Bigger tax breaks on offer in the United States are putting Australia's fledging renewable hydrogen industry in jeopardy, economic modelling shows.
The report released by consultants Deloitte Access Economics puts the case for urgent action to support local production as aggressive US industrial policies are eroding Australia's advantages.
Despite clean energy ambitions, Australia's global competitiveness is declining, head of Deloitte Access Economics Pradeep Philip said on Friday.
Advocates of the alternative fuel say hydrogen could be a catalyst for producing green steel, green aluminium and zero-carbon fertilisers.
But the technology isn't expected to be commercially viable until the early 2030s, and even that forecast depends on the passage of fiercely contested Albanese government laws to tighten industrial emissions.
The next decade is likely to become a race to secure long-term contracts for the supply of renewable hydrogen, which lock in finance for development.
But recently passed US laws provide hefty subsidies for North American production of low-emission hydrogen and make Australian projects less unappealing, the report warns.
The analysis suggests there is a "goldilocks zone" for a $2 per kilogram hydrogen production credit for locals to compete with the US, and not blow out the federal budget.
This would require taxpayer investment of $15.5 billion over a decade and would put Australia on track for a near $50 billion export industry with the production of almost 16 million tonnes of renewable liquid hydrogen a year by 2050.
Otherwise, Australian hydrogen production could be set back by a decade and might never reach a comparable scale to existing fossil fuels.
Crucially, support for hydrogen would spur the creation of new clean industries to offset the decline of coal, gas and oil, according to the report.
"Without this we could face energy deficits and costs of production in Australia will be higher than they should be," Dr Philip said.
Australia would also be competing for a specialised hydrogen workforce, with early movers best positioned to attract and retain skills.
Proximity to Asia should provide a natural advantage from cheaper shipping costs, with Australia competing with the Middle East, Europe, Chile and the US.
But the analysis suggests the economics of President Joe Biden's Inflation Reduction Act could deliberately undermine Australia's export market share in Japan and South Korea.
The US move is drawing capital and people to the US, and Europe, the Gulf states, Canada and other governments are already responding.
"The US Inflation Reduction Act looks set to cut Australia's renewable hydrogen lunch," Dr Philip said.
