Hydrogen, critical minerals win budget jackpot with $15bn cash splash

Major miners and investors have toasted the cash splash for hydrogen production and critical minerals processing, with hopes it will unlock $50bn in spending for the sector.

The budget included a $15bn cash splash for hydrogen production and critical minerals processing. Picture: BHP

Major miners and investors have toasted a $15bn cash splash for hydrogen production and critical minerals processing, a major stimulus push the Albanese government hopes will unlock $50bn in private spending to further turbocharge the sector.

Both packages will be delivered through a production tax credit, refunding companies that enter production a portion of their operating costs.

Anthony Albanese is banking on the heavy spending triggering $50bn in private capital investment into the Australian renewable hydrogen industry by 2030.

Andrew Forrest’s Wyloo Metals said the budget showed the significance of the critical minerals sector in Australia becoming a clean energy superpower. “Australia has an opportunity to build on the advantages of our significant mineral resources and move further along the supply chain to become a key player in the global electric vehicle battery industry,” Wyloo chief executive Luca Giacovazzi said.

“Measures like the tax incentive will support Australia’s global competitiveness, shore up local supply chains and build a generational opportunity for our mining industry to expand as part of the energy transition.”

Fortescue executive Mr Forrest personally welcomed the Federal Government’s commitment to green hydrogen in the budget, predicting it could drive a “massive employment boom” in the sector.

He said the $2 per kilo tax credit for green hydrogen would help drive a green hydrogen, green ammonia and green iron industry which would “create economic opportunities of historical scale”.

“Fortescue believes that commercial production of green iron in Australia is now possible and must be pursued,” he said.

He said the Albanese Government had a “one-shot-in-the-barrel opportunity to ensure Australia fulfilled its potential to become the Saudi Arabia of energy production”.

“Through the $2 per kilo tax credit for green hydrogen production, the Government has seized this opportunity for the Australian people.

Mr Forrest has long been a supporter of encouraging the development of a green hydrogen sector in Australia, urging the Federal Government to take action to follow the green energy incentives in the Biden Administration’s Inflation Reduction Act.

West Australian conglomerate Wesfarmers, a major player in the lithium sector, said the “targeted initiatives” would encourage investment and improve Australia’s competitiveness.

“This is smart, targeted use of the tax system to solve big problems, leverage our competitive advantages and enhance Australia’s prosperity. There’s still more to do to enable the transition, including the adoption of carbon capture and storage,” Wesfarmers managing director Rob Scott said on Tuesday.

Rod Sims, the former competition regulator, said the approach had merit as it built on Australia’s comparative advantage, referencing its low-cost solar and wind resources, ability to make hydrogen and plentiful supply of low-cost biomass needed for sustainable carbon.

“As the framework recognises, many other countries, particularly in northeast Asia and Europe, do not have sufficient even moderate-cost solar and wind resources to meet their own electricity needs. It follows that they will need to import many goods with the green energy intensity embedded in them to meet their climate targets,” said Mr Sims, chair of the Superpower Institute.

“Australia’s advantages relative to the rest of the world are such that we can materially improve the prospects of achieving the world’s climate objectives.”

Wesfarmers, a major player in the lithium sector, said the ‘targeted initiatives’ would encourage investment and improve Australia’s competitiveness.

The Investor Group on Climate Change said the government’s budget announcements had “the ingredients” to keep Australia’s economy competitive in the global race to capitalise on new clean industry growth.

“Investors look forward to working with governments to ensure Australia undertakes a fair, fast and well-planned net zero transition to harness our world class people, and solar, wind and mining resources to deliver our economy’s full potential,” IGCC chief executive Rebecca Mikula-Wright said.

Labor also used the federal budget to offer domestic battery manufactures $550m in funding as part of its ambitious plan to revive manufacturing and capture an expected global surge in demand for green energy components.

The federal Labor government has set out an aggressive plan to rapidly reshape its economy by weaning it off its fossil fuel dependency and using the cheap, abundant energy to igniting domestic manufacturing.

The funding comes as Labor broadens its vision for Australia’s role in the global energy transition. It had initially planned to bolster mining and processing of critical minerals – which are widely coveted for batteries – but it has in recent months expanded its vision amid a grand ambition to revive domestic manufacturing, which has in recent years waned amid the rise of China, a plan it calls the Future Made in Australia policy.

Prime Minister Anthony Albanese in March said his government would provide $1bn to establish solar panel manufacturing in Australia. That will now be supplemented by $549m in funding over seven years to bolster manufacturing of batteries.

The majority of the funds, some $523.2m will issued through the Australian Renewable Energy Agency, to promote the development of battery manufacturing capabilities through production incentives targeted at the highest value opportunities in the supply chain.

China enjoys cost advantages over Australia through low-cost labour, but the government insists Australia can play a role in high-end manufacturing, particularly in industries where it enjoys the advantage of controlling large swathes of critical mineral deposits. The government has said its energy policy, which calls for a rapid deployment of renewable energy, will also lower manufacturers’ costs, aiding competitiveness against Chinese rivals.

But economists have largely dismissed the notion, insisting the funding could create an industry dependent on subsidies to remain competitive. Labor has dismissed that suggestion, and insists plenty of industries have been spurred by similar short-term funding.

Labor also highlights the sovereign risk benefits of creating industries that are expected to be in hot demand in the coming years.

China controls solar panel manufacturing, stoking concern in the West that Beijing could use its supply chain dominance to exert undue influence.

Originally published as Hydrogen, critical minerals win budget jackpot with $15bn cash splash