Australia and Japan have a long-established energy trade relationship, initially centered on Australian coal and iron ore exports to support Japan’s post-war reconstruction, and subsequently expanding into liquefied natural gas (LNG) from the late 1980s. Recently, the partnership has evolved toward clean energy, marked by the Australia-Japan Partnership on Decarbonization through Technology (June 2021). This initiative prioritizes lower-emissions LNG, clean fuel ammonia, clean hydrogen, carbon capture, usage and storage (CCUS), carbon recycling, and low-emissions steel and iron ore production.
Both nations see hydrogen as pivotal to their net-zero targets. Japan aims to use 3 million tonnes of hydrogen annually by 2030, 12 million tonnes by 2040, and 20 million tonnes by 2050. Australia’s ambition matches this scale, targeting at least 15 million tonnes per year by 2050, with a stretch goal of 30 million tonnes.
Key upcoming elections in both nations may significantly influence their hydrogen strategies. Australia’s current Labor government has actively positioned the country as a future renewable energy superpower. However, recent commercial setbacks raise doubts about these ambitious goals. In Japan, Prime Minister Ishiba Shigeru’s Liberal Democratic Party (LDP), currently governing as a minority, faces a critical test in the July 2025 upper house elections. A defeat could trigger leadership instability amidst an already uncertain global economic environment. Such an outcome would likely intensify internal LDP debates over energy policy direction, impacting hydrogen’s role and potentially adding further uncertainty to Japan’s energy trajectory.
Australia’s Hydrogen Ambitions
Australia’s federal and state governments have committed significant resources to developing a hydrogen industry as part of their broader decarbonization strategies. Under the updated 2024 National Hydrogen Strategy, the federal Labor government introduced extensive support measures, including the Hydrogen Headstart program (providing a AU$2-per-kilogram subsidy and AU$6.7 billion in production tax credits), and the Future Made in Australia fund (AU$22.7 billion over a decade). Additionally, the Clean Energy Finance Corporation maintains a AU$300 million Advancing Hydrogen Fund. The opposition party has announced its intention to remove hydrogen tax incentives if it wins government, signaling a divergent approach.
Investment in hydrogen hubs is central to Australia’s strategy, aiming to lower production costs, foster innovation, and build industry capacity. Japan remains a crucial trading and investment partner, as demonstrated by successful joint hydrogen production and transportation trials – including the world’s first shipment of liquefied hydrogen from Australia to Kobe, Japan, in February 2022. Queensland has specifically strengthened ties with Tokyo through trade agreements, aiming for an 80 percent renewable energy share by 2035. Additionally, Japan’s JERA has announced plans to invest US$6 billion to secure 7 million tonnes of hydrogen supply by 2035, reinforcing the importance of this bilateral partnership.
Japan’s Strategic Shift on Hydrogen
For Japan, hydrogen is touted as a strategic response to deep-rooted energy security concerns making it central not only to Japan’s decarbonization efforts but also to its long-term vision for a resilient and diversified energy system. Japan pioneered the global hydrogen policy landscape with its 2017 Basic Hydrogen Strategy. However recent revisions in its 7th Strategic Energy Plan (SEP) and updated National Hydrogen Strategy (NHS, 2023) highlight a strategic realignment. The 7th SEP notably removes the previous target of hydrogen and ammonia co-firing for power generation, shifting instead to prioritize their use in decarbonizing hard-to-abate sectors like steel, cement, chemicals, aviation, and heavy transport.
Nonetheless, Japan’s strategy includes ambitious consumption targets, with clear cost reduction objectives – 30 yen/normal cubic meter (approximately 334 yen/kg) by 2030 and 20 yen/normal cubic meter (approximately 222 yen/kg) by 2050. Japan also operationalized a hydrogen price gap support framework under the Hydrogen Society Promotion Act, aimed at subsidizing the cost differential between clean hydrogen and fossil fuels. This initiative, backed by a multi-year funding commitment, is designed to catalyze commercial-scale hydrogen uptake and will be a key filter through which Japan assesses future supply partnerships – including with Australia.
It must be noted that Japan’s strategy is not limited to green hydrogen. Blue and other low-carbon hydrogen sources remain part of its planned import mix, giving it flexibility to prioritize cost, scalability, and supply stability. The GX Strategy further supports these ambitions by promoting hydrogen and ammonia for flexible use across power generation, transport, and industry, bolstering energy security. Japan’s industrial policy also sets quantitative targets for electrolyzer technology, aiming to reduce costs significantly by 2030 and achieving 15 gigawatts (GW) of electrolyzer sales domestically and internationally.
The Commercial Reality: An Industry in Infancy
Despite extensive governmental support, Australia’s hydrogen industry remains embryonic. Although the country accounts for 20 percent of global announced hydrogen projects, valued at over $225 billion, most projects are still at feasibility or preliminary stages. Australia’s electrolyzer production capacity also remains nascent despite state-backed initiatives like South Australia’s Hydrogen Jobs Plan.
Collaboration continues through partnerships such as INPEX and CSIRO’s joint studies under the 2019 Japan-Australia Carbon Recycling Cooperation, and Mitsui’s feasibility study in Western Australia alongside Wesfarmers, aiming for a final investment decision by 2025. Nevertheless, commercial viability remains uncertain, as evidenced by project delays and industry hesitancy.
Growing Disconnect: Government Ambitions vs. Industry Caution
Recent industry decisions indicate reluctance among major Australian and Japanese companies to pursue hydrogen projects vigorously. Prominent setbacks include Fortescue Metals pausing green hydrogen initiatives and cutting 700 jobs, Origin Energy exiting the Hunter Valley Hydrogen Hub and pausing hydrogen production plans entirely, and Woodside abandoning significant projects citing insufficient renewable energy resources.
Further complicating matters, state governments in Queensland and South Australia have withdrawn financial backing from notable hydrogen projects. The Victorian Hydrogen Energy Supply Chain (HESC) project, initially promising, has also shifted production from Australia to Japan due to regulatory delays and environmental concerns related to coal sourcing. The development of hydrogen could, however, still be promising as an input into ammonia and steel production.
Japan, recognizing these setbacks, is actively diversifying its international hydrogen supply chain partnerships, recently collaborating with Malaysia’s Petros and Petronas as part of its broader Asia Zero Emissions Community (AZEC) initiative. This diversification underscores Japan’s cautious outlook on relying solely on Australian hydrogen. However future investments will likely prioritize greater regulatory certainty and project bankability.
The Costly Reality: Economic and Technical Barriers
Commercial hesitancy primarily stems from hydrogen’s high production costs, complex technological requirements, and significant infrastructure demands. Even Australian Resources Minister Madeleine King publicly acknowledged these technological and economic challenges in late 2024. The high cost of renewable energy inputs and complexities around hydrogen storage and transportation remain significant hurdles, suggesting the need for realistic reassessments by both Australia and Japan.
Given the commercial withdrawal from hydrogen projects and growing international competition, hydrogen policy has featured minimally in Australia’s 2025 federal election campaign. The government’s decision to remove funding for hydrogen-fueled trucks in the recent budget and Opposition Leader Peter Dutton’s proposal to eliminate AU$14 billion in hydrogen tax credits further underscores the political volatility surrounding hydrogen’s future in Australia.
Conclusion: Recalibrating Ambition with Pragmatic Realities
The slow development of Australia’s hydrogen industry brings the future of Australia and Japan’s potential hydrogen trading relationship into question. This, added with the growing disconnect between Australian government ambitions and the commercial reality, as well as Japan diversifying trading partners, highlights the strategic recalibration underway. Growing uncertainties in global energy trade and substantial economic challenges already evident in hydrogen production further amplify these concerns.
The Australian election will play a role in determining whether green hydrogen has a strong future domestically and as an export product in the coming years. As these uncertainties mount, it may be prudent for both nations to strategically reassess whether hydrogen remains the optimal cornerstone for their bilateral net-zero collaboration.