Hydrogen is touted as a growth industry in the energy sector, largely due its ability to store energy from renewable sources. But opinions differ on whether the technology should be developed to exclusively store renewable energy or coal-fired generation as well, potentially using carbon capture and storage.

"The government is backing that in through project investment to promote our outstanding potential as a hydrogen supplier to the world," federal Energy and Emissions Reduction Minister Angus Taylor said.

In a win for Mr Taylor, he managed to secure the support of Friday's Council of Australian Governments energy council to develop a hydrogen industry under a "technology-neutral" approach that included all power source options.

Proponents of renewable energy raised concerns that using hydrogen to store fossil fuel-generated energy could support the coal sector and prolong the operations of the nation's ageing fleet of coal-fired power stations.

ACT Energy Minister Shane Rattenbury argued before the meeting that Australia faced a "fork in the road" that could set the direction of hydrogen as either a forward-looking renewables industry, or a mechanism to "prop up" coal.

"It's disappointing that other jurisdictions did not support the ACT's proposal to amend the National Hydrogen Strategy to focus on green, renewable hydrogen," Mr Rattenbury said.

"Green hydrogen produced from renewable electricity, like wind and solar, is the way of the future. Green hydrogen will be in demand as countries seek zero-emissions energy solutions and I will continue to advocate for green hydrogen and an end to fossil-fuel extraction and use in Australia."

Funding will be injected into hydrogen development through the Clean Energy Finance Corporation, a Commonwealth funding body that invests with private companies to develop emissions-reducing technology.

The CEFC will commit $300 million and the Australian Renewable Energy Agency (ARENA) will invest $70 million to bankroll "electrolyser" projects, which can convert electricity to hydrogen and allow energy to be stored and transported. Hydrogen produces water as a waste product when converted to electricity.

The ability to store renewable energy and use it later at times when conditions for renewables are unfavourable, such as when it is not windy or sunny, has long been considered the missing link in the global energy transition away from carbon-intensive fossil fuels.

But unlike batteries, hydrogen energy storage could also provide the opportunity to set up a new export market for Australia that could replace fossil fuel exports and help other nations decarbonise.

ARENA chief executive Darren Millner said Australia was in a prime position to become a "major exporter" of hydrogen. He said the funding would help "kickstart" a domestic hydrogen industry by driving down the cost of producing renewable hydrogen at scale.

"The hydrogen sector is still in its infancy and while key technologies like electrolysers are available, there are few large-scale systems deployed and they are still expensive," he said.

"There is a need to develop local skills, supply chains and delivery capabilities of large scale renewable hydrogen projects."

The CSIRO has said the development of a hydrogen export industry could be a "game changer".

Victorian Energy Minister Lily D'Ambrosio said there was "a lot of potential" to build a major hydrogen export industry, and the new national strategy would be an important driver.

"Hydrogen will create opportunities for new jobs, lower prices and emissions reductions in the industry, transport and energy sectors - making it a no-brainer for further exploration," she said.

The CEFC may require rule changes to allow it to invest in carbon capture and storage projects, if it selects coal fired projects for development.