MirageC/GettyAustralia’s biggest industrial gas users pump out about 5% of our greenhouse gas emissions. To have any chance of reaching our emissions targets, Australia need to reduce its heavy reliance on fossil gas. But to make this possible, we need to produce supplies of green hydrogen – made with renewable energy – and biomethane. On current trends, we won’t have enough.Despite allocating billions of dollars to support green hydrogen, Australia’s policies don’t seem to be working. The risk is 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’s the problem?The use of gas in Australia has already peaked in all sectors. In our new report, my co-authors and I show:the use of gas for electricity generation has fallen 11% since 2014gas use in manufacturing has been falling since the early 2000sLNG exports also likely peaked in 2022.As Australia continues its transition towards a “net zero” energy system by 2050, all of its 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 the 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 the 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 we only make 0.1 petajoules of green hydrogen and 0.1 petajoules of biomethane.To reach the targets, green hydrogen production would need to grow six hundredfold and biomethane one hundredfold in the next four years. We’re not on trackOther 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 don’t 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 producersIn our report, we set out the 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 the know-how to use hydrogen. Currently the 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 demandAustralia should introduce a national renewable gas “obligation”, under which large gas users would have to purchase certificates proving a portion of the gas they were using was 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 it were spread across all large gas users, and it would be transformational for renewable gas producers. There’s not a moment to waste. If we’re serious about both our emissions reduction targets and our manufacturing capacity, we need far more renewable gases than Australia is on track to produce. And we need them very soon.Ben Jefferson is an employee of Grattan Institute.