Future Made in Australia: Federal Budget commitments to energy transition and critical minerals

The federal government has released further details of its foreshadowed Future Made in Australia Act (FMIA Act) in the 2024 Federal Budget (Budget). The FMIA Act will seek to bolster private sector investment into clean energy projects in Australia, establish Australia as a renewable energy superpower, and strengthen domestic manufacturing and innovation via a suite of investment commitments and policy decisions.

Key things to know

• The Budget allocates $22.7 billion over the next 10 years for FMIA Act initiatives, focusing on investments into renewable hydrogen, critical minerals processing, green metals, low carbon liquid fuels, batteries and solar manufacturing.
  
  
• The new National Interest Framework will assist the federal government by identifying priority industries and projects for investment under the following two streams:
  
  
  • Net Zero Transformation Stream: projects for which Australia’s renewable energy resources, natural resources and feedstock resources give it a comparative advantage (such as renewable hydrogen, green metals and low carbon liquid fuels); and
    
    
  • Economic Security and Resilience Stream: projects that are critical to Australia’s supply disruption resilience and require increased investment (such as critical minerals refining and processing and clean energy manufacturing).

• The federal government will strengthen and streamline approvals for projects that align with its FMIA Act agenda and for investors with a strong track record of compliance with Australian law (see our recent insight on FIRB reforms).

• A Critical Minerals Production Tax Incentive and Hydrogen Production Tax Incentive have been announced; the programs will provide incentives for investments into critical minerals and hydrogen production.

• Investments into renewable energy projects have simultaneously been accompanied by financial commitments to relevant education, training, and job transition initiatives.
  

Background to the FMIA Act

The FMIA Act comes off the back of a changing global economic landscape. Many countries have implemented policies to enhance economic security and national security, including through investing in domestic manufacturing capabilities and incentivising investment in energy transition. Examples include the United States’ Inflation Reduction Act, China’s Made in China 2025 policy and the European Union’s European Economic Security Strategy. The FMIA Act is the federal government’s response to these changes.

The ultimate ambition of the FIMA Act is to simultaneously maximise the economic and industrial benefits of the international move towards net zero and to secure Australia’s place in a changing global economic landscape by:

• leveraging Australia’s abundant natural resources including metal resources and renewable energy;
  
  
• diversifying supply chains; and
  
  
• simplifying the regulatory red tape for investors seeking to invest in areas that align with the FIMA Act agenda.

Key investments and policy decisions

While the FMIA Act is yet to be formalised in a draft bill, the Budget outlines a series of substantive policy and funding commitments. Key commitments included in the FMIA initiatives are:

Renewable hydrogen

• A Hydrogen Production Tax Incentive to support the growth of a competitive hydrogen industry. Limited details have been released on how the incentive will work, who is expected to qualify and the eligibility requirements. It is expected to cost $6.7 billion over the next decade and will provide a $2/kg incentive to producers for renewable hydrogen produced between 2027 to 2041, for up to ten years per project.
  
  
• The expansion of the Hydrogen Headstart Program. This is intended to provide financial support for large-scale renewable hydrogen projects with an initial allocation of $2 billion. An additional $1.3 billion over the 10 years from 2024 to 2034, will be allocated through Hydrogen Headstart Round 2 (you can register your interest for Round 2 here).
  
  
• $11.4 million over four years to fast track the initial phase of the Guarantee of Origin Scheme for green hydrogen. This is aimed at providing a mechanism to track and verify emissions content associated with green hydrogen production.
  
  
• $17.1 million to deliver the 2024 National Hydrogen Strategy, yet to be released following consultation, but includes infrastructure planning and industry safety training and regulation.

Critical minerals

• A Critical Minerals Production Tax Incentive estimated to cost $7 billion over the next decade, providing a production incentive valued at 10% of relevant processing and refining costs for Australia’s 31 critical minerals. This incentive applies for up to 10 years for projects producing between 2027 to 2041, provided that the projects reach their final investment decisions by 2030. Limited details have been released on how the incentive will work, who is expected to qualify and the eligibility requirements.
  
  
• A commitment of up to $1.2 billion to the Critical Minerals Facility and the Northern Australia Infrastructure Facility to provide financial support to priority critical minerals projects.
  
  
• $10.2 million to establish the Critical Minerals National Productivity Initiative, which will work with states and territories to undertake pre-feasibility studies for critical mineral common-user processing facilities.
  
  
• $566.1 million to support Geoscience Australia to map all of Australia's critical minerals, strategic materials, groundwater and other resources essential for the transition to net zero.

Green metals, low carbon liquid fuels and other innovative technology

• A new $1.7 billion Future Made in Australia Innovation Fund, which will finance the deployment of innovative technologies and facilities linked directly to priority industries, including green metals and low carbon liquid fuels.
  
  
• $15.4 million for other activities targeted at supporting the development of green metals manufacturing, including undertaking consultation, to position Australia as a world-leader in green steel, aluminium, alumina and processed iron industries.
  
  
• $20.9 million over four years to undertake further consultation on incentives to support the demand for, and production of, low carbon liquid fuels and the development of a Guarantee of Origin Scheme for the certification of low carbon liquid fuels.

Solar manufacturing and Batteries

• $1 billion allocated for the Solar Sunshot Program aimed at supporting manufacturing across the solar PV supply chain. It is anticipated that production-linked payments will be the primary form of financial support. However, the design of the program is open for consultation until 31 May 2024 and, depending on market feedback, other forms of support (including capital grant funding) may complement production-linked incentives.
  
  
• $2 million towards a techno-economic feasibility study for developing a green polysilicon industry in Australia.
  
  
• $523.2 million allocated over seven years for the Battery Breakthrough Initiative to extract more value from our natural resources, grow Australia’s battery manufacturing capabilities, and diversify supply chains. Like the Solar Sunshot Program, this program is expected to be delivered through production-linked incentives.
  
  
• $20.3 million for the Powering Australia Industry Growth Centre and the Future Battery Industries Cooperative Research Centre to enhance industry and research collaboration, including workforce training for battery research, manufacturing, transport and recycling.

Development of renewable generation and storage

• $134.2 million to better prioritise approvals for renewable energy projects of national significance, and support faster decisions on environment, cultural heritage and planning approvals.
  
  
• Working with the states and territories through the Energy and Climate Change Ministerial Council to accelerate electricity grid connections, which has delivered an additional 3.2 gigawatts of capacity so far.
  
  
• $20.7 million to improve engagement with communities impacted by the energy transition and accelerate the delivery of key energy projects, through a bolstered Australian Energy Infrastructure Commissioner and voluntary national developer standards.

ARENA

• A 10-year extension of funding to ARENA confirming its continued central role in accelerating Australia’s energy transition and supporting innovation, development and commercialisation of renewable energy technologies.
  
  
• $7.1 billion to be administered by ARENA, which includes funding for the Solar Sunshot Program, Battery Breakthrough Initiative, Hydrogen Headstart Round 2, and the Future Made in Australia Innovation Fund mentioned above, as well as $1.9 billion of baseline funding.

Education, Training and Jobs Transition

• $88.8 million for 20,000 new training places relevant to construction.
  
  
• $91 million over the next five years to accelerate the development of the clean energy workforce through expanded access to the New Energy Apprenticeship Program and investments in VET clean energy courses.
  
  
• $10 million to establish a National Hydrogen Technology Skills Training Centre, in partnership with the Victorian Government, to support the skilled workforce needs of the growing domestic hydrogen industry.
  
  $178.6 million in worker transition support, including the Energy Industry Jobs Plan and place‑based Regional Workforce Transition Plans.

Steps towards addressing connections and approvals delays

Connection delays and lengthy and ambiguous environment and planning approval processes have been key impediments to building out renewables at the pace required to meet federal, state and territory emissions reductions and renewable energy targets. The impacts to date on developers of renewable generation and storage projects have been material. The budget commitments demonstrates that policy makers are starting to understand the gravity of the challenges being faced by the sector. Whether the commitments are sufficient to address these impediments in any material way remains to be seen as the details of the various initiatives are developed and the practical implications are better understood. 

A result of the commitments is likely to be additional funds being applied to better resource the Department of Climate Change, Energy, the Environment and Water and to support discussions with state based decision makers around options to streamline planning approvals for transformational energy transition projects. This is a development that will be welcomed by developers and investors and should boost confidence and investment in Australian renewable energy projects. Again, the proof will be in the pudding and developers will continue to be frustrated unless the initiatives go a long way towards allocating a critical industry type status to renewable energy generation and storage projects that prioritise efficient granting of approvals for those projects.

The Budget also made the following funding commitments as part of a wider package of funding commitments for Aboriginal and Torres Strait Islander Communities:

• $20.2 million over four years to the Federal Court of Australia and the National Native Title Tribunal to preserve culturally and historically significant native title records and address the backlog of native title claims and post-determination disputes.

• $0.5 million over two years to the Australian Law Reform Commission to review future acts regime within the Native Title Act.

This should have a number of benefits and will hopefully improve current timeframes for the resolution of native title claims, which presently often take many years to resolve and can present project approval and delivery timeframe risk, as well as create significant uncertainty for local communities.

Welcome support for developing a low carbon liquid fuel industry

Liquid fuels account for approximately 45% of Australia’s total energy use. To date, the low carbon liquid fuels industry in Australia hasn’t received the same level of government attention and support as other industries at the forefront of emissions reduction.

The Budget commitments to developing incentives to support the production and uptake of low carbon liquid fuels as an initial step. However, the commitments do not yet provide the same level of support and commitment that other jurisdictions have provided, including the US, EU and Singapore.

Key takeaways for those in energy transition

The Budget reaffirms the federal government’s commitment to the energy transition, including the role of private investment alongside government support, and its ambitions for Australia to be a renewable energy superpower.

The Budget has been welcomed by key industry players, particularly those with an interest in hydrogen and critical minerals. However, many of the initiatives are in their early stages of development. The details remain subject to further design, consultation and development and their effectiveness at achieving the stated objectives will hinge on these details, including how such initiatives will interact with state-based programs.

For further insight of the Budget more generally, see our insight 2024-25 Federal Budget Tax Measures.