23 Dec 2021

Australian Hydrogen Guarantee of Origin certification scheme to be trialled over the next 18 months

By Nick Thomas, Stuart MacGregor and Cloe Jolly

There is now an opportunity to participate in Australian Government trials to inform the design of Australia's Hydrogen Guarantee of Origin certification scheme, with consultation on the scheme design having closed and initial feedback available.

Participants with projects that are operating, or in an advanced stage of planning, may participate in Australian Government trials over the next 18 months, to inform the design of Australia's Hydrogen Guarantee of Origin (Hydrogen GO) certification scheme.

The Australian Government has released a paper summarising the outcomes of its recent consultation process on the proposed scheme and an outline of next steps. This coincided with the announcement of the trials on 10 December 2021. We looked at the Government's June 2021 discussion paper for the consultation process, and highlighted some key issues for a proposed scheme, in our previous article on the topic.

In this article, we draw out the key points form the consultation process and comment on next steps.

Laying the platform for a hydrogen guarantee of origin certification scheme

The establishment of a hydrogen GO certification scheme is a priority under Australia's National Hydrogen Strategy which envisions Australia becoming a major hydrogen exporter and producer by 2030. This is because international customers and trading partners have shown a clear preference for zero and low-emissions hydrogen and a Hydrogen GO certification scheme will impose a standardised process for measuring, tracing and certifying the carbon footprint of a hydrogen product.

The approach outlined in the June 2021 discussion paper aligns closely with work underway through the International Partnership for Hydrogen and Fuel Cells in the Economy (IPHE). The aim of the IPHE is to develop an agreed methodology for determining the emissions associated with the production of a unit of hydrogen. On 4 October 2021, the IPHE released the Working Paper Methodology for Determining the Greenhouse Gas Emissions Associated with the Production of Hydrogen (IPHE Working Paper), a paper which Australia played a key role in developing and which may help to form the basis of an international standard.

Key considerations in developing a design for Australia's Hydrogen GO certification scheme were that the scheme be nationally consistent, reflective of domestic industry and developed at pace with international methods in order to allow Australia to:

  • leverage its comparative advantages;
  • provide certainty to consumers through consistency; and
  • maximise international trade opportunities by having a GO scheme that is adaptive and accepted by different consumer countries.

Key takeaways from consultation

Scheme structure and administration

Generally, respondents to the discussion paper supported an approach that was internationally aligned or accepted, and centralised. In summary:

  • The discussion paper proposed that the Hydrogen GO scheme would initially focus on hydrogen production from the three production pathways most relevant to Australia:
    • electrolysis with electricity;
    • coal gasification with carbon capture and storage (CCS); and
    • steam methane reforming (SMR) or natural gas with CCS,

    over a "well-to-gate" boundary. Respondents generally agreed that this initial focus was appropriate but emphasised a need to expand the scheme quickly to cover other links in the supply chain (eg. hydrogen energy carriers) and other generation sources (eg. renewable gases such as biomethane).

  • Most respondents supported leveraging International Organisation for Standardisation (ISO) standards and the Greenhouse Gas (GHG) Protocol to inform carbon accounting methodologies, as it ensures the domestic scheme will align with international standards.
  • A large majority of respondents supported the Australian Government leading the development of Australia's Hydrogen GO scheme. The prevailing view is that a government-led scheme would be credible and effective and the Government's participation in the IPHE was seen to ensure an internationally aligned approach. Respondents also agreed that the Clean Energy Regulator (CER) is best placed to administer the scheme, given its existing role in supporting other schemes in the sector.
  • There was broad agreement on the approach set out in the discussion paper for calculating scope 1 and upstream emissions but, while the majority of respondents supported a market-based approach to calculating scope 2 emissions, this was conditional on the approach being internationally aligned.

The role of carbon offsets

One of the most contentious of issues that was raised was whether the use of offsets should be permitted to obtain a zero or low-emissions certification for a hydrogen product.

The international position on whether a certification scheme should recognise offsets for residual carbon emissions, and focus on a net carbon footprint, is not yet clear. The IPHE Working Paper lists the type of offsets used as information to be reported on a GO certificate. However, the paper qualifies this by noting that, at this stage, permitting the use of offsets is not recommended.

There was no clear consensus amongst respondents as to whether offsets should be included in Australia's Hydrogen GO scheme or not. Advocates for the inclusion of offsets noted that this would help the industry in the early stages of development and give greater choice in the range of products that could be offered to consumers. Those against offsets cited a potential lack of international acceptance as their main concern (noting that specific ISO standards explicitly forbid the use of offsets when determining emissions arising from a product).

Other concerns included that offsets could reduce investment in emissions reduction or capture technologies (eg. CCS and renewable energy) if producers can source offsets to reduce emissions instead of lowering emissions from hydrogen production.

Generally, respondents in support of the inclusion of offsets stated that flexibility in the use of offsets should be allowed so long as GO certificates were fully transparent and enable the clear identification of emissions associated with production with or without offsets. This would allow consumers to choose whether to purchase hydrogen from producers using offsets.

Trials for the design of the Hydrogen GO scheme

Feedback from the consultation processes supported progressing to a trial phase. Over the next 18 months, the CER and Department of Industry, Science, Energy and Resources will together trial a Hydrogen GO scheme to measure and track emissions from hydrogen production, as well as the types of technology and energy sources used to generate hydrogen.

The Hydrogen GO scheme will allow consumers to choose products based on the hydrogen's carbon emission intensity. While it is unclear exactly what information will be included on each GO certificate, CER Chair, David Parker, said that certificates will follow the hydrogen supply chain, providing transparent information to consumers on the carbon intensity of products and "trial participants will help develop emission accounting approaches suited to their production techniques, giving industry and supply chain partners confidence in the GO scheme and encouraging investment in hydrogen projects".

The trials will focus on testing and refining methodologies presented in the discussion paper to determine the accuracy, practicality and administrative burden of the proposed Hydrogen GO scheme and provide the necessary data and information needed to inform on final scheme design. The trials will also inform work by the Department on policy and legislation to support the industry's development.

Trials will include participants with projects that are operating, or in an advance stage of planning, across a range of production methods, including renewable electricity, biomethane, and coal and gas with substantial CCS. These participants will be able to test methodologies with actual data from their projects.

The Federal Government has committed $9.7 million towards the trial.

Next steps

The Hydrogen GO scheme trials will play a significant role in determining international standards for measuring carbon emissions from hydrogen production and establish Australia as a global player in the emerging hydrogen industry.

Industry participants with operating or well-advanced hydrogen pilot projects should contact the CER if they wish to nominate to participate in the trials.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.