The environment watchdog is calling for the country to take stock of its whole energy set-up before charging down a path to green hydrogen.
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Cheerleaders for turning renewable electricity into hydrogen have been gathering, and partnering-up with iwi, eyeing the cheap power the Southland aluminium smelter gets, including Australian mining major Fortescue which will send its hydrogen boss to visit New Zealand next week.
The government has already invested more than $60m in projects testing hydrogen viability but emphasises large-scale projects would be by private industry ventures for whom it stacked up.
Parliamentary Commissioner for the Environment Simon Upton warned in an eight-page letter to mnisters this week, against being premature and ad hoc.
"The government should be particularly cautious about subsidising the creation of a green hydrogen production industry," he said.
"Diverting this supply of renewable electricity from consumers to produce green hydrogen would maintain upward pressure on consumer electricity prices over the foreseeable future at the very time the government will be asking consumers to make the shift to using low-carbon electricity in households and in transport," he told ministers of Energy Megan Woods, of Climate Change James Shaw, and of Finance Grant Robertson.
Upton is calling for a whole energy system analysis first.
Woods' office said she would meet Upton to discuss the issues raised.
"Our government sees real potential for hydrogen in our energy system and for decarbonising parts of our economy, whether that is for intensive and long-haul transport, or for process heat in the iron and steel sectors, where it is currently difficult to meaningfully reduce emissions," Woods said in a statement.
But Upton said hydrogen would demand storage terminals and distribution, and changes to the transport fleet, and divert resources from other pathways towards meeting international climate commitments, which all needed taking into account.
His letter is a shot across the bows of an industry that has its share of enthusiasts and sceptics, like other energy alternatives such as biofuels, which is replete with pros and cons.
Countries were competing over emerging investment in hydrogen, and Upton warned some, such as Brazil, Norway, Canada, Sweden, Peru and Finland had lower electricity prices than here, and it was questionable if the power that Manapouri currently supplied cheaply to Tiwai Point smelter, could compete with, say, cheap offshore windfarms dedicated to hydrogen operations.
Another spanner in the spokes is that the smelter may not now close as expected in 2024, so the power may not be available after all.
The smelter takes 13 percent of national electricity consumption or enough to power 680,000 homes. Fed into the national grid, instead, it could lower wholesale prices by $20 a megawatt hour for a decade.
Decarbonising the car fleet - which contributes almost a quarter of emissions - was the top priority, and electrification already offered a path to that, he wrote.
Woods said it recognised New Zealand's role might depend on relative electricity prices against possible competitor countries such as Australia.
The government is developing relations with countries with interest in hydrogen, like South Korea and Germany, and part of a hydrogen initiative of the Clean Energy Ministerial, as well as signing a hydrogen memorandum of cooperation with Japan, an arrangement on cooperation low carbon hydrogen with Singapore and undertaking an APEC project on low carbon hydrogen standards.
The national energy strategy that gets underway in May, would follow up on work such as a 2019 report A Vision for Hydrogen in New Zealand, she said.
But Upton said that report presupposed green hydrogen was a good idea for this country, when that had not been analysed yet.
Australia's Fortescue Future Industries said green hydrogen was "an area where New Zealand can play a global leadership role".
Its director of Australia East and New Zealand, Felicity Underhill, due to visit next week, said all industries would benefit if extra renewable power generation was developed to supply the new energy source.
It would "help decarbonise New Zealand, in particular hard-to-abate sectors" and "help improve energy independence and reduce reliance on imported high emissions fossil fuels such as diesel", Underhill said in a statement.
Fortescue is on a shortlist of four to partner with power companies Meridian and Contact on the world's first large-scale green hydrogen plant in Southland.