Federal Government supercharges the transition to net zero

In brief

As Australia transitions to net zero, the 2024-25 Australia federal budget handed down on 14 May 2024 contains significant initiatives relating to renewable energy, hydrogen, critical minerals, green metals, low carbon liquid fuels and clean energy technology, with the AUD 22.7 billion “Future Made in Australia” package as a centrepiece. Through new or additional incentives and other funding, the Australian Government aims to attract investment in key industries for the energy transition and make Australia “a renewable energy superpower” as well as add value to the resources sector, particularly critical minerals, and strengthen economic resilience and security.

---

Key takeaways

Key energy transition-related initiatives announced in the 2024-25 Australia federal budget include the AUD 22.7 billion Future Made in Australia package with AUD 19.7 billion dedicated to priority industries that include those relating to green hydrogen, green metals, low carbon liquid fuels, critical minerals, batteries and solar. This package includes the new Hydrogen Production Tax Incentive and a second round of the Hydrogen Headstart Program, which together support the development of green hydrogen, and the new Critical Minerals Production Tax Incentive.

Participants in the targeted sectors should pay close attention to the new or additional incentives and other funding announced. Please let us know if you would like further information.

In depth

Renewable energy

The Government’s flagship Budget item was the AUD 22.7 billion Future Made in Australia package designed to supercharge Australia’s clean energy transition. A significant AUD 19.7 billion of this package will be dedicated to accelerating investment in ‘priority’ industries, including green hydrogen, green metals, low carbon liquid fuels, refining and processing of critical minerals, and manufacturing of clean energy technologies including in solar and battery supply chains. Key items include:

• Future Made in Australia Innovation Fund: The AUD 1.7 billion fund will be managed by the Australian Renewable Energy Agency (ARENA) and will focus on innovation, commercialisation, pilot and demonstration projects and early stage development in priority sectors, including green hydrogen, green metals, low carbon liquid fuels and clean energy technology manufacturing such as batteries. In furthering its focus on net zero innovation, the Government announced a separate funding package of AUD 1.9 billion to ARENA to support core investments. This baseline funding includes assistance with the development, demonstration, commercialisation, manufacture and deployment of renewable energy technologies, and is in addition to extensions to ARENA’s funding for 10 years under its administration of the Future Made in Australia Innovation Fund.
• Expanding the green metals industry: AUD 18.1 million has been allocated over six years for initiatives to expedite the emergence of Australia’s green metals industry. This forms part of a clear budget focus on the growth of the green metals industry at every stage of the supply chain. Funding will support industry and research collaboration, exploration of opportunities to improve the use of Australian scrap metal, and undertaking of further consultation on incentives to support the production of green iron, steel, alumina and aluminium.
• Guarantee of Origin Scheme: Australia’s green metals (including green iron, steel and aluminium) and green hydrogen industries will be bolstered with AUD 11.4 million allocated over four years to fast track the initial phase of the Guarantee of Origin Scheme (GO Scheme). It is not yet clear when the GO Scheme will be finalised.
• Clean energy technology: AUD 1.5 billion to support the manufacturing of clean energy technologies. This includes AUD 1 billion to establish the previously-announced Solar Sunshot program, as well as over AUD 500 million for the Battery Breakthrough Initiative to support battery manufacturing in Australia.
• Low carbon liquid fuels: AUD 20.9 million over four years to consult on incentives to support production of, and demand for, low carbon liquid fuels and a certification scheme through the GO Scheme.
• Prioritising renewable energy project approvals: The Government will provide AUD 134.2 million to strengthen and accelerate approval processes for renewable energy projects of ‘national significance’. This includes AUD 19.9 million to process assessments for priority renewable energy projects identified through a nationally agreed list, as well as AUD 96.6 million to accelerate environmental approvals including for renewable energy, transmission and critical minerals projects, and to deliver additional regional plans and improve environmental data used in decision-making. While the Government has not yet released the criteria for projects of ‘national significance’, the Treasury released a Future Made in Australia National Interest Framework alongside the Budget, which sets out some general expectations for the priority markets, which will likely be further fleshed out in the Future Made in Australia Act.

Hydrogen

One of the most significant agenda items in this year’s Budget was the Government’s bold new vision for the Australian hydrogen industry. The Government announced an estimated AUD 8 billion over the next decade (and an average of AUD 1.2 billion per year from 2034–35 to 2040–41) to support new measures to support hydrogen production, technology development and skills. Key items included:

• Hydrogen Production Tax Incentive: This incentive forms part of the Future Made in Australia Package and is intended to support in decarbonisation, the growth of a competitive hydrogen industry and the acceleration of Australia’s pipeline of hydrogen projects. The mechanism will pay AUD 2 per kilogram of green hydrogen produced over a ten year period to producers of green hydrogen, starting from 2027-28, costing an estimated AUD 6.7 billion over the medium term. The legislative framework is not expected to be released for some time, however hydrogen producers should note that projects will need to be in production and making revenue in order to be eligible for the scheme. This incentive brings Australia more into line with global hydrogen powerhouses, though remains less than half of the value of the hydrogen production tax credit under the US Inflation Reduction Act, which offers up to USD 3 (~AUD 4.50) per kilogram depending on resulting lifecycle greenhouse gas emissions.
• Hydrogen Headstart Program: In the lead up to the Hydrogen Production Tax Incentive, early movers will be benefited by a second round of the Hydrogen Headstart Program. The program will allocate AUD 1.3 billion over 10 years from 2024–25 (and an average of AUD 151.6 million per year from 2034–35 to 2038–39) and seeks to bridge the green premium for early-mover green hydrogen projects.

Additional measures outlined above, such as the GO Scheme and the Future Made in Australia Innovation Fund, will also assist in the development of Australia’s hydrogen industry, supporting technology, production and jobs at each stage of the process.

Consumer relief

Consumer-focussed energy market reforms were a mainstay of this Budget, including AUD 3.5 billion energy bill relief package, under which all Australian households will receive AUD 300 and eligible small businesses will receive AUD 325 as a rebate on their electricity bills. This is in addition to a commitment of AUD 27.7 million over four years, (with AUD 0.7 million per year ongoing) to develop consumer renewable energy resources, AUD 16.6 million to the Australian Energy Regulator to sustain regulatory activities and assist households, and AUD 1.8 million dollars to the Department of Climate Change, Energy, the Environment and Water, to support customers engaging in energy retail contracts.  

Mining

The focus for the mining industry in this year’s Budget was in the transition to net zero, with the Federal Government providing significant incentives aimed at bolstering Australia’s processing and refining of critical minerals in a push to become a renewal energy superpower and to boost economic resilience and security. Key items include:

• Critical Minerals Production Tax Incentive: A new taxation program costing an estimated AUD 7 billion over 11 years (and an average of AUD 1.5 billion per annum from 2034-35 to 2040-41) was unveiled, under which a production incentive will be provided as a 10% refundable tax offset for the eligible costs of processing and refining critical minerals in Australia. This measure is similar to existing measures in place in the US and Europe and recognises the significant role that the mining industry plays in Australia’s economy, contributing over half of all company tax collected form large corporations last year.
• Funding Priority Critical Minerals Projects: An allocation of AUD 1.2 billion has been committed to strategic critical minerals projects through the Critical Minerals Facility and the Northern Australia Infrastructure Facility, and in pre-feasibility studies for common user precincts.
• Critical Minerals Mapping: The Government also announced AUD 556.1 million over 10 years to progressively map Australia’s potential for critical minerals, alternative energy, groundwater and other resources, providing scientific information to guide future investment and assisting in our understanding of the resources essential in the transition to net zero.
• Strengthening Critical Minerals Exports: The Government also announced the formation of a national Renewable Energy Supply Chain Action Plan in combination with the states and territories and an additional AUD 14.3 million in collaborating with trade partners to reduce unfair trade practices and increase benchmarks for trade in high quality critical minerals.

Attracting foreign investment

In line with recent measures to encourage foreign capital flow and streamline processes for capital investment (see our recent alert), the Budget saw two significant measures to attract foreign investors:

• ‘Single front door’: The Government will allocate AUD 54.7 million over the next two years to administer, coordinate and promote foreign capital flows under the Future Made in Australia agenda, which will include the development of legislation that establishes the National Interest Framework discussed above. This funding will also contribute to a consultation on the development of a ‘single front door’ for major, transformational investment proposals. The ‘single front door’ aims to attract more global and domestic capital by making it simpler for significant investors to invest in Australia. It will provide a single point of contract for investors and companies with major investment proposals, identify priority projects related to the Future Made in Australia agenda, and support accelerated and coordinated approvals. It is expected that Treasury will undertake a consultation on the ‘single front door’ imminently.
• Refunds to FIRB applications and other measures: The Treasury has received funding of AUD 15.7 million to strengthen Australia’s foreign investment framework by committing to effective monitoring, enforcement of conditions and timely review of foreign investment applications. This includes refunding 75% of fees for foreign investment applications that do not proceed where applicants are unsuccessful in a competitive bid process.

This alert was prepared with the assistance of Nicholas Langsworth.