The BGA Australia Team, led by Managing Director Michael “Mick” McNeill, wrote an update to clients on Australia’s climate and energy debate ahead of the next election.

Context

  • Ahead of an election that will be held before May 2025, the Labor government of Australian Prime Minister Anthony Albanese is drawing the battlelines on energy and climate policy in response to the opposition’s support for nuclear power. In a speech to the National Press Club July 17, Climate Change and Energy Minister Chris Bowen was adamant that the government’s policies were the correct course as the government seeks to meet its ambitious renewable energy and emissions-reduction targets. He will travel to China to represent Australia at the eighth Ministerial on Climate Action (MOCA), taking place July 22-23.
  • The government introduced on July 3 the Future Made in Australia Bill — its signature legislation to attract investment in key industries associated with the global transition to net-zero emissions. Officials are consulting on tax incentives for hydrogen production and creating a new “front door” for investors with major investment proposals. Bowen acknowledged that “to get from around 30 percent renewable energy when [Labor] came to office to 82 percent by 2030 is a big task.”

Significance

  • A Senate Committee is due to report on the Future Made in Australia Bill by September 5. The legislation aims to coordinate a whole-of-government package of new and existing initiatives to drive investment in areas such as rare earths mining and processing, hydrogen and solar energy production. The government’s preference is for a private sector-led surge of investment, facilitated by government investment when required.
  • The bill also establishes Community Benefit Principles to make sure benefits flow to communities, workers and businesses around Australia. It establishes a National Interest Framework to better align economic incentives with Australia’s national interests by identifying priority sectors and informing public investment decision making. The framework consists of two streams:
    • The net-zero transformation stream: considerations for prospective public investment and government support include analysis of the sector’s ability to contribute to rapid emission reductions economy-wide and alignment with Australia’s international trading partners’ current or future needs.
    • The economic resilience and security stream: considerations for prospective public investment and government support may include whether the sector’s role in stressed and concentrated supply chains and ability to enhance resilience to supply chain disruptions.

Implications

  • The government is consulting on production tax incentives for critical minerals and hydrogen, announced in the May 14 budget:
    • AUD 7 billion ($4.7 billion) over 11 years starting 2023–24, plus an average of AUD 1.5 billion ($1 billion) per year from 2034–35 to 2040–41 to introduce a Critical Minerals Production Tax Incentive — a refundable tax offset of 10 percent for the costs of processing the 31 critical minerals currently listed in Australia.
    • AUD 6.7 billion ($4.5 billion) over 10 years starting 2024–25, plus an average of AUD 1.1 billion ($73.7 million) per year from 2034–35 to 2040–41 to introduce a Hydrogen Production Tax Incentive. The incentive will provide an AUD 2 ($1.33) incentive per kilogram of renewable hydrogen produced for up to 10 years — between July 1, 2027, and June 30, 2040 — for projects that reach final investment decisions by 2030.
  • Australian Hydrogen Council Chief Executive Fiona Simon noted that the United States was offering a more attractive production tax credit than Australia. With credits valued up to $3 per kilogram (kg) for qualifying projects under the Inflation Reduction Act, the Made in Australia and transit cost benefits via geographic proximity (collectively around $1.63/kg) would require Australian hydrogen projects to establish significantly lower production costs to U.S. volumes to outcompete U.S. exports in Asia.

We will continue to keep you updated on developments in Australia as they occur. If you have any comments or questions, please contact BGA Australia Managing Director Michael “Mick” McNeill at mmcneill@bowergroupasia.com or BGA Energy, Climate and Resources Senior Director Bradford Simmons at bsimmons@bowergroupasia.com.

Best regards,

BGA Australia Team