Project to extract hydrogen from coal is at risk

A multibillion-dollar Japanese plan to extract hydrogen from Victoria’s brown coal is at risk of failing due to demands for extra subsidies and a lack of willingness from Japanese customers to sign up for long-term deals.

People familiar with the Hydrogen Energy Supply Chain (HESC) project said only a portion of the ¥220bn (A$2.48bn) funding would actually be spent on developing a liquefaction plant in the Latrobe valley and export facilities at the nearby Hastings port.

The issue of responsibility for capturing and containing the project’s carbon emissions is also unresolved, with the state government potentially liable.

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The $500m, decade-long project has claimed several technological breakthroughs, including last year’s first shipment of liquefied hydrogen to Japan. Proponents have argued that using fossil fuels to create hydrogen and sequestering the emissions – so-called blue hydrogen – could lower the price and boost demand, paving the way for a later switch to renewables to create green hydrogen versions of the nascent fuel.

Opponents, though, say the cost of capturing and storing the resulting carbon emissions will likely render fossil fuel-sourced hydrogen uncompetitive.

Guardian Australia understands the federal and state governments have been asked for “multiples” of the $50m both have so far invested in a project that is not expected to reach commercial scale before 2030.

Worse, the Japanese partners are offering contracts to take hydrogen produced in the Latrobe valley for fewer than five years. The project owners would then have to sign up alternative customers at a time when green hydrogen supplies should already be available.

The Australian Hydrogen Council, an industry group, said the HESC project would not require renewable energy resources that were needed for other parts of the state’s decarbonisation efforts, labelling it an “alternative pathway” to the “main game” of renewable hydrogen.