Australia’s enviable geological endowment and reputation as a reliable supplier positions it to play a pivotal in delivering the commodities the world needs as it moves towards a clean energy future. Recognising the potential of this once-in-a-generation opportunity to improve the lives of all Australians, particularly those in regional and remote communities, the Federal Government has taken steps to develop and refine its policy approach to the critical minerals sector through the publication in June of its “Critical Minerals Strategy 2023 - 2030” (Strategy).
The Strategy provides for six focus areas which will underlie the Government’s priorities and future budget decisions: communities, industry, investors, the research and innovation sector, states and territories and international partnerships.
- The Federal Government is seeking to take advantage of increasing global demand for so-called “critical minerals” by positioning Australia as a renewable energy superpower.
- The Strategy has at its heart a vision that by 2030, Australia will have grown the geostrategic and economic benefits of its critical minerals sector, becoming a globally significant producer of both raw and processed critical minerals.
- Mining remains a key component of the Strategy, but the Government is seeking to capture a greater proportion of the downstream value chain by developing a sovereign capacity in critical minerals processing.
- The Government will continue to update and refine the list of “critical minerals”, and is widely expected to include key electrification metals such as copper and nickel.
- Australia and the US have committed to assist each other in achieving their clean energy ambitions through a joint alliance, known as the Compact.
Financial support: Critical Minerals and Sustainable Development
The Strategy notes that the world’s demand for minerals necessary for development of clean energy technologies is forecast to double or even, on some scenarios, quadruple by 2040 and more mining is required to meet this demand. Decarbonisation is a metal-intensive process, which augurs well for a jurisdiction like Australia, which possesses both a substantial mineral endowment, and a stable fiscal and regulatory regime to enable its responsible and sustainable exploitation.
Sensible, targeted government support provides the potential to further catalyse the development of critical minerals projects, with the associated benefits for stakeholders both domestically and abroad. The Government has attracted criticism from the private sector for the lack of more substantial financial support for the critical minerals sector in the Strategy, particularly for downstream processing in Australia, which faces a number of competitive disadvantages including higher wage and energy costs. Critics point to the United States Inflation Reduction Act, which creates significant financial incentives for domestic manufacturers in that country to pivot towards domestic suppliers of critical mineral inputs, as an example of the kind of measures Australia should aspire to.
However, what this criticism overlooks is that Australia lacks the financial firepower or manufacturing strength of the US, and there are already a number of potential pockets of financial support which critical mineral project proponents can access. These include the Northern Australian Infrastructure Facility (a $7 billion concessional finance facility for projects in Northern Australia), the $2 billion Critical Minerals Facility administered by the Export Finance Agency, and opportunities through the Australian Renewable Energy Agency (ARENA) and Clean Energy Finance Corporation (CEFC). As one of the first policy decisions under the Strategy, the Federal Government has specifically earmarked $500 million of NAIF funding for new investment into critical minerals projects.
ESG in the critical minerals sector
The Strategy has a strong environmental, social and governance (ESG) overlay. This includes alignment with the Federal Government’s commitments to tackle climate change, seek out opportunities for economic empowerment of First Nations peoples, boosting women's economic equality, and strengthening international trade partnerships.
While ESG considerations may be seen as adding risk to critical mineral projects, in a world where such considerations are increasingly influential in determining the flow of global capital and investment (a trend likely to continue with the introduction of the ISSB’s mandatory standards for the disclosure of sustainability-related financial information), they represent an area of competitive advantage for Australia and Australian mining companies.
International critical minerals opportunities
May 2023 saw the Prime Minister Anthony Albanese and US President Joe Biden signed the Climate, Critical Minerals and Clean Energy Transformation Compact (Compact) – a landmark joint formal statement of strategic intent to establish climate, clean energy and a shared energy industrial base as the third pillar of the Australia-US Alliance. The commercial rationale underpinning the Compact is clear: Australia – the ‘windiest and sunniest inhabited continent on the planet’, the world’s top lithium supplier, and the home of formidable reserves of critical minerals– is the ideal supplier of the critical minerals crucial to meeting the US’s energy ambitions.
The Compact goes part of the way towards restoring Australia’s global reputation as a lead partner to the US in the global race towards rapid global decarbonisation. Although it is a win for Australian companies seeking to benefit from the pathway towards global decarbonisation, it is at best a framework for future discussions between Australia and the US on climate and energy related policies. The US National Security Council and the Australian Department of Industry, Science and Resources will meet to put together a concrete plan of action for achieving the core objectives of the Compact by the end of 2023.
Advancing Australia's critical minerals strategy
At the Federal and international level, Australia has continued to make steady progress over 2023 in the development of its approach to the critical minerals sector.
However, as Minister for Resources and Northern Australia Madeleine King has noted in relation to the Strategy, “While the potential is great, so too are the challenges”. While Australia’s natural minerals endowment provides a foot in the door, “we must do more to create Australian jobs and capitalise on this unique opportunity”. Only time will tell whether these policy developments will actually position Australia to capitalise on this “unmissable opportunity” for Australia’s economic development.