENA-FMIA-Innovation-Fund-AHC-submission.pdf ; and
AHC (2025) Strategic examination of Australia’s R&D system, submission, 11 April, https://aidc.org.au/wp-content/uploads/2025/04/250411-AHC-submission-Strategic-Examination-of-RD-.pdf.