Australia-Japan Coal Hydrogen Project Faces Cost and Technology Viability Risks

The Hydrogen Energy Supply Chain project, a joint Australian-Japanese initiative to convert Victorian brown coal into liquefied hydrogen for export to Japan, faces compounding viability challenges including an unresolved carbon capture and storage requirement, rising competition from cheaper green hydrogen, and prohibitive shipping costs that may exceed Japan's target delivered price for hydrogen. Japan's Green Innovation Fund has committed A$2.4 billion to partially fund scale-up of the project, but funding for the CCS component — which alone could require billions of dollars based on the Gorgon project precedent — remains unresolved.

The HESC pilot project operated over five years to 2022 following a joint A$100 million investment by the Australian and Victorian governments. At commercial scale, the project aims to produce 225,000 tonnes of liquefied hydrogen per year by 2030. Coal-to-hydrogen production is the most emissions-intensive hydrogen production route, generating 18 to 20 times more CO2 than the volume of hydrogen produced, and the project's clean blue hydrogen classification depends on capturing 90% of those emissions. By comparison, Australia's Gorgon CCS project — the domestic reference case — achieved only a 32% capture rate over its first six years of operation and has cost A$3.2 billion to date.

The Australian federal government declined to support the HESC project through its A$2 billion Hydrogen Headstart scheme, creating a significant funding gap. BloombergNEF forecasts that green hydrogen produced with renewable energy will be cheaper than coal-based hydrogen everywhere by 2030, the same year HESC aims to reach commercial scale. The International Energy Agency concurs, projecting cost parity between large-scale coal-to-hydrogen and renewable hydrogen by 2030 — after which renewable costs will continue to fall while coal mining costs could rise.

Shipping hydrogen from Victoria to Japan over a 9,000-kilometre journey poses additional commercial challenges. The energy losses from liquefaction, boil-off during transit, and regasification at the receiving port could consume up to 40% or more of the cargo. The IEA estimates transport costs for liquid hydrogen over an 8,000-kilometre journey at US$2.0 to 3.7 per kilogram in 2030 — a figure that may alone exceed Japan's target delivered price of US$3 per kilogram, before accounting for the cost of hydrogen production itself. Studies show Japan could meet its energy needs with 90% clean power from renewables by 2035.

Key figure — A$3.2 billion — cost of Australia's Gorgon CCS project to date, which has captured CO2 at only 32% of target rate