Australian senate passes hydrogen production tax incentive

The Future Made in Australia (Production Tax Credits and Other Measures) Bill 2024 is part of the Australian Government’s $22.7 billion Future Made in Australia Plan and aims to maximise economic and industrial benefits of the international move to net zero. 

The bill passed the Senate on Monday 10 February, establishing the HTPI.

The HPTI is uncapped and is available to companies between 1 July 2027 and 30 June 2040 for a maximum period of ten years per project, at a rate of $2 per every whole kilogram of ‘green’ hydrogen that eligible companies produce. 

Dave Ulbrick, an expert in energy transition projects at Pinsent Masons, said: “The hydrogen industry appears to be under challenge in some jurisdictions while the costs of production remain high relevant to the market value of the end product.” 

“While markets will probably sort these teething problems out in the medium term the introduction of an HPTI would be a step in the right direction in the short term to boost Australia’s hydrogen industry, and it will likely unlock further investment opportunities and allow Australia to be globally competitive.” he said.

Late last month, the Senate Economics Legislation Committee issued a report (58-page / 514KB PDF) which was generally in favour of the bill.

The report said that the bill “is a critical initiative to ensure Australian industry and workers benefit from the industrial transition to decarbonise the economy, promote economic resilience and bring more value-adding processing onshore.” 

The report also raised some questions as to how effective the proposed legislation would be in creating investment opportunities, noting concerns over the minimum project size threshold being too high limiting opportunities for smaller projects, the deadline of 2030 for financial investment not giving companies enough time to meet regulatory requirements and execute the necessary agreements for the project, companies not being able to demonstrate the demand for hydrogen restricting lenders’ ability to finance such projects and the offset not being subject to indexation.

Despite these concerns, the Senate passed the bill with no amendments to address the issues raised by the committee.

To be eligible for the HPTI, a company must be a constitutional corporation and not a trust or partnership, which is subject to tax in Australia. The project must be a large-scale project with a minimum 10MW capacity and, where applicable, comply with the community benefit principles imposed by the treasurer within the bill.

Additionally, the company must first seek certification from the Clean Energy Regulator that the production produces less than 0.6 kilograms of carbon dioxide per kilogram of hydrogen; and must obtain a product guarantee of origin certificate for each kilogram of hydrogen that is registered under the Future Made in Australia (Guarantee of Origin) Act 2024.

The HPTI seeks to reinforce the Hydrogen Headstart Program (HHP), announced in the 2024-25 Federal budget, which is set to provide revenue support for large-scale renewable hydrogen projects to accelerate Australia’s hydrogen industry and help connect to global hydrogen supply chains. 

Companies, however, who are eligible to receive credits under both the HPTI and HHP will have their credits under the HPP proportionally reduced, limiting companies from maximising benefits under both initiatives. 

Another concern regarding the HPTI include its administration because the CER is responsible for issuing certifications to eligible companies, but it is the ATO who will administer the HPTI offset. The ATO has, in the past, questioned certifications provided by bodies outside of the ATO. 

Energy law specialist Leanne Olden of Pinsent Masons said: “To ensure the HPTI is administered correctly and efficiently, the ATO will need to be comfortable with the certifications issued by the CER and the two bodies will be required to share internal information with each other, although it is unclear how this will work in practice.”