The 2024 Federal Budget contained a range of measures designed to facilitate growth in those sectors of the Australian economy most leveraged to the global trend towards decarbonisation.
The Hydrogen Headstart Program: A Key Initiative
Perhaps the highest profile initiative was the commitment of $2 bn to create a new Hydrogen Headstart program, which will provide revenue support for investment in renewable hydrogen projects through competitive production contracts: a clever use of “demand pull” strategies to support nascent industries.
Financial Support for the Critical Minerals Sector
There has been considerable commentary about what appears at first glance to be limited financial support in the Budget for the critical minerals sector. This includes battery metals (such as nickel, lithium, graphite and cobalt) and other metals (and their derivatives) such as rare earth elements, high purity alumina and silicon.
Comparisons have been made to the massive financial stimulus provided by the US Government to decarbonisation initiatives in that country under the Inflation Reduction Act 2021 (IRA). The Biden Administration has committed to over US$369 bn in direct subsidies and financial support for the production of electric vehicles, renewable energy technologies, and the critical minerals sector in that country.
Australia is, of course, much smaller than the US. Taking total support under the IRA as a percentage of GDP and translating that to Australia, a proportionate commitment would be worth about A$40 bn to the local industry. This compares to relatively modest announced Budget commitments (in addition to the $2bn Hydrogen Fund) such as $23.4m to extend the operation of the Critical Minerals Office (which includes enhanced data analytics capacity to track foreign investment patterns and compliance in the critical minerals sector) and $57.1m to the Critical Minerals International Partnerships Program.
However, the US economy is not only considerably larger than Australia: it is also more complex, and benefits from greater vertical integration, an installed manufacturing and infrastructure base and population density in key production and technology hubs across the country. It also benefits from relatively plentiful and cheap energy. This means the US is better positioned to capitalise on opportunities for downstream processing of critical minerals than Australia.
A Vision for Australia as a "Green Energy Superpower"
As the Grattan Institute noted in its February 2023 submission to the Commonwealth Government’s Critical Minerals Strategy Review, entitled 'Critical Minerals: Delivering Australia’s Opportunity', while Australia can be a 21st-century “green energy superpower”:
"Achieving this vision will require the concurrent, coordinated mobilisation of effort: clear policy development, supportive government agencies, cooperative partnerships with industry, international linkages via revitalised trade and co-operation agreements, and consideration of how we avoid early mover disadvantage."
The authors caution policy setters against moving too far downstream, suggesting that the Government should support downstream minerals processing and manufacturing “only as far as we create and maintain a competitive advantage”.
"An abundance of raw materials does not necessarily translate into an advantage as a manufacturer. A comprehensive value chain economic assessment is essential."
Given the unique complexity (and relative immaturity) of the global supply chains which underline the raft of new decarbonisation technologies and products that are emerging, this seems inarguable.
Sustainable support for critical mineral extraction and processing
A substantially larger fiscal commitment by the Government to the critical minerals sector, in line with the IRA, would inevitably drive the Government towards a “picking winners” approach, with all the risks this inevitably entails (risks which, as a matter of history, the US Government has always been more willing to take – with the inevitable implications of a burgeoning lobbying industry in Washington).
This leaves the question of how Australia can provide support for critical mineral extraction and processing which is productive, sustainable and fiscally responsible.
In our view, Australia will inevitably need to rely heavily on “friendshoring” in the downstream processing of critical minerals: in this context, the Government’s support for the Critical Minerals International Partnerships Program seems particularly smart. Getting taxation, skilled immigration and regulatory settings (including environmental, occupational health and safety and Aboriginal heritage protection) right, will be essential.
It must also be remembered that there are already several Commonwealth programmes that can be accessed to support critical minerals developments (see our earlier article here 'Government Support for the Critical Minerals Sector').
The proposed $15 billion National Reconstruction Fund, once up and running, will also be available to support the private sector in priority areas which include value-add in resources and defence capability (noting the vital role of many critical minerals in the defence industry).