The 2023 Federal Budget was delivered on 9 May 2023. The budget demonstrates that climate change and renewable energy are key priorities of the incumbent government. In this New Energy Insight, we consider significant budget measures which affect our clients in the energy space, including the investment of $2 billion towards the ‘Headstart Hydrogen’ program and the announcement of further auctions.
Boosting renewable energy generation – focus on hydrogen
The Federal Government will invest $2 billion to drive Australia’s hydrogen industry via the ‘Hydrogen Headstart’ program. The ‘Hydrogen Headstart’ program will ‘accelerate development of Australia’s hydrogen industry, catalyse clean energy industries, and help Australia connect to new global hydrogen supply chains’. The investment will provide revenue support for renewable hydrogen production, including by allocating funds towards competitive production contracts and the Australian Renewable Energy Agency. Interestingly, of the $2 billion, only $182.2 million has been allocated over the next four years. The deferred allocation of funds may be read as incentivising industry to invest in hydrogen now so as to benefit later, and is consistent with a recent statement by Chris Bowen, the Minister for Climate Change and Energy, describing the 2022 State of Hydrogen Report as ‘a call to action’.
Regardless, the Clean Energy Council has already speculated that the investment will result in a boon for Australian jobs, make hydrogen more commercially viable, and ensure Australia remains competitive in the global clean energy superpower race. It may also assist the hydrogen industry to address the skilled labour shortage (we discuss this shortage in our most recent New Energy Quarterly).
Relevantly, the budget also allocates $38.2 million towards certifying hydrogen production (alongside other forms of renewable energy) as part of a ‘Guarantee of Origin’ scheme. This scheme will track and verify emissions, and provide an enduring certification mechanism. Our article ‘Fifty Shades of Green: Hydrogen Guarantees of Origin’ provides further information in this respect.
Capacity Investment Scheme: more auctions
The Federal Government has announced it will establish the Capacity Investment Scheme ‘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.’ The complete breakdown of investment has not been published due to commercial sensitivities, however, the Federal Government has announced it will:
- fund AEMO with $9.9 million per year between 2022/23 and 2027/28 (and then a further $0.4 million per year to 2041/42) to deliver auctions across Victoria and South Australia, as well as to provide for contract management for selected projects;
- fund the Department of Climate Change, Energy, the Environment and Water with $6.4 million to design auction processes to operate in South Australia and Victoria (and subsequently underwrite costs for clean energy projects in those states); and
- as part of the New South Wales Electricity Infrastructure Roadmap, work with New South Wales to deliver Capacity Investment Scheme auctions in 2023.
Emissions reduction methods
The Federal Government will invest $1.3 billion to support the decarbonisation of existing industries and encourage clean energy, including:
- a $450 million investment to establish the Safeguard Transformational Stream to decarbonise investments at trade-exposed industrial facilities; and
- a $400 million investment to support clean energy development (and reduce direct or indirect emissions at existing industrial facilities) in regional Australia.
A further $21.8 million has been committed to enhancing the emissions-tracking capability of the National Greenhouse Accounts.
Establishment of Environment Protection Australia & Environment Information Australia
The Federal Government will introduce:
- Environment Protection Australia: with a $121 million investment to establish this ‘net zero authority’. Environment Protection Australia will assist the national transition from traditional energy to renewables (including retraining initiatives), strengthen enforcement activities, as well as protect the economy from current global energy shocks; and
- Environment Information Australia: with a $51.5 million investment to establish this new source of high-quality, environmental data (including data relating to threatened species and ecosystems).
Petroleum Resource Rent Tax
The Federal Government will pass legislation to increase the Petroleum Resource Rent Tax (which is paid by oil and gas companies in respect of offshore liquefied natural gas projects) such that the government will obtain a further $2.4 billion in taxes over the next four years. While a large figure, Australia’s most beloved economist, Ross Gittens, has described the increase as ‘chicken feed’. By contrast, and perhaps tellingly, the Australian Petroleum Production and Exploration Association has stated the changes are ‘balanced’; the association is no doubt pleased it has avoided a ‘windfall tax’ similar to that imposed by the United Kingdom in May 2022.
Household Energy Upgrades Fund
A $1.3 billion fund will establish the Household Energy Upgrades Funds. As part of this investment, the Clean Energy Finance Corporation will receive $1 billion to provide low-interest loans for home owners to make their homes more energy efficient (for example, double glazing windows and installing solar panels). Eligibility criteria will be determined shortly and the scheme will commence next year.
A further $300 million has been allocated to states and territories to support energy upgrades in social housing.
Energy Rebates
In New South Wales alone, benchmark electricity prices rose up to 18.3% last year, and a similar jump is expected this year. In response, the Federal Government will provide 5.5 million households (comprising pensioners, veterans, concession card holders and others on government support) with up to $500 via a one-off rebate to set-off the price of their electricity bills. Small businesses may also receive a rebate of up to $650.
Other energy measures
- $800 million in support for electric vehicles (including by establishing a fuel efficiency standard);
- $35.6 million investment to the AER for its compliance and enforcement activities;
- $10.9 million investment to the AER to support Australia’s energy transformation via new legislated functions;
- $28.4 million investment to support the delivery of new cross-government energy market reforms and national energy projects;
- $18.1 million investment to review the Australian Carbon Credit Unit scheme (in line with recommendations of former national chief scientist, Professor Ian Chubb); and
- $310 million investment by way of tax deductions for small businesses who invest in the electrification of assets and improving energy efficiency.
The Hamilton Locke team advises across the energy project life cycle – from project development, grid connection, financing, and construction, including the buying and selling of development and operating projects. For more information, please contact Matt Baumgurtel.
