TL;DR

The Australian government has introduced new tax incentives to boost investment in critical minerals and renewable hydrogen production. Eligible companies will be able to receive a refundable tax offset of 10% of the costs associated with processing and refining any of Australia's 31 designated critical minerals. Producers of renewable hydrogen will be eligible for a $2 refundable tax credit per kilogram of hydrogen produced. This legislation is designed to accelerate Australia's energy transition, strengthen domestic supply chains, and reduce dependence on China for key resources. The move is expected to attract significant investment, create jobs, and position Australia as a global leader in the clean energy sector. Businesses in mining, energy, and manufacturing should take note of the opportunities this creates.

A True Game Changer

Australia’s energy sector is undergoing a seismic shift, with the government this week passing laws that provide production tax incentives for critical minerals and renewable hydrogen. These incentives are expected to boost domestic production, reduce reliance on China for essential resources, and make Australia more competitive in the global energy market. For businesses involved in energy, mining, and manufacturing, this presents a significant opportunity—not just in terms of investment, but also in terms of ensuring a secure and resilient supply of critical materials for the future.

But what exactly does this new legislation entail, and how will it impact businesses, investors, and the broader economy?

Why Critical Minerals & Hydrogen Matter

The Growing Demand for Critical Minerals

Critical minerals such as lithium, cobalt, nickel, and rare earth elements are essential for manufacturing batteries, electric vehicles (EVs), wind turbines, and solar panels. With the world shifting towards clean energy, demand for these minerals has skyrocketed, making them some of the most sought-after commodities globally.

Currently, China dominates up to 90% of global processing capacity for critical minerals, leaving countries like Australia dependent on a single supply chain. This poses significant economic and national security risks, especially as geopolitical tensions continue to rise.

It also poses challenges for companies making ESG commitments, as the lack of supply chain transparency in certain regions makes it difficult to ensure ethical sourcing, environmental responsibility, and compliance with corporate sustainability targets. Without clear traceability of where and how critical minerals are processed, businesses face reputational and regulatory risks, making it harder to meet stakeholder expectations around responsible sourcing and emissions reductions.

By ramping up domestic production and processing, Australia aims to secure its own supply chain while capitalising on the global demand for critical minerals.

The Role of Renewable Hydrogen

Hydrogen, particularly green hydrogen, is a cornerstone of the future energy mix. Unlike fossil fuels, hydrogen produces no carbon emissions when used as an energy source and has the potential to decarbonise industries that are difficult to electrify, such as steelmaking, heavy transport, and industrial heating. Additionally, hydrogen has the potential to revolutionise both passenger and commercial transport, offering a zero-emission alternative for day-to-day vehicles, aviation, shipping, and long-haul freight, where battery-electric solutions may not be viable.

Australia has been positioning itself as a major player in the global hydrogen market, with abundant renewable energy resources that can power hydrogen production. However, the high cost of production has remained a barrier to large-scale adoption.

These new tax incentives aim to make hydrogen production more competitive, accelerating the country’s push toward a net-zero emissions economy.

What’s in the New Legislation?

The new policy introduces production tax incentives aimed at stimulating investment in two key areas:

Critical Minerals Processing:

• Tax Incentives: Eligible companies can receive a refundable tax offset of 10% of the costs associated with processing and refining any of Australia's 31 designated critical minerals.
• Duration: This incentive is available for up to 10 years per project, covering production from July 1, 2027, to June 30, 2040.
• Objective: The initiative aims to reduce reliance on foreign processing, particularly from China, and to strengthen Australia's position in the global critical minerals supply chain.

Renewable Hydrogen Production:

• Tax Incentive: Producers of renewable hydrogen are eligible for a $2 refundable tax credit per kilogram of hydrogen produced.
• Duration: This credit is available for up to 10 years per project, applicable to production between July 1, 2027, and June 30, 2040.
• Objective: The incentive seeks to lower production costs and encourage industrial-scale adoption of renewable hydrogen, positioning Australia as a leading global supplier of clean hydrogen.

This move aligns Australia with other major economies such as the United States and the European Union, which have introduced similar tax incentives through programs like the U.S. Inflation Reduction Act (IRA) and the EU’s Green Deal Industrial Plan. However, with President Trump back in office, there is growing uncertainty around the future of the IRA, as he has expressed intentions to repeal or significantly modify the landmark climate law introduced during the Biden administration.

What This Means for Australia’s Energy Market

The global energy landscape is shifting rapidly. Countries that invest in critical minerals and renewable hydrogen now will have a significant advantage in the coming decades. Here's what these changes offer:

Strengthening Australia’s Economic & Energy Security

By incentivising local production and refining of critical minerals, this legislation will:

• Reduce Australia’s reliance on foreign supply chains (particularly China).
• Create thousands of jobs in mining, processing, and renewable energy sectors.
• Enhance energy independence, reducing exposure to external market disruptions.

Unlocking Investment & Innovation

Governments worldwide are racing to secure raw materials for the green transition. With these incentives, Australia can attract billions in foreign and domestic investment, fostering:

• New mining and processing facilities in key regions.
• Expansion of Australia’s renewable hydrogen sector, creating a globally competitive industry.
• Technological advancements in battery manufacturing and green energy solutions.

A Boost for Australia’s Global Competitiveness

Countries that can secure a sustainable supply of critical minerals will have the upper hand in the race to net zero. Australia’s latest move helps:

• Position itself as a major supplier of critical minerals to allies such as the U.S., EU, and Japan.
• Compete with China’s dominance in the minerals and hydrogen markets.
• Ensure long-term economic growth by aligning with global clean energy policies.

What This Means for You

For Energy & Mining Companies

• New financial incentives make investment in processing critical minerals and hydrogen production more attractive.
• Increased demand for local refining and advanced manufacturing could create joint venture opportunities with global partners.
• Competition with China could intensify, leading to potential trade negotiations and shifts in export markets.
• Potential partnerships with green hydrogen projects to support decarbonisation goals.

For Manufacturers & Industrial Sectors

• A more stable supply of essential materials means fewer supply chain disruptions.
• Industries such as battery production, EV manufacturing, and renewable infrastructure will benefit from reduced input costs.
• Potential for cost reductions in raw material sourcing over the long term
• Greater opportunities for collaboration with renewable hydrogen producers.

For Businesses & Large Energy Users

• A stronger, self-sufficient energy market could help stabilise energy prices over the long term.
• Industries reliant on imports (such as technology and automotive) may see reduced supply chain costs.
• The shift to renewable hydrogen could drive cleaner, more affordable energy options in the future.
• Long-term procurement opportunities in hydrogen and renewable power.
• New government-backed energy programs could lead to incentives for clean energy adoption.

A Turning Point for Australia’s Energy Market

These new tax incentives signal a major shift in Australia’s energy and economic strategy. By strengthening energy security, attracting investment, and accelerating the transition to a low-carbon future, this policy presents a significant opportunity for businesses. Whether it's through mining and processing critical minerals, investing in green hydrogen, or leveraging cleaner and more sustainable energy sources, the time to prepare is now.

Although these changes take effect in 2027, businesses that act early will be best positioned to capitalise on new incentives and secure a competitive advantage. Now is the time to assess how these developments impact your energy procurement strategy. Whether you're looking to reduce costs, secure long-term energy contracts, or explore new opportunities in renewable hydrogen, Utilizer is here to help you stay ahead of the curve.

Reach out to one of our expert energy consultant today.