Energy Transition

Budget Resources

Stephen McMaugh

An energy transition is underway in the Australian economy, consistent with global trends. As outlined in the June 2022 Parliamentary Library briefing book paper ‘Electricity sector: continuing modernisation’, major trends include the expected retirement of coal-fired electricity generation, its replacement with variable renewable energy, and increasing electricity demand from electrification. Reflecting this transition, the Treasurer has said, ‘Australia’s biggest opportunity for growth and prosperity is the global shift to clean energy’ (p. 8). In addition, the government has progressed its plan for reducing Australia’s greenhouse gas emissions, including via the legislated climate targets and Safeguard Mechanism reforms.

The 2023–24 Budget provides funding for measures that will broadly support further emissions reduction in the electricity grid, households and industry (Budget measures: budget paper no. 2: 2023–24) and build on the government’s approach in the October 2022–23 Budget. Major new measures discussed below include a ‘Capacity investment scheme, ‘Hydrogen headstart, ‘Household energy upgrades and establishing a ‘National net‑zero authority. The government has also finalised the design of its ‘Powering the Regions Fund’ measure, provided for in the October 2022–23 Budget (Budget measures: budget paper no. 2: October 2022–23, p. 71).

Capacity Investment Scheme

The 2023–24 Budget ‘Capacity investment scheme’ measure is intended ‘to underwrite new investment in clean energy, accelerating the development of cheap, clean renewable generation and storage and ensuring the smooth transformation of Australia’s energy market’ (Budget paper no. 2, p. 66).

As modelled in the Australia Energy Market Operator’s (AEMO) 2022 Integrated System Plan Step Change scenario, 46 gigawatts (GW) of dispatchable storage will be required by 2050 to firm the electricity supply from renewable generators (p. 10). The urgency of ensuring the availability of firm capacity in the National Electricity Market has been brought into sharp focus, with Minister Bowen recently confirming further delays to the Snowy 2.0 pumped hydro energy storage project and other recently reported issues with its environmental management. AEMO has also recently acknowledged in its Draft 2023 transmission expansion options report that estimated lead times for planning and building transmission should be extended by several years (p. 33), reinforcing the case for a range of storage and firming mechanisms to be developed in the system.

The full cost of the measure is not for publication due to the auction process by which projects will be selected for funding. The Treasurer has stated that the scheme will unlock ‘over $10 billion of investment in firmed-up renewable energy projects up and down our east coast’ (p. 9). Modest administrative funding has been provided to fund the development of the auction process, including:

  • $6.4 million in 2023–24 for the Department of Climate Change, Energy, the Environment and Water (DCCEEW) to design the auction process in late 2023 to operate in SA and Victoria, and continue work on a national rollout of the scheme
  • $9.9 million over 5 years from 2022–23 (and $0.4 million per year to 2041–42) for the AEMO to deliver auctions in SA and Victoria and undertake contract management activities for selected projects.

Few other details are available on how the scheme will operate. However, the Energy Ministers agreed in December 2022 to support a capacity investment scheme with design elements including revenue underwriting, open tenders and an agreed revenue floor and ceiling. The cost of this measure will be partially met from savings identified in the DCCEEW reprioritisation measure (Budget paper no. 2, pp. 67–68).

Hydrogen Headstart

This measure continues the history of support for the hydrogen industry in Australia by providing a further $2.0 billion to be delivered through the Australian Renewable Energy Agency and DCCEEW (Budget paper no. 2, p. 71). The Clean Energy Finance Corporation (CEFC) also expects to assist with additional finance for eligible projects.

Full details of the program have not been provided; however, the government has previously announced that the program is intended to ‘bridge the commercial gap for early projects and put Australia on course for up to a gigawatt of electrolyser capacity by 2030 through two to three flagship projects’.

The measure allocates $156.1 million over 4 years to 2026–27, with the first significant tranche of administered funds of $150 million to be provided in 2026–27 (Portfolio budget statements 2023–24: budget related paper no. 1.3: Climate Change, Energy, the Environment and Water Portfolio, p. 26). Funding for the program will be held in the Contingency Reserve.

The measure includes $5.6 million in 2023–24 to analyse implications of ‘intensifying global competition for clean energy industry’, and $2.0 million over 2 years from 2024–25 to support Aboriginal and Torres Strait Islander community engagement with hydrogen planning processes and project proponents.

Industry stakeholders welcomed the funding as a ‘great start’, with the Australian Hydrogen Council’s chief executive reportedly stating it was ’exactly the signal the market needed’. The Australian Petroleum Production & Exploration Association CEO also welcomed the funding, saying ‘Low-carbon hydrogen has a critical role to play in reaching net zero, in particular in hard-to-abate industries and manufacturing’.

The Clean Energy Council CEO said the funding is ‘a substantial downpayment on Australia’s response to the United States Inflation Reduction Act, ensuring Australia remains in the race to become a global clean energy superpower’, with Independent MP Dr Sophie Scamps (Mackellar) noting ‘the $2bn investment was “a drop in the ocean” compared with the US actions’.

Guarantee of Origin

The ‘Guarantee of Origin’ measure complements the Hydrogen Headstart program and provides $38.2 million over 4 years from 2023–24 (with $6.5m per year ongoing) to establish a voluntary Guarantee of Origin scheme (Budget paper no. 2, p. 70). This scheme is intended to provide credible certification of emissions associated with products, including hydrogen and a mechanism to certify renewable energy beyond the end of the Renewable Energy Target in 2030. The DCCEEW has been consulting on the design of the scheme, and a number of organisations are participating in early trials. An indicative timeline for establishing the scheme shows that legislation is expected in 2023 before the scheme commences in 2024 (p. 22). The cost of this measure will be partially recovered from certification fees and partially provided by redirecting funding from the Strategic International Partnerships Investment Stream program. This measure builds on the October 2022–23 Budget measure titled ‘Enabling a low emissions future and supporting green markets’ (Budget paper no. 2: October 2022–23, p. 59) and efforts in 2021 to implement a clean hydrogen certification scheme.

Household Energy Upgrades Fund

This measure provides $1.3 billion to ‘support home upgrades that improve energy performance and save energy’ (Budget paper no. 2, p. 70). This includes:

The non-government organisation Rewiring Australia has been prominent in calling for this budget to support the process of electrification, especially for low‑income households. While the $300 million for upgrades to social housing specifically targets the disadvantaged, no eligibility criteria have yet been released for the CEFC‑supported financing arrangements.

This measure also targets improvements in building energy efficiency with $36.7 million over 4 years from 2023–24 (and $2.1 million per year ongoing) for expanding and modernising the Greenhouse and Energy Minimum Standards program and the Nationwide House Energy Rating scheme. This measure extends the October 2022–23 Budget ‘Support for energy security and reliability’ measure, which included $4.6 million for these same purposes (p. 77).

A complementary receipt measure under the Australian Taxation Office, ‘Extending the clean building managed investment trust withholding tax concession’ will extend eligibility for the concession to data centres and warehouses that meet the relevant energy efficiency standard (Budget paper no. 2, p. 18). This measure will apply from 1 July 2025 and will also ‘raise the minimum energy efficiency requirements for existing and new clean buildings to a 6-star rating’. The measure is estimated to result in ‘an unquantifiable decrease in receipts over the 5 years from 2022–23’ (Budget paper no. 2, p. 18).

Powering the Regions Fund

The Powering the Regions Fund was a 2022 election commitment, as outlined in the Australian Labor Party’s pre-election Powering Australia policy. The government previously allocated $1.9 billion to the Powering the Regions Fund in its October 2022–23 Budget, while keeping the financial implications not for publication (Budget paper no. 2: October 2022–23, p. 71). The new 2023–24 Budget measure, ‘Powering the regions fund – final design’, allocates $1.3 billion (over 5 years from 2022–23) of the $1.9 billion to ‘support the decarbonisation of existing industries, develop new clean energy industries and support sovereign manufacturing capacity essential to the energy transition’ (Budget paper no. 2, p. 78). The measure includes 3 major components which broadly support industrial decarbonisation:

  • $450.3 million over 4 years from 2023–24 (and $149.7 million over 3 years from 2027–28) to establish the Safeguard Transformation Stream to support decarbonisation investments at trade-exposed industrial facilities covered by the Safeguard Mechanism.
  • $400 million over 4 years from 2023–24 to establish the Industrial Transformation Stream to support the reduction of emissions at existing industrial facilities, or clean energy development, in regional Australia
  • $400 million over 3 years from 2023–24 to establish the Critical Inputs to Clean Energy Industries Stream to support the sovereign manufacturing capability of industries that produce inputs (primary steel production, cement and lime, alumina and aluminium) that are essential to the development of Australia’s clean energy industries.

The measure also includes $14.5 million to support offshore renewable energy industry growth and $8.6 million to implement and review Safeguard Mechanism reforms, each over 4 years from 2023–24. There is also $3.9 million over 2 years from 2023–24 to review policy options to reduce carbon leakage, including the option for an Australian carbon border adjustment mechanism.

The measure also provides funding of $89.0 million through the Powering the Regions Fund to support energy transition investments ‘important to regional Australia’, including the 2023–24 Budget ‘Capacity investment scheme’ and ‘Ensuring the supply of reliable, secure and affordable energy’ measures (Budget paper no. 2, p. 79).

National Net Zero Authority

The budget provides $83.2 million over 4 years from 2023–24 to establish a national Net Zero Authority to ‘promote orderly and positive economic transformation associated with decarbonisation and energy system change in regional areas, including support for impacted workers’ (Budget paper no. 2, p. 192).

An executive agency is to be first established within the Department of Prime Minister and Cabinet that will build on the work of the Net Zero Economy Taskforce. It will perform functions of the authority and work to formally establish the authority through legislation, which is to be led by an independent Chair, supported by an Advisory Board. The government has also provisioned ongoing funding for the authority in the Contingency Reserve.

Stakeholder views on what such an agency should do have been explored in the March 2023 Senate Economics Legislation Committee report on the private member’s National Energy Transition Authority Bill 2022. The report also covers consultations that the existing Net Zero Economy Taskforce has been undertaking in the regions.

The establishment of a national Net Zero Authority has been welcomed by a wide range of stakeholders including the Clean Energy Council, the Investor Group on Climate Change, the Business Council, the National Farmers Federation and the Australian Council of Trade Unions.

As AEMO has noted, ‘Our energy system transformation is accelerating and irreversible, and ever more comprehensive and challenging’. The establishment of this authority and the extent of energy-related measures contained in the budget demonstrate that the government continues to recognise the challenges of this transformation.


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