Australia's 2026-27 budget halves spending for key renewable hydrogen program

Australia reprioritized funding support for clean energy in the 2026-27 (July-June) budget May 12, halving the spend for its flagship renewable hydrogen subsidy in a year wracked by energy shocks and cost of living increases with inflation rising to 4.6% in April, from 3.7% in March.

The budget reduced funding for Round 2 of Hydrogen Headstart to A$1 billion ($722 million) and also reduced uncommitted funding under the Battery Breakthrough Initiative and Solar Sunshot programs to fund other plans, according to Treasurer Jim Chalmers.

"Against a backdrop of global uncertainty, this budget invests in Australia's resilience, economic sovereignty and national security," Chalmers said in his speech that did not mention 'climate.'

He said the core of the budget focused, among other things, on "getting through the global oil shock and building resilience" and "taking the pressure off people."

In 2026–27, Australia will provide funding of A$1.5 billion in National Partnership payments to support state environment, energy and water projects, the budget document showed.

The budget includes a mix of continued support and selective reprioritization for the energy transition, according to Logan Reese, director and lead, OECD – Asia Power and Renewables at S&P Global Energy.

S&P Global Energy's Hydrogen Production Assets data shows Australia has around 159 renewable or low-carbon hydrogen projects, with a combined projected capacity of around 15.71 million mt/year.

Long-term energy security supported

While the Iran war shifted one of the key areas of the budget to conventional fuel security, Australia's long-term energy security strategy of electrifying the economy through renewable generation gets support from ongoing budget measures, according to Reese.

"Key measures include an expansion of the Capacity Investment Scheme, continued support for the Home Battery Scheme, a permanent tax benefit for Electric Vehicles and ongoing funding towards energy market reform to integrate distributed energy resources," Reese said.

"Australia's hydrogen strategy is increasingly focused on targeted support and demand creation rather than rapid deployment. The reduction in the Hydrogen Headstart Round 2 funding will result in greater selectivity."

Australia launched the second round of Hydrogen Headstart in October 2025. The first round concluded with A$1.2 billion awarded to Orica's 50 MW Hunter Valley Hydrogen Hub and Copenhagen Infrastructure Partners' 1,500 MW Murchison Green Hydrogen Project.

Within the reprioritization, up to A$1 billion has been earmarked for decarbonizing domestic metals production, Reese said. A 20% domestic gas reservation mechanism will help stabilize gas supply and firming electricity supply to enable the uptake of additional variable generation.

Greater climate push called for

The budget ignores opportunities to expand clean energy solutions that shield Australians from global fossil fuel crisis, with short-term handouts that would keep the dependence on fossil fuels from volatile regions, Climate Council said in a statement.

"Australia already has 4 million plus homes with solar power and 45% of our electricity is coming from renewables. But as the sunniest country in the world and one of the windiest, we can go further and faster," said Climate Council CEO Amanda McKenzie.

In the run-up to the budget, Australia announced it will phase in changes to fringe benefits tax exemptions for electric vehicles from April 2027, capping the full discount at A$75,000 ($48,000) to encourage more affordable models, the government said this month.

Also, the Australian Hydrogen Council welcomed the government's A$10 billion ($7.25 billion) Australian Fuel Security and Resilience package, calling it an important step toward strengthening energy sovereignty and broadening support beyond conventional energy sources.

Australia's greenhouse gas emissions are expected to decline from 501.07 million metric tons of CO2 equivalent in 2025 to 471.85 million mt CO2e in 2030 (including carbon capture, utilization and storage) under a base-case scenario, data from S&P Global Energy shows.