5.2.1 New Zealand’s Hydrogen Roadmap

Renewable hydrogen will play a crucial role in shaping New Zealand’s energy landscape as the nation works towards achieving its legislated target of net zero greenhouse gas (GHG) emissions (excluding biogenic methane)Footnote ¹³ by 2050.Footnote ¹⁴ More than twenty hydrogen projects stretching from Marsden Point in the North Island to Invercargill in the South Island are in development or being considered in New Zealand’s early-stage hydrogen ecosystem.Footnote ¹⁵ However, New Zealand does not hold a finalised national hydrogen strategy, with its first Hydrogen Roadmap due for release in late 2024.

The lag in creating a national hydrogen policy in New Zealand is due to several factors, including the low projections of hydrogen reaching just 8 per cent of total energy demand domestically.Footnote ¹⁶ Such low projections are in stark contrast to Australian demand projections for hydrogen, which may represent 20 per cent of total energy demand in 2050.Footnote ¹⁷ The low demand estimate and delayed delivery of a national hydrogen in New Zealand has created a regulatory and policy environment ‘at least three years behind Australia’,Footnote ¹⁸ particularly in terms of secured capital investment and hydrogen standards adoptions. To date, New Zealand’s developing hydrogen policy position has focused on hydrogen applications to decarbonise industrial processes, evident in an over NZ$ 30 million budgetary commitment to accelerate the adoption of renewable hydrogen to decarbonise energy in hard-to-abate sectors, particularly ammonia manufacturing.Footnote ¹⁹

The first national response to hydrogen in New Zealand was the 2019 Vision for Hydrogen in New Zealand (‘2019 Hydrogen Vision’).Footnote ²⁰ The 2019 Hydrogen Vision targeted New Zealand’s 84 per cent renewable electricity penetration,Footnote ²¹ representing the fourth highest in the Organisation for Economic Development and Co-operation (OECD), with a goal to transition to 90 per cent renewable energy by 2025 and 100 per cent by 2030.Footnote ²² However, as a consultation Green Paper rather than a finalised national policy, the 2019 Hydrogen Vision produced feedback to inform the creation of a national hydrogen strategy.

Following the 2019 Hydrogen Vision, the Interim Hydrogen Roadmap was released in 2023 to provide another stocktake of policy options and invite another round of consultation to support renewable hydrogen development in New Zealand.Footnote ²³ Similarly to the 2019 Hydrogen Vision, the Interim Hydrogen Roadmap is seeking feedback on the overarching potential policy focus to optimise hydrogen to contribute to New Zealand’s domestic emissions reduction goals, stimulate economic development, and, interestingly, bolster its energy security and resilience. New Zealand’s decision to prohibit new petroleum permits outside Taranaki onshoreFootnote ²⁴ and become more reliant on petroleum imports has seen energy security become a new potential policy pillar for hydrogen. A focus on hydrogen to create energy security exists in contrast to Australia, where energy security is not evident in hydrogen policymaking to date. In emphasising the importance of domestic use of hydrogen at the household and industrial levels, the Interim Hydrogen Roadmap rules out the case for government incentivisation and support to scale-up a hydrogen export industry.Footnote ²⁵ A domestically focused hydrogen roadmap in New Zealand represents another point of comparison to Australia’s export-orientated hydrogen policy focus.Footnote ²⁶

Consistent with the previous 2019 Hydrogen Vision, a similar emphasis in the Interim Hydrogen Roadmap is placed on the potential for renewable hydrogen to decarbonise industrial production of fertiliser-based chemicals, particularly as New Zealand is largely dependent on the importation of urea.Footnote ²⁷ For example, the Balance Agri-Nutrients Plant in Kapuni is New Zealand’s only ammonia-urea manufacturing facility, producing 730 tonnes of urea per day with an annual natural gas consumption of 7 petajoule (PJ).Footnote ²⁸ The Balance Agri-Nutrients Plant is cited as a key project to develop a green hydrogen production facility to enable the production of lower-carbon urea and offset up to 12,000 tonnes of domestic emissions.Footnote ²⁹ Agriculture represents 48 per cent of the gross GHG emissions for New Zealand and a legislated price on emission from agricultural activities to meet its Emissions Trading Scheme will likely commence on 1 January 2026.Footnote ³⁰ In preparation for an agriculture-sector-specific emissions price and reporting scheme, the opportunity to decarbonise ammonia processing to create ‘green ammonia urea’Footnote ³¹ specifically targets hydrogen as an important potential alternative feedstock to natural gas.Footnote ³² This policy position fundamentally differs from Australia’s approach prioritising hydrogen exports as an initial policy platform with industrial feedstock usage for hydrogen as a secondary policy priority.

To support the development of a national energy strategy, Standards New Zealand completed its review of the current gaps in existing natural gas standards for hydrogen in 2023. The Standards New Zealand review identifies the overlapping regulatory regimes spanning gas safety, electrical safety, land transport, and other hazards and the six existing standards relevant to hydrogen for possible revision.Footnote ³³ In particular, NZS 5442:2008 – Specification for reticulated natural gas – has not been holistically updated since 2008, with the most recent interim revision to permit blending of biomethane. However, the blending of hydrogen with natural gas is currently not permitted under NZS 5442:2008.Footnote ³⁴ The resulting review advocates for a safety-focused guidance handbook and support for coordinated cross-agency action to implement standards amendments as a preliminary step to support a domestic hydrogen sector.Footnote ³⁵

The 2023 New Zealand Hydrogen Regulatory Pathway review similarly analysed forty-four Acts and ninety-three regulations and rules that may be relevant to hydrogen based on safety, use, markets, measurements, infrastructure, and resources to support a hydrogen sector. The Hydrogen Regulatory Pathway review critiques prescriptive rule-based regulatory requirements for gas usage resulting in regulatory gaps or uncertainty over hydrogen transportation. For example, the Hazardous Substances and New Organisms Act (1996) (NZ) prohibits the production of refrigerated liquefied hydrogen and exposes policy opaqueness as to whether hydrogen blends would fall under the Commerce Act (1986) (NZ), which currently does not define or incorporate the regulation of blended gases. The Hydrogen Regulatory Pathway review recommends similar policy developments completed in the EU, particularly in Germany and the Netherlands, including ‘the development of dedicated small–medium scale renewable generation for direct connection to electrolysers to be used as hydrogen “hubs”’.Footnote ³⁶

An additional differing policy juncture between New Zealand and Australia is New Zealand’s emphasis on supporting just transition goals for communities hosting hydrogen. Supporting landholders and communities in proximity or hosting hydrogen projects has been emphasised since the 2019 Vision. A focus on creating just outcomes for communities associated with hydrogen production is reiterated in the Interim Hydrogen Roadmap through the establishment of the $100 million ten-year Regional Hydrogen Transition Initiative.Footnote ³⁷ The Regional Hydrogen Transition will provide governmental rebates to support first-mover hydrogen projects through long-term contracts between government and commercial hydrogen consumers.

In awarding long-term contracts, the Regional Hydrogen Transition Initiative targets creating a ‘Just Transition’ for key regions, including Southland, traditionally an oil and gas region, and Taranaki to support the transition of workers within the New Zealand Aluminium Smelter at Tiwai Point. To access the Regional Hydrogen Transition Initiative rebate, proponents must demonstrate how their proposal meets the four elements of the Regional Hydrogen Transition benefit sharing model: (1) selecting a just transitions region; (2) Iwi (meaning cultural, environmental, social, and economic opportunities must be reflected in contractual applications) and the community; (3) renewable energy generation; (4) contribution to the development of the hydrogen economy. Community benefit funds, regional skills and training commitments, and contracting with new renewable energy generation may be conditions to satisfy the four outlined criteria.Footnote ³⁸

Overall, New Zealand’s comparatively domestic and justice-focused hydrogen strategy represents an interesting approach to support key hydrogen projects that aim to help build and test early-stage projects while engaging directly with communities. Australia’s National Hydrogen Strategy takes a more responsive, interventionist, and export-focused policy and regulatory approach to establishing its hydrogen ambitions, as explored below.

5.2.2 Australia’s National Hydrogen Strategy

Australia’s hydrogen export objectives are evident in its pioneering of the first liquified international trade of hydrogen to Japan in 2022. The Suiso Frontier shipped 75 tonnes of liquified hydrogen to Japan as part of the Hydrogen Energy Supply Chain (HESC) project. The HESC project positions Australia as a key exporter of hydrogen to Japan to 225 kilotonnes (kt) per year in the 2030s.Footnote ³⁹ Although the potential for hydrogen exports first became a policy focus for Australia in 2019, developing a hydrogen economy was first highlighted in Australia in 2002 when the Renewable Energy Technology Roadmap labelled renewable hydrogen as having ‘huge future potential’.Footnote ⁴⁰ Nearly two decades later, Australia’s first National Hydrogen Strategy was released in 2019 underpinned by three key policy goals to facilitate fifty-seven joint actions around seven themesFootnote ⁴¹ targeting the renewable hydrogen pricing stretch goal of reaching AU$2 per kg (H₂ (hydrogen) under $2) originally set in the Low Emissions Technology Statement.Footnote ⁴² This cost target is ambitious, with stand-alone wind and solar projects (financed over twenty years) utilising renewable electrolysis to produce renewable hydrogen currently projected to cost AU$4–12/kg.Footnote ⁴³

To create the rapid reduction of hydrogen production costs, in 2023 the federal public renewable energy funding body, the Australian Renewable Energy Agency, announced the establishment of the AU$2 billion Hydrogen Headstart Fund with a further $2 billion announced in the 2024–2025 Australian Federal Budget.Footnote ⁴⁴ The Hydrogen Headstart Fund will award production credits to support large-scale renewable hydrogen projects to cover the commercial gap between the cost of hydrogen produced and the sale price of the hydrogen, or its derivatives.Footnote ⁴⁵ The Hydrogen Headstart Fund projects will be funded from 2026/27 for a maximum funding period of ten years.Footnote ⁴⁶ While this funding is dwarfed compared to other hydrogen funding schemes in the European Union and United States,Footnote ⁴⁷ it is likely to support the first large-scale renewable hydrogen export projects in Australia.

To become a ‘hydrogen production powerhouse’Footnote ⁴⁸ by ‘shipping sunshine’ in the form of liquefied hydrogen to the world, Australia has adopted a responsive regulatory stance to ensure regulatory reform facilitating investment.Footnote ⁴⁹ The responsive regulatory approach is built upon the proportional regulatory intervention required to meet regulatory objectives according to the responsive regulation pyramid, originally conceptualised and championed by Braithwaite.Footnote ⁵⁰

The responsive regulation pyramid aims to promote voluntary compliance at the ‘base’ of the pyramid, through guidelines that are typically industry-led, with increasing severity of stations at the ‘apex’ of the pyramid. This responsive regulatory approach was also adopted within Australia’s East Coast Domestic Gas Market. For example, Australia created its leading global liquified natural gas export sector without any legislation mandating gas reservation for Australia’s largest gas market. In line with a responsive approach, Australia has adopted an industry-led agreement and code of conduct to prevent gas supply shortfalls and secure competitively priced gas for the domestic gas market with the LNG export sector.Footnote ⁵¹ Similarly, five industry codes of practice are being developed with the hydrogen industry, as discussed below.

Australia has built its strategy around enabling ‘clean hydrogen’, rather than a narrower approach targeting renewable hydrogen only, as is the case in New Zealand. Clean hydrogen pathways are not restricted to renewable hydrogen but rather include gasification through thermochemical reactions with coal as a feedstock and steam methane reforming using natural gas coupled with carbon capture and storage. The responsive pathway to realise Australia’s position as a hydrogen exporter is divided into two phases. The first phase between 2019 and 2025 seeks to provide ‘foundations and demonstrations’Footnote ⁵² of hydrogen by undertaking priority pilot, trials, and demonstration projects; assess supply chain infrastructure needs; build demonstration hydrogen hubs; and develop supply chains for prospective hydrogen hubs to scale-up supported by bilateral agreements, including with Germany, Japan, and The Netherlands.Footnote ⁵³

From 2025 to 2030 the second hydrogen strategy phase seeks to create ‘large-scale activisation’Footnote ⁵⁴ of hydrogen to scale up industry capacity for hydrogen supply chain to support export industry infrastructure and create a domestic market with explicit public benefits.Footnote ⁵⁵ Overall, four key progress measures for the success of Australia’s hydrogen industry are mapped, ranging from Australia developing an internationally accepted certification regime to hydrogen providing jobs and economic benefits.Footnote ⁵⁶ Yet no baseline data, data sharing, or demand and production targets have been set to assess progress towards these measures.

Since the development of the National Hydrogen Strategy, the interim 2022 State of Hydrogen report provides an update on the advancement and progress towards realising Australia’s overall goal of becoming a top three hydrogen exporter. The State of Hydrogen Report confirms ‘Australia has around 40 percent of all announced global hydrogen projects, with the Australian pipeline valued from $230 billion to $300 billion’.Footnote ⁵⁷ To support the development of a hydrogen projects pipeline to support export, the federal Australian government is also developing a proposed Guarantee of Origin Scheme.Footnote ⁵⁸ The Guarantee of Origin Scheme seeks to track and verify emissions associated with hydrogen production and its derivatives. The proposed Guarantee of Origin Scheme will also create a mechanism for renewable energy certification in direct response to the revised EU Renewable Energy Directive and supporting delegated acts defining renewable fuels of non-biological origin (RFNBOs).Footnote ⁵⁹

In a similar vein to the EU-based CertifHY scheme,Footnote ⁶⁰ an industry-led Zero Carbon Certification Scheme has been launched by peak industry body the Smart Energy Council to promote the creation of an Australian hydrogen export sector.Footnote ⁶¹ The first renewable hydrogen project to receive pre-certification is Yara’s green ammonia plant currently being built in the Pilbara, Western Australia. While certification schemes are crucial, particularly to support hydrogen exports, to implement hydrogen initiatives and schemes, one of the key inhibitors to rapidly building up the Australian hydrogen supply chain is the need for consistency in ‘implementing standards, regulations, and certification’Footnote ⁶² for hydrogen at the national and state levels in Australia. This has led the federal Australian government to conduct its current holistic review of the National Hydrogen Strategy with a revised strategy anticipated in 2024.

Since 2022, the Australian government has been undertaking a national Review of Hydrogen Regulation to ensure hydrogen safetyFootnote ⁶³ and development.Footnote ⁶⁴ At the federal level, several regulatory amendments are being planned to support the development of the Australian hydrogen sector ranging from safety laws to hydrogen transportation. In a responsive approach, new standards will be co-designed with the industry under five codes of practice, on hydrogen production; ammonia production; hydrogen refuelling; hydrogen appliances; and ammonia appliances, and are likely to be finalised in 2024.

As an interim measure before the finalisation of the five codes of practice and to support immediate applications of hydrogen blending into the domestic East Coast Gas Market, the federal National Gas Law (NGL) and National Energy Retail Law (NERL)Footnote ⁶⁵ have been amended to incorporate hydrogen. As the Australian Constitution makes no express reference to energy, responsibility for energy market regulation falls within the plenary legislative power of the states and territories. Exercising cooperative federalism, participating jurisdictions have adopted a ‘unitary regulatory system’Footnote ⁶⁶ whereby each state adopts national laws mirroring the South Australian energy legislation. The NGL and NERL previously regulated third-party access to pipeline services and other services of ‘natural gas processable gas’ only.Footnote ⁶⁷ Hydrogen did not fall under the definition of a naturally occurring gas and consequently the NGL and NERL are being amended pursuant to the recent passage of the Statutes Amendment (National Energy Laws) (Other Gases) Act 2023. Under the amendment, hydrogen is explicitly defined as a ‘relevant covered gas’ to enable low-level blends of hydrogen with gases within the domestic East Coast Gas network.Footnote ⁶⁸

As the discussion above illustrates, enthusiasm and strategies are not lacking to develop hydrogen sectors in Australia and New Zealand. However, robust national regulatory frameworks providing the foundation for hydrogen production, processing, and potential export are evidently at differing states of maturity. Australia has enacted the first federal changes to permit the regulation of gas pipelines blended with hydrogen in amending the NGL and NERL. Developing domestic hydrogen capacity and infrastructure early is crucial to reaching export and decarbonisation goals for industrial processes such as ammonia in New Zealand. From an export perspective, the entire hydrogen production lifecycle must be effectively regulated to provide commercial investment certainty and conformity with international hydrogen certification and greenhouse gas calculation methodologies.Footnote ⁶⁹ From a domestic perspective and to activate a hydrogen export sector, the planning, assessment, and licensing regime to rapidly scale up renewable hydrogen production is crucial, as explored below in Section 5.3.

5.3.1 Defining Pastoral Leases

Following colonisation by Britain, and to prevent unauthorised settlement, the majority of Australia’s rural arid and semi-arid lands were granted as a Crown statutory estate called pastoral leases. Pastoral leases as a tenure system became formalised by the landmark 1847 Order in Council and ‘established 14-year leases in the unsettled districts and gave lessees renewal and compensation rights’Footnote ⁷⁴ as a form of progressive land settlement requiring that land is held for ‘pastoral purposes’ only – traditionally sheep and cattle grazing. Pastoral leases are vast in Australia, currently constituting nearly half of Australia’s mainland (equating to 338 million hectares).Footnote ⁷⁵

Unlike traditional common law or equitable leases, pastoral leases are purely a creature of statute to permit Crown-owned land to be leased for commercial grazing, agricultural, horticultural, or other supplementary pastoral use. Pastoral lease terms vary greatly within Australian states and territories. For example, in NSW pastoral leases are perpetually equated to a right to possess the land for an indefinite period.Footnote ⁷⁶ In Queensland, the Northern Territory, and Western Australia pastoral leases are generally fixed-term agreements that expressly do not afford leaseholders a right to exclusive possession.Footnote ⁷⁷ Eighty-seven per cent of Western Australia consists of rangelands and 38 per cent of the rangelands are held under pastoral leases.Footnote ⁷⁸ Forty per cent of South Australia consists of land held under pastoral leases.

The high renewable energy potential, existing oil and gas infrastructure, and the need to access land to produce large-scale renewable hydrogen projects have led to Western Australia and South Australia either amending their pastoral lease regulation or creating new hydrogen licensing regulations to access pastoral land. Western Australia was the first Australian state to amend its pastoral leasehold regulation to accommodate renewable hydrogen siting, which will be discussed in more detail in Section 5.3.2.

5.3.2 Diversification Leases: The Western Australian Approach

Western Australia is the largest Australian state, covering 2.5 million km². One-third of the Western Australian state landmass is held under pastoral leases.Footnote ⁷⁹ Pastoralism became the central socio-economic land use in Western Australia from the late 1890s, attracting settlers in the rangelands to farm. From the 1920s onwards, pastoral leases became increasingly popular, with cattle and sheep stations becoming a key sector of the Western Australian economy. In particular, pastoral leases have become common in the Pilbara region, one of nine regions located in Western Australia, the geographical size of Spain, with large rangelands and considerable endowments of iron ore, lithium, gold, copper, nickel, and offshore petroleum.Footnote ⁸⁰

The Pilbara will become one of the most important hydrogen-producing regions in Australia. Its strategic geographical location close to Asian markets on Australia’s west coast coupled with existing mining and petroleum value chains and petroleum export infrastructure have created the ideal conditions for prospective hydrogen hubs. The five hydrogen production hubs planned in the Pilbara region to be connected by hydrogen pipelines are touted as strategic zoning areas ‘to provide common user infrastructure to support renewable hydrogen supply chain activity’,Footnote ⁸¹ with the potential to produce from 3 to over 10 million tonnes of hydrogen per annum by 2050.Footnote ⁸²

For example, the H2Kwinana Hydrogen Hub will host a 100 megawatt (MW) electrolyser to produce over 14,000 tonnes of green hydrogen per annum for industrial use, heavy transport, and export.Footnote ⁸³ The development of hydrogen hubs in the Pilbara sparked the need to consider reform to permit hydrogen production facilities on pastoral land. As pastoral leases are Crown-owned and restricted to pastoral activities,Footnote ⁸⁴ alternative land uses and planning approvals for hydrogen infrastructure were previously not permitted pursuant to the Land Administration Act 1997 (WA).Footnote ⁸⁵ To unlock the potential for hydrogen in Western Australia, pastoral leases need to host multi-purpose industrial land uses.Footnote ⁸⁶

The default statutory prohibition of any development activities other than pastoral for pastoral leases led to the first regulatory shift in Australia relating to hydrogen land use. While pastoralist landholders could previously apply for a diversification permit to undertake activities for non-pastoral purposes, such permits were only granted in limited circumstances and would not allow for the development of hydrogen and other renewable projects. The Crown could also acquireFootnote ⁸⁷ and terminate pastoral leasehold interests for ‘public works’ land uses,Footnote ⁸⁸ which holds a limited definition, including public infrastructure such as public schools and hospitals, and did not expressly include energy development. Consequently, a new non-exclusive land tenure type, the Diversification Lease, was proposed and enacted in the Land and Public Works Legislation Amendment Act 2023 (WA) (LPWLA Act).Footnote ⁸⁹

The LPWLA Act amends the Land Administration Act 1997 (WA) (LAA Act) and the Public Works Act 1902 (WA) to permit the grant of a new Diversification Lease ‘for any purpose or purposes’Footnote ⁹⁰ on unallocated Crown land or to enable existing and new pastoral leases to be transferred to diversification leases.Footnote ⁹¹ In adapting existing pastoral land regulation to enable non-pastoralist activities supporting a hydrogen sector, Western Australia has adopted an ‘adaptive’ approach by amending its existing pastoral lands regulation.Footnote ⁹² Adaptive management is often deployed in the context of natural resources regulation and aims to adapt legal frameworks to accommodate new technologies and monitor outcomes potentially requiring adaptive amendments to existing legislation.Footnote ⁹³

The adaptive approach permits Diversification Leases to be applied for in a streamlined approach prospectively and retrospectively on unallocated Crown land, new pastoral leases, and existing pastoral leases to permit hydrogen production and other activities, including carbon farming and renewable energy. A Diversification Lease will be awarded by the Minister for Lands and will be an optional tenure type available to both pastoral lessees and energy proponents without the conferral of exclusive possession.Footnote ⁹⁴ However, unlike pastoral leases, diversification leases are designed for diverse non-exclusive and concurrent land uses including, but not exclusive to, grazing livestock, horticulture, renewable hydrogen, and carbon farming.Footnote ⁹⁵

Diversification lessees must maintain the condition of the pastoral land and prevent land degradation.Footnote ⁹⁶ It remains unclear whether the diversification lessee must act in accordance with standards and guidelines that will be set under powers afforded to the statutory Pastoral Lands Board pursuant to Division 2A of the LPWLA Act.Footnote ⁹⁷ Such standards are applicable for pastoral leaseholders, setting out benchmarks and objectives about the condition of land held under pastoral leases.Footnote ⁹⁸ As leasehold rental payments will not be afforded to landholders but rather will be received by the Crown, an assessment regimen requiring environmental impact assessments to preserve pastoral activities following Pastoral Lands Board guidelines is crucial.

Diversification lessees must satisfy the relevant Minister, rather than the Pastoral Lease Board as the statutory authority for pastoral leases, that land under the lease will be treated ‘using methods of best environmental management practice appropriate to the area where the land is situated’.Footnote ⁹⁹ Environmental management practices are currently undefined. Guidance for diversification lessees should be issued, particularly in consideration for water licensing, given water requirements for electrolysis and enduring water scarcity in the Pilbara region.Footnote ¹⁰⁰

Diversifying pastoral leasehold land uses and conditions in Western Australia to permit renewable hydrogen development is crucial to support the development of hydrogen hubs. Pastoralists, rather than energy proponents alone, are permitted to apply for diversification leases to acquire additional income through new land use activities, such as carbon sequestration.Footnote ¹⁰¹ Carbon management and sequestration activities often operate on at least a twenty-five-year project lifecycle, hence the amendment to permit pastoral leases and accompanying diversification leases to a maximum of fifty years via re-grant or extension is another important development.Footnote ¹⁰² However, pastoralists must be adequately consulted and informed when considering the option to surrender pastoral leasehold lands in favour of a diversification lease. Arguably, the direct co-location of pastoralist activities alongside renewable energy production supporting renewable hydrogen, for example by way of agrivoltaics,Footnote ¹⁰³ appears a missed opportunity as a mixed agricultural and renewable energy activity and land use does not appear to be expressly included within the LPWLA Act.

An alternative regulatory approach to extending the permissibility of renewable hydrogen within existing pastoral regulatory frameworks is to create bespoke and specific renewable hydrogen development principles, assessments, and licensing procedures. South Australia has taken this approach in its recently enacted Hydrogen and Renewable Energy Act 2023 (SA) (HRE Act).

5.3.3 Hydrogen Generation Licences: The South Australian Approach

South Australia is the vanguard of renewable energy success in Australia. It has transitioned its energy system from 1 per cent to 68 per cent renewable energy in a fifteen-year period and is forecast to reach 90 per cent renewable energy by 2025.Footnote ¹⁰⁴ In 2022, South Australia became the first Australian state with 85.4 per cent of electricity demand being contributed by solar and wind.Footnote ¹⁰⁵ With such high variable-renewable energy penetration, South Australia has set its policy sights on becoming a ‘world-class renewable hydrogen supplier’.Footnote ¹⁰⁶ An initial hydrogen export feasibility study has projected South Australian renewable and blue hydrogenFootnote ¹⁰⁷ could satisfy 10 per cent of Rotterdam’s hydrogen demand in 2050, forecast to reach 18 million tonnes per annum by 2050.Footnote ¹⁰⁸ This policy aim seeks to be realised through South Australia’s Hydrogen Action Plan setting out twenty key actions across five areas to integrate hydrogen into its domestic energy system and scale up renewable hydrogen production for export.

Building on its success in regulating tight and shale gas as Australia’s leading onshore gas producer,Footnote ¹⁰⁹ action two of the South Australian Hydrogen Action Plan is to establish a ‘world class regulatory framework’Footnote ¹¹⁰ to build community and investor confidence as a key action. Similar to Western Australia, South Australia has also sought to amend its pastoral leasehold conditions to encourage renewable hydrogen development and ‘unlock land access to pastoral land’.Footnote ¹¹¹

For example, the Planning and Design Code (SA), a statutory instrument representing the policies, rules, and classifications for land use planning, previously restricted renewable energy facility land uses, in Rural Land Zones where land is used wholly or mainly for primary production, such as pastoral leases.Footnote ¹¹² Renewable energy facilities were defined to include solar, tidal, hydropower, biomass, and/or geothermal. However, hydrogen facilities were not recognised or defined under the Planning and Design Code (SA). This regulatory gap led the South Australian Productivity Commission in 2022 to recommend the Pastoral Land Management and Conservation Act 1989 (SA) (PLMC Act) be amended to enable renewable energy development and corresponding renewable hydrogen development on pastoral leases.Footnote ¹¹³

Wind farm developments were previously the only utility-scale renewable energy developments permissible on pastoral land under s 49J of the PLMC Act with ministerial approval in South Australia. The PLMC Act governs land use and permissible development on pastoral land. As a pastoral lessee holds limited property rights to undertake pastoral activities only, applications seeking to access or use pastoral lease land for non-pastoral purposes are to be assessed by the Pastoral Unit and Pastoral Board and require ministerial approval. Applications are assessed according to their potential impact on the ongoing viability of pastoral activities, and their alignment with the objects of the PLMC Act to ‘make provision for the management and conservation of pastoral land’.Footnote ¹¹⁴ Under the PLMC Act, all land uses apart from pastoralism and ancillary activities, mining, and wind farms are treated as ‘non-pastoral’ purposes or alternative land uses.

Despite advances in permitting wind farm development on pastoral land, other renewable energy activities were incompatible with pastoral activities under the PLMC Act. Thus, any application to develop pastoral land for renewable hydrogen production by co-locating would involve ‘excising the required land, changing the tenure and issuing of Crown licence(s) to facilitate land access and use’.Footnote ¹¹⁵ This clear regulatory gap for renewable hydrogen development creating investment uncertainty and the need to access pastoral land has led to the enactment of the first bespoke hydrogen regulatory framework in Australia – the HRE Act.

The HRE Act provides a streamlined land use approvals and licensing scheme for hydrogen and renewable energy projects on pastoral leasehold land, other Crown land tenures defined as ‘designated land’,Footnote ¹¹⁶ And some freehold land as ‘non-designated land’. The corresponding amendment of the PLMC Act upon the enactment of the HRE Act permits ‘renewable energy infrastructure and the undertaking of associated infrastructure activities’.Footnote ¹¹⁷ The HRE Act is underpinned by the proposed legislative objective to ‘establish an effective, efficient and flexible regulatory framework for the constructing, operating, maintaining and decommissioning of renewable energy infrastructure and facilities for generating hydrogen for commercial purposes’.Footnote ¹¹⁸ This objective represents a pivot away from a rules-based and adaptive approach to enact new regulation in the existing PLMC Act to a principle-based or goal-setting approach specifically for renewable hydrogen licensing to enable coexistence with other land uses in South Australia.Footnote ¹¹⁹

Principle-based regulation is outcome orientated and describes the method of achieving a regulatory outcome by setting a general objective, standard, or duty without specifying the means of achieving that outcome in absolute terms.Footnote ¹²⁰ Conversely, rule-based regulation places the proponent as an adversary, constantly testing and finding methods to check and reinterpret regulatory inconsistencies, requiring continuous amendments and updates to accommodate new legal issues. Principle-based regulation seeks to produce a regulatory system that is more effective and sustainable in the face of changing circumstances and complex technological developments in emerging sectors such as renewable hydrogen development.Footnote ¹²¹ By taking a principle-based approach in South Australia, the HRE Act will permit regulators to actively participate in managing renewable hydrogen to encourage co-location with other land uses and activities, such as pastoral lessees, by regulating and enforcing the conditions of production and hydrogen development. This approach functions to ensure the activities of renewable hydrogen titleholders are aligned with broad regulatory principles. Similarly, France has also taken a goal-setting approach to the regulation of hydrogen transport.Footnote ¹²²

The HRE Act provides the legal framework for Crown-owned land and waters, including pastoral leases to be identified and declared as suitable for the operation of renewable energy infrastructure and establish a competitive merit-based hydrogen generation licensing regime.Footnote ¹²³ Where the release area comprises pastoral land, ‘occurrence of the Minister responsible for the administration of the Pastoral Land Management and Conservation Act 1989 (SA) is also required’.Footnote ¹²⁴ Following the release of an HRE Act area, a competitive process for determining access to and use of pastoral land by the award of a hydrogen generation licence which authorises the construction, installation, operation, maintenance, and decommissioning of a hydrogen generation facility which must not exceed 5 km².Footnote ¹²⁵

In contrast to Western Australia’s diversification lease, the environmental assessment and requirements for hydrogen production licences are clear. An Environmental Impact Report and Statement of Environmental ObjectivesFootnote ¹²⁶ to assess and manage any adverse effects, the ‘risk of any significant long-term damage’Footnote ¹²⁷ on the environment ‘as far as reasonably practicable’,Footnote ¹²⁸ and ensuring rehabilitation of pastoral land will be required pursuant to the HRE Act. Finally, an operational management plan must be accepted and approved prior to the commencement of authorised operations.Footnote ¹²⁹

In comparison to the Western Australian approach, the HRE Act expressly requires an access agreement to be entered into with a pastoral lessee before undertaking authorised operations under a hydrogen generation licence. Mandating an access agreement under the HRE Act explicitly recognises and protects the incumbent and persevering property rights of pastoralists. The access agreement must include an agreement as to any compensation that may be payable for the resumption of pastoral land for the purpose of a hydrogen generation facility or by associated infrastructureFootnote ¹³⁰ and access conditions to the licence area or in the vicinity of the licence area.Footnote ¹³¹ A process to mediate the negotiation of an access agreement is also stipulated within s 41 of the HRE Act including powers for the Minister to facilitate and assist in obtaining a land access agreement or determination by the South Australian Environment, Resources and Development Court. The South Australian government is currently finalising the HRE Regulations,Footnote ¹³² which will include consultation requirements and criteria for the release area and licensing stages and the role of pastoralists and their interests during the negotiation of the land access agreement and throughout the hydrogen generation licence term.Footnote ¹³³

As illustrated in the above discussion, the HRE Act not only creates the first hydrogen-specific planning and licensing regulation in Australia but also elevates the rights of pastoral leaseholders by expressly requiring access agreements and potential compensation to be negotiated prior to the award of a hydrogen generation licence. This position fundamentally differs from Western Australia’s diversification lease which expressly recognises pastoral leases retaining non-exclusive possessory rights over pastoral land and is silent as to whether pastoral lessees may receive compensation or require an access agreement. It is also notable that South Australia has chosen to implement hydrogen licensing interests in comparison with Western Australia’s approach to diversification leasehold interests. Consequently, hydrogen licences in South Australia may lead to challenges regarding the transferability of hydrogen licences between entities. In establishing a competitive tender process, the HRE Act seeks to uphold ‘environmentally sustainable and safe’Footnote ¹³⁴ development of land use for hydrogen production by requiring an Environmental Impact Assessment including decommissioning and rehabilitation requirements.

Overall, the HRE Act, combined with its supplementary regulations currently in draft form, introduces a principle-based regulatory approach to the Australian hydrogen regulatory environment. It remains to be seen whether the HRE Act will enable an ‘effective, efficient and flexible regulatory framework’.Footnote ¹³⁵ However, its principle-based requirements coupled with mandating access agreements provide enhanced regulatory certainty for hydrogen proponents and pastoral lessees alike.