Australian Government Unveils Tax Incentives for Hydrogen and Critical Minerals

A drone picture shows a residential rooftop solar unit on a house in Canberra, Australia, on March 3, 2023. AAP Image/Lukas Coch

The Albanese Labor government has introduced a new bill to incentivise hydrogen and critical minerals development in Australia.

The Future Made in Australia (Production Tax Credit and Other Measures) Bill includes a Hydrogen Production Tax Incentive worth $2 for every kilogram of hydrogen produced between 2027–28 and 2039–40, applicable for up to 10 years per project.

The second initiative is the Critical Minerals Production Tax Incentive, which provides a 10 percent rebate on the processing and refining costs for Australia’s 31 critical minerals during the same period.

“These incentives aim to attract private investment into projects that support decarbonisation and contribute to essential renewable energy technologies such as wind turbines, solar panels, and electric vehicles,” said a Nov. 25 combined statement from Treasurer Jim Chalmer, as well as Ministers Chris Bowen (energy), Madeleine King (resources), and Tim Ayres (assistant minister for a Future Made in Australia).

Recipients of the incentives must also adhere to six “Community Benefit Principles” outlined in the legislation, with specific requirements to be determined following public consultation.

The original Bill was introduced in August and is aimed at kick-starting Australia’s advanced manufacturing sector, including green energy, independent of Chinese supply chains.

The Future Made in Australia Bill is modelled on the U.S. Biden administration’s Inflation Reduction Act.

Stakeholders Call for Clarity in Eligibility Criteria

During hearings conducted by the Senate Economic Legislation Committee in August this year, stakeholders broadly supported the Bill’s framework but raised concerns about strict eligibility criteria.

Stakeholders also sought greater policy certainty to encourage private investment and robust safeguards to ensure taxpayer funds are used judiciously.

“The eligibility criteria and design of FMA policies must not be so restrictive as to limit support for projects that otherwise meet the policy objectives,” said Bran Black, CEO of the Business Council.

Louise McGrath, head of Industry Development and Policy at the Australian Industry Group, echoed these concerns, calling for clearer guidelines.

Opposition Warns of Inflation Risks

The federal opposition will oppose the Bill, citing concerns over the potential misuse of taxpayer funds.

“This is basically a plan for Labor ministers to run around the country pork-barrelling,” said Liberal MP Michael Sukkar.

He also questioned the role of government in making sound investment decisions, saying it should instead, be focused on providing affordable energy and cutting regulation to spur private sector growth.

Alex Hawke, another Liberal MP, argued that the Bill’s additional spending could exacerbate inflation.

“In an inflationary crisis, this extra government spending will add to inflation pressures and burden taxpayers through increased debt and financing costs,” he warned.