Dig, ship, repeat: How Australia could miss the real hydrogen opportunity

The Australian Government is investing billions in renewable energy to transition the national energy system away from fossil fuels and support net zero targets, including in wind, solar, and hydrogen technologies. Green hydrogen, which relies on renewable energy to split water into hydrogen and oxygen, is seen as a viable fuel to decarbonise hard-to-abate heavy industries (such as mining or shipping), enable long-term energy storage, and support energy micro-grids in remote communities. While it is currently experiencing a global market correction after surging interest met unrealistic development expectations, government commitments remain in place and policies are being recalibrated.

With the changing industry conditions, getting policy settings right is now even more important. More broadly, hydrogen has become a test case for how Australia approaches new and emerging clean energy industries.

Unlike gas or coal, hydrogen production is not tethered to a specific extraction site. It can be produced in a range of geographies that offer ‘favourable’ conditions, such as cheap renewable energy, land and water resources, appropriate infrastructure, and access to end users. Australia possesses many of these advantages, as well as a stable political environment and trusted international trade reputation. Many of these strengths are concentrated in Western Australia, where significant hydrogen development is building on established export infrastructure and energy expertise.

Yet, our geographic distance from major consumer markets, such as Europe and Japan, creates significant export challenges due to high transportation costs and unresolved safety and leakage issues. The Australian Government was an early mover in developing the 2019 national hydrogen strategy and has also introduced large-scale capital and revenue support programs, however, its international competitiveness has started to lag as other countries move rapidly to develop competing hydrogen industries.

Rapid implementation or sovereign capability development?

As with many emerging technology markets, green hydrogen faces a classic chicken‑and‑egg problem: demand remains weak because costs are high and supply is limited, yet producers struggle to scale or reduce costs without reliable higher demand. To overcome this, governments often seek to accelerate deployment through large-scale projects led by established firms with the technical expertise, capital, and proven technologies needed to move quickly. While this approach may increase production capacity, without deliberate policy design, public investment may support a series of one‑off construction projects with limited long‑term national benefit.

Australia’s hydrogen industry risks becoming over-dependent on foreign-owned technologies and expertise. Multinational firms may build and operate facilities locally but retain strategic control and ownership of intellectual property (IP), proprietary processes, software, system designs, and future licensing rights offshore. Even if skills training, pilot projects, and demonstration plants occur in Australia, the value embedded in patents and commercial knowledge may remain offshore if firms are headquartered elsewhere. Australia may capture short‑term activity but forfeit long‑term leverage.

In contrast, technological opportunities exist across the value chain. Competitive advantage may increasingly come from electrolysers, storage, safety systems, and whole-of-system integration rather than production alone. Skills alone are insufficient. Trained workforces can be redeployed anywhere in the world, but IP ownership encourages the domestic innovation ecosystems needed to support local firms and spin‑offs. The lesson is that domestic IP ownership enables a shift from commodity supplier to global technology exporter. This raises a further crucial question: Is current hydrogen policy designed in a way that ensures IP stays in Australia?

Long-term defensible industry value

History offers a warning for countries that lead in emerging energy technologies but fail to secure a lasting position in the industries they help create. Germany’s experience with solar photovoltaics is a salient example. A technological pioneer and the world’s largest solar market in the early 2000s, thanks to strong manufacturing capabilities and generous feed-in tariffs, Germany’s solar industry largely collapsed a decade later as China’s state-backed manufacturers dominated in scale and cost. Germany helped create the market but captured little of its long-term industrial value or strategic advantage from the resulting supply chains.

The experience reshaped Germany’s approach to renewable energy industries. Rather than competing solely on manufacturing, German firms increasingly concentrated on higher-value activities that are more difficult to replicate, including engineering design, safety certification, grid integration, technical standards, and specialised maintenance services. In the wind energy sector for example, firms like Siemens Gamesa accept the migration of manufacturing to countries with lower costs and instead focus on high‑value activities, creating structural dependence on German expertise and standards worldwide. German expertise and IP are embedded in people and institutions rather than the factories producing the equipment, and these lessons explicitly guided its 2020 National Hydrogen Strategy.

Building sovereign capability through strategic investment

Australia faces a similar strategic choice. Government grant programs, like Hydrogen Headstart, have attracted interest from major international firms, yet the scheme has not been primarily designed with mechanisms to maximise the retention of engineering expertise, IP, and downstream innovation domestically. Public spending can be used effectively to stimulate the market, however, long-term opportunities lie in developing capabilities that retain value regardless of where individual hydrogen projects are located. Australia has the technical foundations, including world-leading research in electrolyser efficiency, a globally top-ranked hydrogen research sector, and an emerging cohort of domestic hydrogen industry-related firms. The critical question is whether policymakers will treat existing advantages as strategic capabilities to be systematically developed, or as isolated contributions to an industry increasingly controlled by foreign technologies and firms.

Government funding represents one of the most direct levers available for shaping the structure of the industry. Three policy priorities are as follows.

• Mandating co-development with local firms. The current design of major support programs largely rewards cost-competitive and technology-ready projects – criteria that favour large multinational developers with established track records. If sovereign capability and domestic value capture are policy objectives, funding frameworks could more explicitly incentivise collaboration with Australian firms, research institutions, and supply-chain partners to encourage technology transfer capability development over time. They would also signal that success is measured not only by hydrogen output, but on the depth of domestic capability created along the value chain.
• Encouraging domestic IP ownership and technology transfer. When publicly funded projects contribute to novel process optimisations, component designs, or operational methodologies, ensuring some degree of domestic ownership helps retain strategic value within the national economy and encourages genuine research and commercial partnerships. Grant and production incentive schemes could provide pathways for Australian ownership of IP generated through publicly funded activities.
• Building on Australia’s National Certification scheme. Australia’s Guarantee of Origin (GO) scheme, administered by the Clean Energy Regulator, provides a complementary opportunity to build a source of defensible value beyond production itself. By positioning Australian certification, verification, and reporting frameworks as trusted regional or global standards, Australia could establish an enduring role in hydrogen governance and market assurance.

Ultimately, Australia stands at a critical juncture in its hydrogen ambitions – it may emerge as a technology leader or settle into its familiar role of resource exporter. The challenge for policymakers is how to structure funding so that success is measured by the creation of sovereign capability as much as production and exports. Without this, the billions committed to hydrogen today may prove to be an extraordinarily expensive subsidy for the industrial capabilities that ultimately reside overseas. Australia’s real hydrogen opportunity lies not in production alone, but in investing in and building the technologies, expertise, and industrial capabilities that underpin energy security, economic resilience, and long-term advantage.

About the authors
Professor Daniel Schepis is an Associate Professor of Marketing and Innovation at the University of Western Australia, specialising in business-to-business marketing. His research focuses on innovation networks, shaping future markets, and corporate social responsibility.

Professor Kirsten Martinus is a Senior Research Adviser: Regional Development and Resilience at the Perth USAsia Centre, Director of the Future Regions Lab, and a Professor of Human Geography at the University of Western Australia. Her expertise spans critical minerals and supply chain security; geo-economic security and resource distribution; regional resilience and infrastructure policy; industry strategy for national security; and the geopolitics of energy and innovation.

Stephan Dua Modest is a Lecturer at RMIT University focusing on the energy transition and industry, as well as the intersection of environmental sustainability drivers and sustainability communication.

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