Labor has slashed billions of dollars from its ambitions for hydrogen exports and a flourishing clean manufacturing sector as the Trump administration’s anti-clean-energy agenda hits global investment and cripples the Albanese government’s green industry goals.
This week’s federal budget removed $1 billion from the program that the government said would turn Australia into a global powerhouse of green hydrogen, an energy source that burns cleanly and could replace fossil fuels across a range of polluting industries.
Budget papers reveal the government now expects to spend $1.9 billion less on production credits for early-stage hydrogen projects by 2030, while $300 million has also been cut from schemes to kick-start local manufacturing of solar panels and batteries.
The funding cuts mark a backdown from the government’s 2022 election pitch and the creation of its hydrogen fund, which was established in early 2023 with $2 billion to help projects compete with fossil fuels.
“Our ambition is nothing less than a revival of manufacturing built off the back of the availability of clean, cheap energy,” Anthony Albanese said in April 2022, before he became prime minister in May.
The government has set an ambitious climate target to cut emissions by at least 62 per cent by 2030.
Green hydrogen, a clean-burning fuel produced with renewable energy, could slash emissions by replacing polluting energy sources like diesel and gas in industrial processes.
But it still costs far more to produce than fossil fuels and hydrogen has not emerged as a viable alternative for industrial use.
Many experts argue it was overly ambitious of Labor to claim it could spark a hydrogen-led revival of the nation’s manufacturing sector, while Climate Change and Energy Minister Chris Bowen maintains the government has not changed its vision.
However, green hydrogen’s potential received a hammer blow in late 2024 when Donald Trump was elected US president and swiftly passed laws to end the former Biden administration’s lucrative tax breaks for green technologies, while enacting sweeping measures to make it cheaper and easier for companies to extract more fossil fuels.
Andrew “Twiggy” Forrest’s Fortescue Metals in April 2025 announced it would not proceed with a $830 million green hydrogen plant in Arizona, blaming Trump’s “shift in priorities away from green energy”.
Grattan Institute energy and climate change director Alison Reeve said despite the setbacks, green hydrogen was still a viable alternative to fossil fuels, but it would not reach anywhere near the scale initially envisioned.
“The way we were thinking about hydrogen in 2019 was as a miracle fuel that would do everything. But we’ve come to the realisation, and this is not just in Australia but around the world, that while hydrogen can do everything, it does most things badly.”
The former Coalition government was also a supporter of hydrogen and committed $500 million under the Australian Hydrogen Fund in 2019, which then Resources Minister Matt Canavan and Energy Minister Angus Taylor said would enable Australia to be a world leader in the industry.
There has been around $1.5 billion committed to green hydrogen by the federal government and several projects are under development.
Reeve said since Biden’s administration raised hopes that green hydrogen could replace fossil fuels across the industrial sector, with its US$7 billion green hydrogen fund in 2021, development of the technology had sincnarrowed to the most commercially viable applications like steel and ammonia production.
“The government threw way too much money at the hydrogen industry before it had the capacity to absorb it,” Reeve said. “Australia makes about a million kilos of green hydrogen a year at the moment, and it sells at up to $10 a kilogram, so it’s a $10 million industry. It’s not ready for billions in tax concessions.”
Bowen said the government still viewed green hydrogen as essential to cut emissions, but development of the industry was now progressing amid the constraints of the global oil shock caused by the Iran war, which has strangled around 20 per cent of the world’s oil supply.
“The government is addressing the urgent and emerging issues associated with the conflict in the Middle East, while continuing to advance long-term opportunities to reduce fossil fuel dependence, strengthen domestic energy security and boost sovereign capability,” he said.
Most hydrogen produced across the world today is limited to “grey hydrogen”, made from gas through a process that emits carbon dioxide into the atmosphere. Fortescue’s ambitions focus on “green hydrogen”, produced when renewable energy is used to separate water into hydrogen and oxygen, making the product emissions-free.
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Mike Foley is the climate and energy correspondent for The Age and The Sydney Morning Herald.Connect via email.