Business groups such as ours, alongside investors, unions and climate campaigners, have been calling out for a big push on clean economy investment.
So what should we make of the 2024-25 budget and have those calls been answered?
The government’s Future Made in Australia policy includes a strategic framework to set priorities; $22.7bn of spending, mostly via long-term subsidies to get initial production going; and facilitation policies to lift roadblocks.
The framework is meant to provide discipline. Support will be limited to sectors that are either important to net zero where Australia can build enduring competitive advantage; or that are critical to economic security and resilience. That is sensible, though actually applying it takes a lot of rigour.
Three initial priorities get big dollars this budget.
Renewable hydrogen has many potential uses, though it won’t be the best solution for everything, and a simple swap of exports from coal is unlikely. Currently very expensive, green hydrogen should get cheaper with deployment, and Australia should be one of the best places to make it at large scale.
Critical minerals processing. A long list of minerals – most obviously lithium and rare earths – are essential to key energy transition technologies like batteries. Opportunity is huge – demand will grow dramatically, Australia has huge resources, and there are nerves about concentration of processing in China. But like other resources, critical minerals will all be cyclical rollercoasters.
A production tax credit of 10% of processing and refining costs is intended to narrow cost gaps. This may be enough to get some significant projects over the line – though it’ll be a different story for each mineral.
Clean energy manufacturing – the components that make a net zero economy work. The government has prioritised the solar supply chain on economic security grounds, with $1bn in production credits; and segments of the battery supply chain ($523m in similar credits).
Does this make sense? Global battery demand is surging, but manufacturing capacity has surged far faster. We may well find profitable niches but will need to be astute. Meanwhile solar manufacturing has chewed up and spat out many global contenders. This is not a simple story.
Two more priorities get money for studies and consultation to inform future budget decisions on further production incentives:
Green metals. Alumina, aluminium, iron and steel will remain vital to a net zero world and need to be made cleanly using clean energy, green hydrogen and other technologies. Early clean production will be substantially more expensive than conventional product but Australia could have a very large global role as demand grows. This is potentially the biggest clean economy opportunity, but we will need very cheap power and strong international partnerships to make it happen.
Low carbon liquid fuels. Decarbonising aviation is very hard, and the best bet for long-haul flights looks like “sustainable aviation fuel”, most likely made from waste biomass and energy crops. While other transport applications are possible, SAF could easily soak up whatever spare biomass Australia can throw at it.
Dollars are eye-catching but facilitation is vital. Most of the Future Made policy depends on deploying vast amounts of renewable energy and transmission at competitive cost. Slow, unpredictable approvals (as in the US) threaten that. Australia’s national environmental approvals reforms remain unsettled (in part over fights about accelerating good projects versus blocking bad ones), but a welcome $183m will improve consultation and speed up assessments under the existing process. Money for skills will help too, and so will improvements in foreign investment review and a strong skilled migration program.
Overall the Future Made in Australia policy has decent priorities, a strong analytical basis and enough money to move the needle. What matters now is quality of implementation, maintenance of discipline in future decisions, and readiness to adjust course in light of successes and failures.
Finally, this budget was almost silent on energy upgrades to help households and business save costs, cut emissions and shore up the grid. The pressure to address this in future budgets will surely grow as short-term bill relief payments end.
Tennant Reed is director of climate change and energy at the Australian Industry Group
