Chapter 2Views on the bill
2.1This chapter considers inquiry participants’ evidence on the provisions of the Future Made in Australia (Production Tax Credits and Other Measures) Bill 2024 (the bill). The chapter begins by giving an overview of general views on the bill, before outlining views on specific provisions to establish the hydrogen production tax incentive (HPTI) and critical minerals production tax incentive (CMPTI), and amendments to the Aboriginal and Torres Strait Islander Act (ATSI Act) to enhance the borrowing powers of Indigenous Business Australia (IBA).
2.2The chapter concludes with the committee’s views and recommendation.
Overview
2.3In general, inquiry participants were supportive of the bill. Submitters were encouraged by the intent to promote economic resilience and bring more value-adding processing onshore. The committee heard that production tax credits contained in the bill will help to lower production costs in green hydrogen and critical minerals, helping to build and support a globally competitive, sustainable, and value-adding critical minerals sector.
2.4Several submitters noted that similar schemes are in place in other countries – including the United States (US), Japan, South Korea, Canada, the European Union, and the United Kingdom (UK) – and stressed that Australia must implement similar measures to remain competitive. Broadly, most submitters believe the bill goes towards achieving that goal. The Australian Chamber of Commerce and Industry (ACCI) welcomed the proposed production tax incentives and put Australia’s current levels of investment in clean energy in context compared to international competitors:
Compared to our international competitors, Australia has low rates of private investment in clean energy relative to the size of its economy. Businesses face significant challenges when considering large scale investments as Australia is a high input cost country. Construction costs, regulatory and environmental approval processes, as well as labour costs and an onerous industrial relations system, weigh heavily on the cost of production in Australia. A business is likely to think twice about establishing or re-investing in Australia, when the cost, regulatory constraints and time to realise their investment is likely to be much greater in another country … Production tax incentives (PTI) are one such measure to make it easier for new industries to establish and become competitive.
2.5The Australian Workers’ Union (AWU) estimated that Australia’s current pipeline of proposed hydrogen projects would create around 20 000 operational jobs and over 160 000 roles in the construction phase, while the critical minerals project pipeline could deliver another 21 000 ongoing jobs in the coming years. This is in addition to the thousands of indirect roles in construction, energy, chemical supply, and transportation that would also be created.
2.6The Australian Council of Trade Unions (ACTU) praised the bill for boosting Australia’s contribution to global climate mitigation. Ms Michele O’Neil, President, ACTU, told the committee that the bill represented:
… an essential investment in Australia's economy, in Australian workers, in Australian jobs and in keeping Australians safe from the worst impacts of the climate crisis—impacts that we saw all too closely in terms of the devastating urban wildfires we saw sweep through Los Angeles in just the last few weeks. It's an investment in re-industrialising our country, with the cornerstone net zero industries of green hydrogen and critical minerals mining and processing.
2.7ACTU advised that Australia's critical minerals industry alone has the potential of reducing the global emissions profile of critical minerals industries by 47 per cent. At full capacity, this would make Australia the third largest contributor to global climate mitigation, behind China and the US. ACTU argued that ‘renewable hydrogen is the best long-term decarbonisation solution for Australia's highest greenhouse gas emitters’ but that it won’t be produced at scale without early support. Hence, it believed that the bill is an ‘essential and timely’ investment in Australia’s de-carbonised future.
2.8Ms O’Neil told the committee that the Future Made in Australia agenda and the support for the green hydrogen and critical minerals industries would help create the jobs of the future, including for current workers in fossil fuel industries:
You would understand that the transition is something that causes concern for working people, particularly those who have worked in fossil fuel industries for many years. They've had good, secure jobs, where their unions have won, over many years, improvements in pay, conditions and safety. People want to make sure that the jobs that are created in the future are similarly secure jobs—that they're safe jobs, jobs where people themselves, their kids and their grandkids have a future. So there is broad support for the need to make sure that we don't wait. We don't want to see people losing jobs in sectors and industries that are inevitably going to be affected by the transition without the new jobs of the future being created and being there. There needs to be a strong bridge for people to be able to walk from one job into another without a gap in between. So there is broad support for the Future Made in Australia bill, in a broader sense, but also, in particular, this work in terms of critical minerals and green hydrogen.
2.9Mr Neil van Drunen, Acting Chief Executive Officer, Association of Mining and Exploration Companies (AMEC), praised the Treasury and the Australian Taxation Office (ATO) for efforts in consulting with industry on the bill. Mr van Drunen described the process as ‘excellent’, particularly in listening to concerns over testing regimes. Mr Aaron Walker, Manager, Industry Competitiveness and Economics, and Head, Economics, Chamber of Minerals and Energy of Western Australia (CMEWA), concurred, describing CMEWA’s experience in consultation as ‘fruitful and collaborative’.
2.10Mr Walker elaborated at the public hearing that the measures will assist in keeping up with other jurisdictions:
It's an important signal to investors who are looking to make decisions on where to deploy capital, so the sooner we can legislate this and have it available in Australia the sooner investors will know that there is support and that we compete with what is available in other countries.
2.11The CMEWA expressed their support or the bill and requested it’s swift passage as drafted:
[CMEWA] supports the swift passage of the CMPTI as drafted but believes further adjustments would maximise its impact and ability to effectively compete with other jurisdictions.
With respect to the HPTI, [CMEWA] supports its swift passage as drafted to stimulate investment and the supply of renewable hydrogen, which will, in turn, support the decarbonisation of hard-to-abate sectors, including the potential to develop a domestic green iron industry.
2.12Overall, submitters welcomed the bill as a positive and forward-looking measure that can help support Australia's competitiveness in these strategic industries. Stakeholders believed that passage of the bill would be instrumental in fostering sustainable industries, creating high-value jobs, and adjusting to a decarbonised economy.
Hydrogen Production Tax Incentive
2.13Participants in the inquiry were strongly supportive of the introduction of the HPTI. Submitters praised the measure as a relatively simple, transparent, and efficient mechanism to support early movers in the green hydrogen industry. While placing the hydrogen tax incentive within a larger suite of government policies to support the hydrogen industry—including policies in development—Dr Fiona Simon, Chief Executive Officer, Hydrogen Energy Council, suggested that the HPTI would play a key role in making hydrogen commercial and signalling to investors that Australia was serious about attracting project investment:
With hydrogen, we talk about the commercial gap. We should note that this is the gap between what it costs to make it now—with first-of-its-kind small complex integrated facilities without a market or ecosystem—and the cost of achieving the same energy or product outcome by relying on the established fossil fuel industry without a carbon price. Hydrogen is currently uncommercial as a result, despite it being able to solve the hardest part of humanity's existential climate crisis. That's because we haven't sufficiently valued solving the problem. This is where the hydrogen production tax incentive comes in. It's not the only solution, but it plays a vital role in closing the economic gap. Companies only receive it when they are eligible, including once they've produced hydrogen which meets the criteria. It's an elegant means of incentivising the private sector to make investments that are in the Australian public interest.
2.14Industry was strongly supportive of the bill and encouraged its swift passage through parliament. Fortescue submitted that the introduction of the HPTI will be critical to the deployment of commercial scale green hydrogen projects, green metals processing (particularly green iron), and low carbon liquid fuel developments. This will then enable downstream industries to prosper, including manufacturing. Fortescue advised that by processing iron ore onshore into value-added green iron this could add up to up to $170 billion in export revenue from Western Australia alone by 2050.
2.15Dr Simon emphasised that, in addition to the ‘enormous’ economics and strategic opportunities that a strong hydrogen industry would provide, industry would also be a critical part of Australia’s decarbonisation, and government support was in turn critical to supporting that industry:
We know we don't get to net zero without hydrogen, but we don't get to hydrogen if we don't have serious government support to kickstart the nascent industry, given that we haven't costed into our economy the externality of carbon emissions and therefore pass it onto the private sector to manage.
2.16InterContinental Energy highlighted that the HPTI aligns with other large-scale renewable energy initiatives, such as the Western Green Energy Hub (WGEH), and has the potential to establish Australia as a leading exporter of green hydrogen. It argued that by mitigating some of the financial risk, the measure ‘provides a more stable and attractive environment for investors in this emerging sector, which requires substantial upfront capital’. InterContinental illustrated the effect of the HPTI on Australia’s prospects as an exporter of green hydrogen and associated products, advising that in the months since the announcement of the HPTI there has been increased interest in WGEH from international buyers. In the ammonia market, the HPTI will bring the forecast cost of green ammonia down from over $800 per tonne to under $650 per tonne.
2.17The ACCI acknowledged that the technology for large-scale production of renewable hydrogen is still evolving and is limited by cost barriers. While technological advancements will aid in reducing the costs over time, the HPTI is a welcome mechanism to increase support for this emerging industry. The CMEWA agreed, saying that the measure would stimulate investment in the supply of renewable hydrogen, and the decision to award the offset regardless of end-use would be critical for establishing new, long-term trading opportunities for Australian hydrogen.
2.18The Clean Energy Council (CEC) welcomed the stipulation that the credit can only be claimed after the verified production of the hydrogen, meaning that public support is not provided if the company does not produce the commodity. The CEC pointed out that an internationally competitive clean hydrogen production industry would help to position Australia to develop its own sovereign production capability in low-carbon liquid fuels. Such fuels would be particularly important for hard-to-electrify transport modes, such as aviation and shipping, and would reduce our dependence on fuel imports. For example, renewable ammonia and methanol are top prospects for the decarbonisation of maritime fuels, both of which rely on green hydrogen for production.
2.19The CEC was also welcoming of the proposed emissions intensity threshold of 0.6kg/CO2-e or less per kilogram of hydrogen. The CEC noted that this was more stringent than the international Green Hydrogen Organisation’s (GHO) ‘Green Hydrogen Standard’ of 1kg or less of CO2-e per kilogram of hydrogen, however, it is readily achievable for renewable hydrogen projects via electrolysis. The GHO concurred, stating that ‘low carbon hydrogen produced from fossil fuels should not benefit from taxpayer support’ given the large subsidies already received by those industries and the need for Australia to move its energy system away from fossil fuels and focus more on renewables.
2.20The Institute of Public Affairs (IPA) opposed the bill on the grounds that ‘hydrogen as an energy storage mechanism is an unproven and experimental solution’ to energy reliability problems. The IPA expressed concern about heavy intervention and subsidies being used to support an industry that it asserts ‘is not economically viable’ and ‘is simply too risky to invest in – both for taxpayers and the private sector’. Instead, the IPA proposed extending support to Australia’s existing baseload power stations to support Australia’s energy security.
Minimum project size threshold
2.21Numerous submitters recommended expanding the minimum project size threshold from 10MW or greater to just 1MW or greater in order to capture more potential projects.The CEC supported such a measure, saying that it would serve for administrative simplicity and avoid creating a two-tiered funding system which would force smaller projects to seek out alternative support options.
2.22The CMEWA also advocated for a minimum threshold of 1MW. The proposed threshold of 10 MW would exclude small-scale hydrogen production – used for distributed passenger or heavy-duty transport – or energy storage and generation on microgrids. Opening the scheme up to smaller operators will be particularly useful to support localised, off-grid projects.
Extending the timeframe for support
2.23The CEC pointed out that hydrogen production facilities typically have a life in the range of 20-30 years. Despite this, the bill limits the maximum support to ten years of production. By limiting support in this way, the CEC argued, investors will be subject to higher risk in the project’s later years of operation. Additionally, these early-mover projects would need to pass on higher costs to consumers as they mature out of the ten-year range, just as newer and lower-cost projects could be expected to begin operations. The CEC recommended extending the subsidy’s effects over a longer time frame to lower the effective price per kilogram over the life of the support, improve the bankability of the project, and ensure that the value of the credit is not diluted.
2.24The ACCI opposed such a measure, instead describing the ten-year time limit as ‘sensible’ and asserting that government should not be supporting an industry if it is not sustainable over the long-term. While supportive of the measure to help in establishing projects, the ACCI expects that, over the long term, ‘production of renewable hydrogen industry will increase in scale, the technology will be further refined, competition between producers will increase, and production costs will steadily decrease’. It was strongly of the view that if Australia is to build a renewable hydrogen industry it must be self-sustaining and profitable over the long term without government assistance.
2.25The ACCI did express concern that the window of time to access the HPTI may be too narrow. With a business needing to make the final investment decisions (FID) on a prospective facility before 1 July 2030 to be eligible for the HPTI, the ACCI felt that the five-year timeframe may be too short for some projects to meet necessary regulatory requirements, form agreements with suppliers and customers, and gain environmental approvals. As such, it recommended extending the date for the final investment decision to 1 July 2035 while maintaining the conclusion of the scheme on 1 July 2040. Those entering the scheme after 2030 would simply have a shorter period of access to the HPTI.
2.26This view was shared by the CMEWA. It pointed out that many projects will be conditional on the build-out of renewable generation capacity and of transmission infrastructure. Given that some of this is managed by the states, there is a risk that some companies may not be able to meet the 2030 deadline for reasons that are out of their control. Ark Energy also advised that labour may be an issue for the extensive buildout of infrastructure given the isolated location of many projects and competition with other significant projects like the 2032 Brisbane Olympics. Even projects that are able to meet the 2030 deadline may not begin production until the mid-2030s. In contrast to the ACCI, the CMEWA suggested that the current end date of 1 July 2040 be extended further out to allow companies additional ramp up time.
Eligibility of different hydrogen production types
2.27Some inquiry participants argued that the HPTI should be available to types of hydrogen other than green hydrogen. For example, ACCI suggested that consideration should also be given the eligibility of blue hydrogen (that is, processes involving carbon capture and storage) where the production processes are kept below a certain emissions intensity.
2.28The CMEWA noted that while the HPTI was limited to electrolytic hydrogen, other jurisdictions, such the US and the UK, provided government supports or incentives to low-carbon hydrogen production from other production pathways. It recommended that the government ‘should consider support for other low-carbon production pathways including CCUS [Carbon Capture, Utilisation and Storage]-enabled production’.
2.29Beyond Zero Emissions (BZE), on the other hand, submitted that the legislation should explicitly state that the tax credit is limited to green hydrogen only and exclude hydrogen production methods reliant on fossil fuels.
Critical Minerals Production Tax Incentive
2.30Stakeholders expressed strong support for the establishment of the CMPTI. BZE submitted that the establishment of the ten per cent tax offset represents a significant and welcome shift from the ‘dig and ship’ model and indicates a move towards value-added critical minerals production. AMEC commented that the introduction of the CMPTI will reduce the production cost disadvantage currently faced by Australian projects. Doing so will make the cost of doing business, once in production, more competitive on an international scale.
2.31While holding some concerns, the Minerals Council of Australia (MCA) expressed their support for the CMPTI during the public hearing. Mr Ross Lyons, Chief Economist at the Minerals Council of Australia told the inquiry:
The MCA supports the critical minerals production tax incentive because it is a positive step towards attracting investment in the critical minerals industry
…
We support the bill because the bill is going to help to reduce the cost of production for people that develop facilities downstream
…
we've got member companies that have existing downstream facilities—they've already invested—so they will benefit from the critical minerals production tax incentive when it commences on 1 July 2027. We've got a lot of other members that are mining the mineral–obviously, that's not eligible for the critical minerals production tax incentive—and they're in consideration of whether they will go to downstream processing as well. This will assist with the decision-making.
2.32The MCA commended the eligibility for the CMPTI being limited to value-adding processing activities post extraction rather than on the purity of the output. The MCA said that this focuses investment on downstream processing activity and reduces complexity and uncertainty about what activities may be covered. The AWU was also welcoming of the CMPTI’s downstream effects and suggested that such benefits could be further utilised by offering a larger incentive to recipients that prioritise offtake by domestic operations. Such a measure could ‘help drive the creation of near-complete value chains within Australia’ and add further jobs, returns, and capability than processing and refining alone.
2.33Submitters were supportive of the time limitation on the scheme. The ACCI supported the ten-year window of eligibility, submitting that if we are to build ‘a critical mineral processing industry in Australia it must be self-sustaining and profitable over the long term without government assistance’. BZE agreed that the CMPTI ‘should be time limited to ensure that production is incentivised to achieve long term economic viability’ and that doing so would encourage ‘companies to scale operations and achieve profitability within a defined period’.
2.34In consultations with industry prior to the announcement of the CMPTI, Mr Marty Robinson, First Assistant Secretary, Corporate and International Tax Division, Department of the Treasury (Treasury), noted that the originally proposed 30 June 2030 cutoff date for FIDs had been an area of concern:
We received some feedback from stakeholders that raised some concerns around the proposed 30 June 2030 cut-off date for final investment decisions, for projects to be eligible for assistance. Some of that feedback was that the timeframes for the development of projects, from conception through to the technical design phases, environmental approvals and other forms of regulatory approvals, can take some time. There was a concern that the cut-off date might preclude projects that might even be underway for development at the moment, so the government elected to remove that final investment decision cut-off requirement.
2.35The FID cutoff was removed ‘to not exclude any new investment into critical minerals processing given the long lead times for projects’ and to ensure the measure would not favour existing producers.
2.36The ACCI supported the introduction of the CMPTI, while at the same time arguing that one of the reasons for the lack of onshore processing in the past has been Australia's high environmental standards and emissions reduction regulations. It suggested that ‘significant changes to environmental standards and environmental approval processes … will also be needed to encourage investment in further transformation of critical minerals in Australia’.
2.37AMEC, while supportive of the CMPTI, also touched on the need for complementary measures, observing that there are other issues in the Australian regulatory system that affect competitiveness on the international market and that the CMPTI is not a ‘silver bullet’ to solving such concerns. AMEC noted the ‘long approval timeframes, fundamental land access issues and high construction costs’ have frustrated producers in Australia, as well as ‘immature common-user infrastructure and utilities services’ that will remain an issue even after the introduction of the CMPTI.
2.38CMEWA agreed, commenting that ‘the introduction of a CMPTI by itself is unlikely to shift the dial for Australia's competitiveness against other jurisdictions’. Instead, the CMPTI should be one of a range of complimentary measures including streamlined federal-state approvals processes, the provision of shared infrastructure, further training for required skills, and the timely delivery of a low emission, reliable and cost-competitive energy system. The CMEWA also recommended that the tax offset be extended to include all minerals on Australia's Critical Minerals List and Strategic Materials List to capture copper, bauxite-alumina (aluminium), zinc, and uranium.
Reform of Indigenous Business Australia borrowing powers
2.39The UNSW Energy Institute submitted that the proposed amendments to IBA’s borrowing capacity would provide help for more First Nations communities to benefit from investments in the net zero transformation. Raising capital to support Indigenous interests, the UNSW Energy Institute submitted, has long been a barrier to investment and this concern is directly addressed by these amendments. The UNSW Energy Institute told the committee that it has received reports from Indigenous groups that they have been unsuccessful in approaches to IBA for support to raise capital for an equity interest in projects. This new measure should aid in future approaches.
2.40However, the UNSW Energy Institute did not believe that the amendments would unlock all the additional resources required to fully support communities’ engagement and investment in the Future Made in Australia agenda. While a good start, the UNSW Energy Institute explained that the amendments need to be supplemented by additional and complementary initiatives, such as an increase in First Nations people’s access to Special Investment Vehicles and the establishment of a First Nations Clean Energy and Investment Fund, as recommended by the First Nations Clean Energy and Climate Change Advisory Committee.
Community benefit principles
2.41The AWU welcomed the community benefit principles (CBPs) and called for a strengthening of the CBPs in the bill. In applauding the goal of the CBPs in promoting secure, well-paid jobs and stronger domestic capability, the AWU felt that the bill’s requirement for the Treasurer to have ‘regard’ for the CBPs when setting community benefit rules was too weak. Mere regard for the CBPs, the AWU submitted, would allow for rules that are ‘only broadly consistent, partly consistent, or even inconsistent’ with the CBPs. Rather than having regard for the rules, the AWU recommended that the bill should explicitly state that the community benefit rules for the HPTI and CMPTI must be consistent with the CBPs.
2.42Ms O’Neil spoke firmly in favour of the CBPs, suggesting they would be critical to the success of the measures:
They are the mechanism through which we ensure a fair share of the wealth that will be generated by these tax credits goes directly to Australian workers and communities, not just corporate shareholders. The US Inflation Reduction Act attached very similar conditions to its tax credits—conditions on payment of prevailing wages, on apprenticeship utilisation, the number of apprentices, domestic content and community benefits, particularly for low-income, energy transition and First Nations communities.
2.43Ms O’Neil added that the CBPs would help ensure that the benefits from the Future Made in Australia agenda ‘flow fairly’:
… that they flow, of course, to the companies that are investing—that they are profitable and they see their shareholders benefit—but not solely to them. We want to make sure that those very communities—and the Australian community who owns these resources, if you think of critical minerals as an example—are able to also share those benefits. Those benefits need to be tangible. You need to see local jobs, as I've been focusing on today. But you also need to make sure that they are good-quality jobs, because those communities will not thrive if the jobs aren't secure, safe, well-paid and fair jobs.
2.44The ACTU also called for tighter rules around the CBPs, noting that if they were going to succeed they would need to be ‘specific and verifiable, with clear metrics to determine whether a project proponent is compliant’. The ACTU warned that vague or ambiguous rules will result in ‘little material benefit for workers and communities, and risk facilitating ‘social washing’ of the critical minerals industry and the emerging green hydrogen industry‘. In order to avoid having the CBPs sacrificed to the concerns of special interest groups and corporate shareholders, the ACTU recommended that they be ‘firmly cemented with rules that ensure the community benefits described are fully delivered’.
2.45However, some submitters urged caution in applying CBPs too rigidly so as not to stifle the aims of the bill. The Business Council of Australia (BCA) said it does not oppose CBPs, but that their consideration in eligibility for the production tax incentives should be designed so as not to be too restrictive. BCA asserted that just by funding projects there would be downstream benefits to the community and that the fundamental criterion for support should be ‘the extent to which government assistance will help turn around our current poor productivity performance by making Australian industry more competitive and our nation more attractive for investment.’
2.46BCA also warned that a rigid interpretation of the CBPs risked increasing costs, duplicating existing processes, and offsetting any competitive gains created by the tax incentives. This view was shared by the MCA, who further noted that the approvals processes for mining and mineral processing projects are already ‘extensive and rigorous’ and that adding further conditions makes for an ‘unnecessary and duplicative’ feature of the CMPTI. The MCA contended that uncertainty about the application of the CBPs could leave some companies confused about eligibility for the CMPTI and that if companies have to re-apply on a year-by-year basis, it would contradict the intent of the bill to provide certainty for investors. The bill, however, does not impose an annual registration requirement.
2.47Mr Robinson explained at the public hearing:
[the] PTIs will be designed such that they are then going to be available to taxpayers on that self-assessment basis and would be claimed through the tax system in the way that taxpayers might claim other types of concessions or assistance through the tax system.
2.48AMEC observed that the bill is largely silent on how the CBPs will be applied, leading to fear that they will be so onerous that they will not make the CMPTI worthwhile. To avoid this, AMEC recommended that ‘the whole tax group is considered, rather than the specific sub-unit that is the mineral processing unit’. This would, it argued, alleviate the challenge of apportioning the community benefit between the mine, which will have hundreds of jobs, and the downstream processing part, which may have fewer roles but more technical skill sets.
2.49ACCI questioned the relevance of the CBPs, noting that they are ‘unrelated to the investment or the efficient production of hydrogen or critical minerals’. In the ACCI’s view, CBPs could potentially lead to inflexible contracting arrangements, higher operating costs, and reduced productivity. Additionally, they submitted that if an annual renewal of the certificate of registration were required, it could represent a considerable risk to investors as a failure to renew could result in the shutdown of the project. The bill however does not impose and annual registration requirement.
2.50AMEC expressed concern that the legislation does not provide clarity as to how burdensome the annual reporting requirements will be as that level of detail is managed via the regulations and rules. AMEC reported that industry members have raised concerns that CBP reporting requirements, if too onerous, risk outweighing the benefits of the tax offset.
2.51The CMEWA highlighted that different communities across Australia seek different benefits that reflect their local needs. As such, a CBPs assessment process should not be so stringent that it ignores the desires of the communities that it purports to help. The CMEWA advised the committee that the Western Australian resources sector is committed to high environmental, social, and governance standards and, in many cases, CBPs are already being met.
2.52Mr Robinson responded to concerns about the application of CBPs, highlighting that the government:
…will be distinguishing between how the community benefit principles are designed and how they might operate for general support programs versus how they will apply for the production tax incentives. In particular, in the tax system it is going to be important that the benefit principles are rules based and objective rather than subjective in their application. That's consistent with the general approach in the tax system and implementation of policies in the tax system. They need to be generally applicable, non-arbitrary, enable and support the self-assessment system used by taxpayers and give certainty.
2.53Mr Robinson also reiterated the importance of the CBPs, underscoring that:
the government's objective here is to ensure that, when it's providing substantial support to business, there is a reciprocal obligation on business to ensure that the communities in which they operate benefit from the economic opportunities that are created.
Other issues raised
Indexation of payments
2.54Both the CEC and GHO felt that the HPTI should be indexed to avoid a devaluation of the offset over time. The CEC noted that 70 per cent of the operating expenditure of renewable hydrogen projects is accounted for by electricity and that the industry standard is for electricity power purchase agreements to be indexed to inflation or the Consumer Price Index. As such, the CEC and GHO believe the $2 per kilogram payment should be indexed to avoid an inherently diminishing subsidy over time.
2.55The indexation of payments was also supported by Fortescue. Fortescue pointed out that a lack of inflation adjustment means that real value of the tax offset will have declined more than ten per cent by the time the HPTI comes into effect, and by around a third by the time it expires. Indexing the payments would provide a ‘much stronger investment signal for green hydrogen projects until the legislation sunsets in 2040’.
2.56When questioned over the decision not to index the payments, Mr Robinson explained that the expectation would be for costs of production to lower as the industry matures, thereby offsetting any loss of value:
I think our view was that this assistance is really around trying to bring forward and support investment, particularly for those early movers. This is partly by design, with the time limited nature of the production tax incentives. Over time we expect that, as the technologies and the production of approaches firm up and develop, the effective costs of production are likely to decline. Essentially, holding the $2 fixed at that nominal level acts as a sort of natural taper over the length of the program.
Level of incentive for investment
2.57In analysis of both the HPTI and CMPTI, the University of New South Wales Energy Institute questioned if the two schemes offered enough of an incentive to entice a significant number of investors. The UNSW Energy Institute outlined two key reasons as to why it is currently challenging to establish green hydrogen projects: the cost – comparatively with other countries – of engineering and installation, and high operating costs of facilities due to high electricity costs. The UNSW Energy Institute noted that this second issue may be solved if Australia is able to capitalise on its potential comparative advantage in abundant and relatively cheap renewable energy generation; however, this would require significant private investment and an increased pace of deployment. Without addressing these issues first, a $2 per kilogram offset, it argued, may not be enough enticement for companies in comparison to other international options.
2.58In regard to the CMPTI, the ACCI also questioned whether a ten per cent offset would be enough to entice new investment. It argued that Australian processors face substantially higher operating costs than their international competitors and recommended that a 25 per cent offset may be more appropriate ‘given the more stringent regulatory hurdles and high labour cost businesses face in Australia.’
Increasing demand for hydrogen
2.59Dr Elizabeth Thurnbon and Mr Oliver Yates recognised that the production tax incentives will spur supply but believed that complementary measures are needed to increase demand. They identified the lack of guaranteed demand at viable prices as a key barrier, alongside cost of production, to gaining private sector investment. Without demand assurance, financing institutions are constrained in their ability to support project proposals. Unless a potential producer can demonstrate that there exists real demand for their products at a guaranteed price sustained over time, significant financial risk remains for the lender.
2.60This issue was also raised by the AWU. It observed that, in Australia, green hydrogen faces a ‘chicken and egg’ problem – producers are reluctant to invest in a product lacking mature offtake markets and buyers ‘will not adopt green hydrogen until reliable production emerges and a significant price premium over incumbent fuels is addressed’. The AWU contended that multi-faceted support is required to overcome such barriers.
2.61To solve this problem, Dr Thurnbon and Mr Yates recommended the establishment of a Clean Commodities Trading Company (CCTC). A CCTC could ‘act as a state-owned entity that guarantees demand for clean commodities by issuing offtake agreements to producers’. Such agreements would provide producers with long term purchase commitments and reduce the risk in investing in clean energy production facilities. Guaranteeing sustained demand over time would complement the production tax credits in this bill and ‘ensure that Australia’s clean industrial strategy delivers the intended outcomes’.
Dual agency arrangements
2.62AMEC expressed concern regarding how the dual-agency model of administration might work in practice. AMEC was supportive of the Department of Industry, Science and Resources (DISR) and the ATO co-sharing administrative arrangements. However, AMEC noted the recommendations of the Board of Taxation’s Review of R&D tax incentive dual agency administrative model, including defining the roles of DISR and the ATO, increased information sharing between the two agencies, the issuing of clear and relevant guidance material in a timely manner, and an alternative dispute resolution process to resolve reviews undertaken by either agency. AMEC recommended that each of these recommendations be applied to the CMPTI before any applications are accepted.
Commencement dates for production tax incentives
2.63The CMEWA called for the commencement date of the HPTI and CMPTI offsets to be moved forward to 1 July 2026, believing that, given intense international competition, industry needs the support as soon as possible. This position was shared by the BCA, who submitted that bringing forward the start date for the tax incentives would help maximise their benefits by beginning earlier. The BCA claimed that doing so would not increase the budget impact given the ten-year cap on claiming the tax incentives and that bringing the date forward would allow for faster approvals for relevant projects.
Committee view
2.1The Albanese Government’s focus on a Future Made in Australia is a critical initiative to ensure Australian industry and workers benefit from the industrial transition to decarbonise the economy, promote economic resilience and bring more value-adding processing onshore.
Hydrogen and Critical Minerals Production Tax Incentives
2.2The committee is encouraged by the significant amount of support received for both the Hydrogen Production Tax Credits and the Critical Minerals Production Tax Credits (Production Tax Incentives) from inquiry participants, including minerals and hydrogen peaks and producers.
2.3In particular, the committee notes and supports calls for the bill to be passed as a priority by the Parliament.
2.4The committee believes the Production Tax Incentives will be a critical enabler to the growth and development of Australia’s renewable hydrogen and critical minerals processing sectors, and aligns directly with the government’s intentions to attract global capital, accelerate investment in the net zero transition and support economic resilience and security.
2.5The committee notes views from inquiry participants that the design of the Production Tax Incentive is a simple and effective program that will address the green premium, support investment confidence, allow Australian industry to remain competitive globally and contribute to climate mitigation. The committee notes the Production Tax Incentives does not impose an annual registration requirement, and is assured by Treasury evidence that it will take place through ordinary tax filings.
2.6Importantly, the Production Tax Incentives will reward production allowing for an efficient use of public support, and encourage early investment in projects to secure the full value of the Production Tax Incentives over the 10 years of the program.
2.7The committee notes calls for the Production Tax Incentives to be expanded in various ways, and notes this is an indication of the success the program will have for producers and the Australian economy. The committee is of the view that the measures strike the right balance between supporting appropriate projects and the allocation of public support.
2.8The committee welcomes that Community Benefits Principles – which have been legislated in the Future Made in Australia Act – will be applied to recipients of the Production Tax Incentives, and asserts they will be critical to ensuring the benefits of public support are shared with the broader community including First Nations, and a skilled workforce.
2.64The committee notes the requirements relating to the Community Benefit Principles will be set out in rules to be issued by the Minister, and subject to further consultation ahead of the program’s commencement. The committee welcomes that there will for opportunities for further consultation.
2.9The committee notes concerns from some inquiry participants about the potential carbon emission in the production process attracting the Production Tax Incentives. The committee believes the bill is positively balanced to reduce reliance on fossil fuels in the economy, and welcomes features of the bill which limit carbon emissions in production.
Indigenous Business Australia
2.10The committee welcomes this schedule which expands the role and remit of Indigenous Business Australia (IBA), allowing IBA to undertake capital raising and support investment in First Nations communities and businesses around the country.
2.11The committee is encouraged that this measure will positively support economic self-determination for First Nations peoples and communities.
2.12The committee notes the cross-party support which has existed for this reform for some time and welcomes that there will wider community benefit as a result of permitting IBA to make investments into critical projects.
2.65The committee recommends that the bill be passed.
Senator Jess Walsh
Chair
Labor Senator for Victoria