Australia is playing catch-up in a world where subsidies have become the industrial policy of choice for governments to achieve ambitious decarbonisation goals.

In the latest budget, the Albanese government committed billions of dollars to support critical minerals exports, and nurture climate-tech leaders; but what does this means for investors?

What was the catalyst for this protectionist trend?

While the trillion-dollar US IRA plan is an obvious high-water mark in the flood of subsidies, it's part of a broader trend towards ‘deglobalisation’ which has been on the march for years.

It could be seen in the Brexit vote, in Trump’s posture on China while in office, and of course the closing of borders was forced on us by Covid lockdowns and the Ukraine war.

Now in 2024, this trend has seen most major economies making the pragmatic decision to protect their own interests (election prospects of Ministers included).

In the May budget the Albanese government launched the Future Made In Australia policy. He did it with gusto, positioning it as a key strategic achievement for his government.

“Government needs to be more strategic, more sophisticated and a more constructive contributor. We need sharper elbows when it comes to marking out our national interest.” Albanese said.

The policy was reactive, coming in response to protectionism from trading partners, but it was also carefully targeted, to play on both Australia’s strengths as a commodities exporter, and to contribute to our emissions targets.

So what’s the policy?

To help me answer that question I spoke to one of Australia’s leading researchers on the topic, Tim Buckley. He runs a think-tank called Climate Energy Finance, a not-for-profit research house focussed on global financial issues related to the global energy transition.

(Listen to the podcast here)

Tim describes it as a bold initiative, aiming to advance Australia beyond being a dig-and-ship economy, to capture more of the value from our mineral endowments.

“We're the only one playing by the old rules of free market”

Tim broke the strategy down into the following three categories:

Critical minerals & Hydrogen tax credits:

• $7bn Critical Minerals value-adding Production Tax Credit (PTC)
  • Supporting downstream refining of critical minerals including: lithium, cobalt, nickel & rare earths
• $6.7bn Hydrogen Production Tax Credit
  • Plus; $1.3bn for Hydrogen Headstart

Climate-Tech Industry Support

• $3.2bn to the Australian Renewable Energy Agency (ARENA)
  • Which complements the additional $20.5bn capital lending capacity allocated to the CEFC, last year
  • Including $19bn for the Rewiring the Nation program, and household energy upgrades
• $1bn to Solar SunShot
  • Accelerating the development of Australia’s solar manufacturing industry
• $500m to the Battery Breakthrough Initiative
• $466m to PsiQuantum

Building Capacity for Public Institutions

• $209m funding for the Net Zero Economy Authority
• $168m to prioritise approval decisions for renewable projects of national significance
• $14m to work with trade partners to strengthen high-quality critical minerals benchmarks
• $179m in additional employment & skills supports for regions
• $777m for strong First Nations workforce participation & development
• $17.3 million will expand Australia's sustainable finance taxonomy and create a labeling regime for sustainable products: to go to ASFI

It represents a transformative new industrial policy, made all the more dramatic by the lost-decade that came before where a conservative government refused to recognise both the risks of climate change, and the potential of being a leader in the clean energy future.

What does it all mean for investors?

Government support is a tailwind for a range of clean energy and climate-tech sectors. But it’s through a deep understanding of industry structures, and creative support models, that the biggest opportunities are emerging.

If we consider that Australia is on-track to have the lowest cost energy in the world by 2030, the question then becomes… how do we export it?

As Tim Buckley says, “We should be a world renewable energy superpower, but how do we get that to China, Japan and Korea? It's got to be embodied in something. It's not going to be in green ammonia, and it's not going to be by subsea cable, in my view. Instead, it'll be embodied in aluminium, it'll be embodied in polysilicon, or it'll be embodied in green iron.”

Green iron is a powerful example here, and represent a major policy shift that seeks to capture more of the value in the production cycle of raw commodities.

“Green iron is not labor intensive, but it's very much energy intensive. There’s a major opportunity in using our zero emissions firmed renewables in the Pilbara and in Waiala and Port Piri and then up in Gladstone, to export green iron.” Tim Buckley says.

“We could potentially double the value of our iron ore exports to $250 billion a year. It's the single biggest export uplift in Australian history. And it is all about helping Japan, China and Korea decarbonize their steel industry.”

This latest round of government support includes $3.2bn to the Australian Renewable Energy Agency (ARENA), which followed on from an additional $20.5bn of capital lending capacity allocated to the CEFC, last year.

ARENA is now well positioned to work with the Net Zero Economic Authority. And at the big end of town, the National Reconstruction Fund with $15 million of capital, can focus on re -industrializing Australia. Alongside the CEFC which has fresh capital to continue its solid track record of capital allocation.

This is a solid foundation of capital that is designed to ‘de-risk’ private capital and create a vibrant climate investment ecosystem.

I work with investors and their portfolio companies to build trust, drive inflows and create positive impact.
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​John Treadgold