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WELCOME TO OUR 17 MAY 2024 NEWSLETTER – SPECIAL BUDGET EDITION
FEDERAL BUDGET: FINALLY, A GOVERNMENT PIVOTING AUSTRALIA FROM PETROSTATE TO CLEANTECH LEADER
A PROMISING DOWNPAYMENT ON AUSTRALIA'S CLEANTECH FUTURE
The Federal Government announced $21.0bn of new funding initiatives under the Future Made in Australia Act strategic framework in Treasurer Jim Chalmers’ 2024-2025 Federal Budget last night. Adding to the ~$45bn of mostly capital support in the 2023 budget, this is another substantial downpayment on the $100bn of new capital and budget support needed this decade to drive investment in zero-emissions industries of the future for Australia.
Finally, after a devastating decade of climate and energy transition chaos, inaction and underinvestment under the LNP luddites, we appear to have a government that appreciates Australia’s comparative advantages – superabundant renewables, world-leading reserves of critical minerals and strategic metals, an advanced industrial base and strong human capital – key to locking in our economic prosperity.
And notwithstanding last week’s travesty of a "Gas Strategy" that inexplicably centres methane in our energy mix for decades and decades to come, we can see the burgeoning pivot from our dig-and-ship petrostate to a fit for purpose economy gearing up for the opportunities of a post carbon world. Fortunately, there was no sign of any new support in the budget for methane.
Unlike our trade partners, preeminently the US with the $1tn Inflation Reduction Act’s ‘green new deal' and South Korea’s US$313bn public financing of decarbonisation in March 2024, our government has taken a more careful, incremental approach to rolling out state investment in cleantech and renewables.
This is probably by virtue of political necessity given the fomenting of the climate wars and distraction and delay by the Federal opposition, which somewhat mutes the scale of what is being targeted. But now, in combination with the last Budget, we see real forward momentum.
Key initiatives in Budget 2024-25 include:
A new $7bn Critical Minerals value-adding Production Tax Credit
$3.2bn additional funding for ARENA technology commercialisation
A $6.7bn Hydrogen Production Tax Incentive and $1.3bn of additional Hydrogen Headstart funding (we presume this will be domestic use oriented e.g. for production of green iron – a huge opportunity for Australia as world #1 iron ore producer).
$209m into the Net Zero Economy Authority
$168m to prioritise approval decisions for renewable projects of national significance
$500m Battery Breakthrough Initiative
$179m in additional employment & skills supports for regions + $56m in Building Women's Careers program + $91m to accelerate the development of the clean energy workforce & expanding the New Energy Apprenticeship Program
$777m for strong First Nations workforce participation and development
The implementation of the Future Made in Australia Act (FMIA) will be guided by a framework comprising a 'net zero transformation' stream, where Australia has grounds to build enduring comparative advantage; and an 'economic security and resilience’ stream, which will identify sectors that are critical to our resilience and vulnerable to supply disruptions.
Five industries are highlighted as aligned with the National Interest Framework: Renewable hydrogen; Critical minerals processing; Green metals; Low carbon liquid fuels; Clean energy manufacturing, including battery and solar panel supply chains.
The Government will establish a ‘new front door for investors’ with major, transformational investment proposals related to Future Made in Australia to make it simpler to invest in Australia and attract more global and domestic capital. This is a strategically important initiative – collaboration with global technology leaders is going to be key to FMIA’s success.
The development of the production tax credit (PTC) model for critical minerals and green hydrogen to incentivise onshore value-adding is a strong step forward, a clear acknowledgement that Australia can’t simply leave it to 'free markets' when other countries have made such game-changing national interest investment interventions, scrapping the ‘free' trade handbook.
Some question the over-emphasis on renewable hydrogen in the Budget, but our read is this is capacity building for mostly domestic applications, including imported fossil fuel ammonia, development of sustainable aviation fuels (SAF) and most importantly, production of green iron for export, a key opportunity for Australia in future global trade.
This will also leverage Energy Minister Bowen’s 82% Renewables by 2030 initiative, boosted by the 32GW Capacity Investment Scheme which is driving the rollout of utility scale firmed renewables by underpinning and catalysing private investment, meaning Australia can power our new refineries and regional cleantech manufacturing precincts with renewables, so as to export ‘embodied decarbonisation’.
The world is in a technology, trade and finance decarbonisation race to the top as the global energy transition speeds up. This is Australia’s biggest investment, employment, and export opportunity in a century to reorient from a legacy coal and gas-exporter to renewables superpower.
We clearly needed this budget to respond strategically, proportionally and fast, which it has done.
The overall $9bn surplus announced demonstrates this government’s financial credentials and builds in a strong financial fiscal position for the second consecutive year, a marked contrast to the previous mob’s nine-year run of deficits. Now the Albanese government is also starting to show us the money, and invest in a sustainable economic future for Australia.
It shows a government that understands both this imperative to act to transition Australia to its future as clean, green and thriving and the opportunity cost and risks of not moving to secure Australia’s place in the new net zero world economy.
However, while the budget is pleasing, we would encourage the government to consider more ambitious capital support in future budgets to massively accelerate renewable energy and electrify everything; stimulate value-adding onshore of our world leading critical mineral and metals resources; and rebuild our manufacturing base so we can make things here. This will attract an influx of private capital to energy transition.
Over the last year we have seen the allocation of some $45bn of mostly capital support for decarbonisation and reindustrialisation: $15bn to the National Reconstruction Fund; $20bn Rewiring the Nation funding (into the CEFC); the $4bn Critical Minerals Fund; $1.9bn into Powering the Regions; $1bn into the Solar Sunshot; $2bn into the Hydrogen Headstart.
We applaud the extra $7bn funding into ARENA, including direct budget additions and into oversight of new policy programs, like the $500m Battery Breakthrough initiative.
We continue to call on the Government to give the Future Fund a $20bn equity mandate for mining value-adding, to underpin majority Australian equity ownership.
CEF will maintain its advocacy for more patient, strategic capital support, in terms of debt, private equity, common user infrastructure and equity to derisk and crowd-in the $200-400bn of private capital needed over the coming decade or so to turbocharge our domestic decarbonisation.
We note the reference to leveraging Export Finance Australia’s National Interest Account, expanded to include support for projects where domestic capability is critical to protect our national security interests, as energy security and national security are increasingly aligned in our shifting and dynamic geopolitical landscape.
$3.5bn in new energy bill relief for households in the form of a non-means tested $300 bill rebate will help offset a fraction of the fossil fuel sector induced hyperinflation that has driven bill shock in households and businesses across Australia. Businesses will receive a $325 deduction.
The value of this might well be in the indirect benefit of lowering reported inflation by 0.5% pa and the positive impact to lower interest rates, as Laura Tingle writes. The only permanent solution to high power prices, however, is firmed renewables.
On this point, and on the downside of this Budget, we particularly note the absence of any additional stimulus on ‘electrifying everything’, and only $28m of new funding to better integrate consumer energy resources into the grid. This is disappointing when household electrification and grid modernisation is key to cheap, clean, secure energy for all Australians and a cornerstone opportunity that should be aligned and commensurate with the industrial stimulus that is the key feature of this Budget.
We also note that the expensive imported high emissions diesel fuel subsidy is set to rise to an average of $11bn annually over the forward estimates. This is a massive headwind to domestic energy security, decarbonisation and electrification. As CEF has previously argued, after 60 years, it is past time for this to be capped at $50m pa per corporation (which will leave 100% of our farmers unaffected).
There is $32m over the forward estimates for carbon capture and storage (CCS) regional cooperation initiatives, but this looks like funding to build bilateral regulatory frameworks. If Japan or South Korea want to pay >US$100/t for Australia to take liquified CO2 and sequester it, CEF can live with that – bring on a substantial, regulated carbon price in our major trade partners. They won't pay for vapourware or years of serial underperformance like at the Gorgon CCS plant in WA, a debacle that has failed to date to meet every target.
And there is still no update on the decade-long wait for multinational corporate tax reform to level the playing field currently tilted against Australian firms doing the right thing for Australia.
The $14m to strengthen high-quality critical minerals benchmarks with trade partners is a small step in the right direction. CEF hopes this underpins the massive effort required by Foreign Minister Penny Wong to build an international Asian collaboration with global technology leaders and our key trade partners, including international trade price signals such as a ‘green premium’ for minerals processed using renewables, or the development of an Asian carbon border adjustment mechanism (CBAM) to leverage the EU CBAM.
Australia must play the energy transition long game, but we must front-load it this decade, as the climate crisis heats up and as every other advanced economy in the world commits unprecedented investment into decarbonisation, foregrounding national and energy security and shoring up sovereign supply chains.
We are hopeful that this emphatic entry of Australia into the global race is a harbinger of the government’s intention to seize its once in a century opportunity to remake Australia as a zero-emissions trade and investment leader, with potentially the biggest opportunity in the $100bn pa uplift of our world-leading iron ore exports into green iron.
The transformation this Budget starts to shape will reap massive economic, employment and climate benefits for all Australians into the future.
Climate Capital Forum Founder Blair Palese welcomed the new measures contained in the 2024-25 Budget but sounded a note of caution on the government's Future Gas Strategy, entirely at odds with the Budget's focus of greening the economy:
"We applaud Treasurer Chalmers' commitment to $7.1billion over 11 years from 2023–24 to support refining and processing of critical minerals, which are vital to securing our place in the renewable energy and battery supply chain. The Critical Minerals Production Tax Incentive is also key, but Forum members wonder why we should wait until 2027 to implement it when the time to kickstart the sector is right now.
"The big disappointment for Australia, though, is not in the budget but in the government's May announcement that it will continue to back polluting gas until 2050. No one is arguing that gas can be phased out immediately, but to truly plan for the size and scale of the transition we must make from fossil fuels domestically and through our exports, it's beyond time to pick a side. We can't have it both ways and the government needs to send a clear message that we want to lead in the global decarbonising market."
Some of our extensive previous commentary on the Future Made in Australia Act and state support for cleantech and renewables, including with Blair Palese of CCF: The Australian, Financial Review, Sky News, the Guardian, Renew Economy and ABC.
