Guarantee of Origin and Hydrogen Tax Incentive laws pass, but their effect remains in the future

In some much-needed love for the Australian hydrogen sector, the Future Made in Australia (Production Tax Credits and Other Measures) Bill 2024 received assent on 14 February 2025 and became an Act (PTC Act).

Among other things, the PTC Act introduces the $2/kg hydrogen production tax incentive (HPTI) for clean hydrogen produced in Australia between 2027 and 2040, through amendments to the Income Tax Assessment Acts 1936 & 1997 and the Taxation Administration Act 1953.

The PTC Act nails down a key plank of the 2024 Hydrogen Strategy, released by the Government in September last year.

Future Made in Australia and hydrogen

The Federal Government's $22.7bn Future Made in Australia economic plan focuses investments on:

• skills and training to build Australia’s future workforce;

• renewable energy;

• supporting investment in Australia;

• utilising natural resources and critical minerals; and

• industrial innovation and technology.

Hydrogen industry development forms part of the overall Future Made in Australia plan.

A critical component of the 2024 Hydrogen Strategy is the Guarantee of Origin (GO) scheme. Australia is developing an internationally-aligned GO scheme to measure, track and verify the carbon emissions and other attributes of Australian clean energy products (including hydrogen) and to certify renewable energy.

GO scheme and HPTC laws have passed, but are yet to commence

The primary Acts supporting the plan – the Future Made in Australia Act 2024 and the Future Made in Australia (Omnibus Amendments No. 1) Act 2024 – came into force on 11 December 2024.

However, the associated Acts that were passed at the same time:

• Future Made in Australia (Guarantee of Origin) Act 2024 (GO Act);

• Future Made in Australia (Guarantee of Origin Charges) Act 2024 (GO Charges Act)

• Future Made in Australia (Guarantee of Origin Consequential Amendments and Transitional Provisions) Act 2024,

do not commence until the earlier of:

• the date on which the GO Act is proclaimed to commence; or

• 12 December 2025 (the day after the first anniversary of assent to the GO Act).

And until the GO Act commences, the PTC Act will not commence either.

This is because the administration of the tax credit relies on two kinds of certification created and provided under the GO Act, namely:

• Product GO certificates – the applicant company must have:

  • created a certificate (called a PGO certificate) that relates to the hydrogen being produced; and

  • registered the certificate under the GO Act.

• Certified production profile – Both:

  • the facility at which the hydrogen is produced, and the production pathway for the hydrogen, must be specified in a production profile that is certified by the Clean Energy Regulator; and

  • the relevant hydrogen must also have been produced during an offset period (which cannot be longer than 10 years) that is associated with the certified facility and production pathway.

The PGO certificates are, in turn, supported by the renewable energy GO certificate mechanism (REGO), which provides certification of the renewable energy used for the hydrogen production and which itself is based on the Large-scale Renewable Energy Target (LRET) scheme. LRETs sit under the Renewable Energy Target (RET) regime. However, the REGO scheme operates independently of the RET scheme and would continue beyond 2030 when the current RET regime is scheduled to end.

The Commonwealth Department of Climate Change, Energy, the Environment and Water (DCCEEW) is running a consultation process on draft subordinate legislation that sets out some details of the GO scheme. Consultation is open until 27 March 2025 on Exposure Draft (Tranche 1) – Future Made in Australia (Guarantee of Origin) Rules 2025 covering scheme registration, registration of scheme profiles, certification of products and registration of renewable electricity generation facilities.

DCCEEW has also flagged that future consultations will cover the remaining rules under the GO scheme, including certification of renewable electricity, the methodology determination for hydrogen production from electrolysis, the REGO measurement standard instrument and the cost recovery impact statement and related cost recovery regulations.

HPTI implications for hydrogen in Australia

Given Australia's nascent hydrogen production sector, the new regime offers extremely important support to provide investor certainty, derisk uncertainties surrounding hydrogen derivative product requirements, and improve the overall economics of the hydrogen production process. Potential investors will also be pleased that the Federal Government is showing a strong commitment to the hydrogen sector by delivering on its early actions under the 2024 Hydrogen Strategy.

However, recent market developments and investment decisions, including on State and Commonwealth funding for hydrogen projects, demonstrate that near-term challenges remain for hydrogen project developments.

Early proclamation of the HPTI would improve the bankability of project investments, providing greater investment certainty for hydrogen developers that substantial tax credits set out in the PTC Act will be available.

Other important factors include the following:

• Credit availability vulnerable to production delays – Because the HPTI is available for eligible companies for qualifying hydrogen produced between 1 July 2027 and 30 June 2040, the total amount of tax offset that a project may claim is vulnerable to production commencement delays. Treasury's Impact Analysis for the HPTI actually recommended an eligibility requirement for hydrogen projects to reach Final Investment Decision (FID) by 30 June 2023, in order to promote accelerated project decision-making, but this was not included.

• $2/kg may be reduced – The $2/kg offset may be reduced if any community benefit rules made by the Minister that apply to the company specify any circumstances in which the $2 amount may be reduced, and those circumstances exist.

• Amount not indexed – As noted by the Clean Energy Council (CEC) in its submission to the Senate Economics Legislation Committee on 9 January 2025, the $2/kg starting credit is not indexed over time, unlike the standard approach for some other concessional arrangements, such as the costs under electricity power purchase agreements. Consequently, the value of the HPTI is forecast to diminish by approximately one-third over its availability period (based on current indexation trends).

• Tenor of support – The CEC also noted that the 10-year HPTI support period would be much shorter than the project commitment period for (equity) investors, meaning greater market price risk would be taken by proponents when the HPTI support ceases (though debt tenor is likely to be shorter).

With expected project life cycles of more than 30 years, the HTPI timing limitations highlighted above add to various other timeframe challenges confronted by project investors. Facility construction timeframes, electrolyser lead times, debt finance loan tenor and refinancing requirements, as well as the regulatory timeframes for new fuel products (such as methanol and sustainable aviation fuel) all need to be factored into evaluations as projects approach FID.