Tim McCready looks at the science and business behind this key emerging technology.

As the world transitions to a low-carbon economy, hydrogen is emerging as a key technology that could help to dramatically reduce greenhouse gas emissions.

Hydrogen can be produced by splitting water molecules into the constituent elements of hydrogen and oxygen in a process known as electrolysis. If done using renewable energy such as wind or solar, "clean" hydrogen can enable decarbonisation across the energy and industrial sectors.

Hydrogen can be either compressed or liquefied, and its ability to be stored and transported makes it a promising alternative to decarbonise industrial processes that may not be amenable to electrification. Unlike the fossil fuels it could replace, when used as a fuel it emits only water.

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Paul Newfield is head of Australia and New Zealand for alternative asset manager Morrison & Co, which invests in infrastructure and property through both private and listed markets.

He says clean hydrogen will play many roles in a decarbonised future, with applications ranging from powering heavy vehicles, facilitating storage of variable renewable energy and creating greener fertilisers and tradeable fuels — and work is already underway around the globe to reduce costs to the level required for mass adoption.

Newfield says Morrison & Co has identified hydrogen-related opportunities — for example converting trains to run on hydrogen in the UK, or injecting it into the natural gas network in Northern Ireland where traditional renewable electricity can't meet specific market needs.

Lewis Bailey, an investment director at Morrison & Co, says like many other emerging technologies, clean hydrogen faces a cost disadvantage in most applications due to both technical immaturity and its limited scale. But he says significant international government, scientific and industrial interest means that the cost equation is changing rapidly.

"As we look ahead towards an emerging hydrogen economy, many issues will require careful consideration," he says.

"Which hydrogen production technologies will governments choose to support? How will alternative green technologies evolve? How will the costs of retrofitting or replacing existing infrastructure be shared?"

While green hydrogen production currently costs nearly three times the amount of fossil fuel alternatives, Bailey says he anticipates this will change rapidly over the coming five years as more efficient technology and economies of scale emerge.

Financing major hydrogen projects requires a clear way to manage commercial and technical risks in what is still a nascent industry.

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Newfield says for now, in most parts of the world, that means significant government subsidies to make early pathfinder projects viable.

In Australia, the Morrison government has invested around A$100 million (NZ$107m) to develop its hydrogen industry. This includes investment into a A$500m pilot project in Victoria, which aims to produce hydrogen from brown coal and export it to Japan. This is expected to pave the way for investment in a clean, commercial-scale hydrogen export industry by 2030.

At the Davos forum earlier this year, Japan's prime minister Shinzo Abe said: "My Government is aiming to reduce the production cost of hydrogen by at least 90 per cent by the year 2050, to make it cheaper than natural gas."

Japan, which imports around 90 per cent of its energy needs, is using the Tokyo 2020 Olympic Games to promote its movement toward hydrogen to the world. The official vehicle of the Olympics is the Toyota Mirai, which uses compressed hydrogen as its fuel. Japan will also use hydrogen to power the athletes' village and light the Olympic cauldron.

Australia's chief scientist Alan Finkel is a vocal cheerleader for hydrogen's potential for the country. He says Australia has a competitive advantage due to its expertise in infrastructure, proximity to markets in Asia, and abundance in renewable energy.

Finkel uses the phrase "shipping sunshine" to describe how electricity from Australian solar plants could produce clean hydrogen for export. He says by 2030, Australia could have a hydrogen export industry worth A$1.7 billion that provides 2800 jobs.

Submissions for the New Zealand Government's public consultation on the potential for the production, export and utilisation of hydrogen in New Zealand's economy have recently closed.

Newfield thinks for New Zealand, hydrogen will likely play only a small role as we are already blessed with an electricity system that is largely renewable energy-based. He says our existing competitive advantage in wind and hydro power means it may not make sense to throw the same level of government support behind hydrogen here.

"Our hydro lakes are able to act as massive batteries to help us balance the grid — our main opportunity will be to convert vehicles and industrial activities like milk processing to run on that green electricity," he says.

"We'll probably get more bang for our buck by incentivising the electrification of vehicles and industrial processing."

A recent report by Z Energy shares a similar perspective, noting: "Z's view is that hydrogen is more suitable for decarbonising high-utilisation, long-range use cases such as trucks, ferries, trains and buses, while battery electric will be the better choice for the shorter-range fleet."

It says it is too soon to commit to hydrogen as a decarbonisation option for New Zealand, but concludes that it shouldn't be dismissed.

Newfield thinks there will be niche areas in which hydrogen makes sense for New Zealand, but says the key to getting hydrogen projects financed will be the willingness of customers to write long-term off-take contracts.

"These will only be written if legislation provides clear direction on New Zealand's path to decarbonisation and the future price of emissions," he says.

Read the Sustainable Finance Report here.