Australia's biggest industrial gas users pump out about 5% of the nation's greenhouse gas emissions. To have any chance of reaching emissions targets, Australia needs to reduce its heavy reliance on fossil gas. But to make this possible, supplies of green hydrogen – made with renewable energy – and biomethane are essential. On current trends, Australia will not have enough.
Despite allocating billions of dollars to support green hydrogen, policies do not seem to be working. The risk is that many large factories will either miss their emissions reduction targets by huge margins or shut down. To prevent this, the federal government needs to foster these crucial green gas industries.
What is the problem?
The use of gas in Australia has already peaked in all sectors. In a new report, the author and co-authors show that gas use for electricity generation has fallen 11% since 2014, gas use in manufacturing has been falling since the early 2000s, and LNG exports likely peaked in 2022. As Australia continues its transition towards a net zero energy system by 2050, all gas emissions will need to cease.
Industrial gas users burn gas as a fuel for high-heat processes, such as refining alumina or manufacturing, as well as using gas molecules to manufacture chemical products like ammonia. Food processors, beer brewers, and other industrial gas users who need less intense heat can avoid emissions by electrifying. As technology improves, a growing share of high-heat industrial users, such as mineral processors, will also be able to take this route. But a small and critical group of industrial gas users will not be able to easily reduce their gas use. For now, the very high-temperature heat they rely on still needs a burnable fuel, and chemical producers who use gas as a feedstock for its molecules need a renewable substitute.
What is green gas?
This is where renewable gases – green hydrogen and biomethane – come in. Green hydrogen is made by running zero-emissions electricity through water. It can replace gas for high-temperature heat or as a feedstock to make ammonia, which is needed for fertilisers and explosives. Biomethane is chemically the same as natural gas but made from waste, such as landfill, sewage, and agricultural waste. Because its carbon was only recently absorbed from the atmosphere by plants, it counts as near-zero emissions.
The government has set big targets for renewable gas production: 60 petajoules of green hydrogen and 10 petajoules of biomethane by 2030. But across Australia, as of 2025, only 0.1 petajoules of green hydrogen and 0.1 petajoules of biomethane are produced. To reach the targets, green hydrogen production would need to grow six hundredfold and biomethane one hundredfold in the next four years.
We are not on track
Other countries have rapidly grown their renewable gas industries from a small base. Italy had no biomethane industry in 2018. It now produces more than 28 petajoules a year. But Australia's policies do not seem to be working. Australia has allocated A$2.25 billion to help support green hydrogen production, but only two projects have been funded and neither are operational. Several other major projects have been cancelled.
Part of the problem is that the government has tried to skip too many steps. The government has poured money into large projects and offered ongoing revenue support before any large buyers exist. Biomethane has not received as much support, with only $60 million in grants for three projects. More funding has been announced, but it is still not proportionate to the level of ambition.
Support green gas producers
In the report, the authors set out steps the federal government could take to bring Australia's renewable gas policies up to speed. Australia needs to improve support for producers and give them certainty that they will have paying customers. For hydrogen, funding should begin by supporting existing users of hydrogen to switch to green hydrogen, because they already have the equipment and know-how to use hydrogen. Currently, funding is in the form of tax credits, which only benefit companies profitably selling hydrogen. Instead, support should be restructured to make up the difference between the cost of using green hydrogen and the cost of using carbon-heavy methods of production.
For biomethane, the government should assess whether the sector should be given strategic priority support as part of the Future Made in Australia scheme.
Drive up demand
Australia should introduce a national renewable gas obligation, under which large gas users would have to purchase certificates proving a portion of the gas they use is zero-emissions. This would drive up demand and prices, creating a revenue stream for renewable gas producers. New South Wales and Victoria already plan to implement renewable gas targets. Instead of state-based approaches, the federal government should introduce a national target and obligation.
In the short term, requiring big gas users to consume a collective 1 petajoule of biomethane would only cost about $15 million. It would be a small impost if spread across all large gas users, and it would be transformational for renewable gas producers.
There is not a moment to waste. If Australia is serious about both its emissions reduction targets and its manufacturing capacity, far more renewable gases are needed than the country is on track to produce. And they are needed very soon.
