What does the Federal Budget mean for Australia's energy transition?

Authors: Paul Greaney, Malcolm Rushin, Sally Wilson, Lizzie O'Brien, Adrian Piani
Parliament House Canberra

At a glance

Australia is endowed with the right ingredients to tackle its own decarbonisation and realise significant growth potential from the global energy transition. However, federal and state governments hold the keys to unlocking the acceleration needed to meet the Australian commitment to a 43% reduction in greenhouse gas emissions by 2030 and the very laudable ambition of 82% renewables in our power systems by 2030.

The faster the government can continue streamlining processes and implementing policy to create investment certainty, the sooner we can shift the bottleneck - from planning to project execution. This will introduce a whole new series of challenges around the supply chain, logistics, and workforce to deliver the transition - it's a better problem that we as an industry can work to solve.

In Tuesday's Federal Budget address, Treasurer Jim Chalmers handed down a budget that supported the transition and reiterated Australia's ambition of becoming a global renewable energy superpower.

We have analysed the Federal Budget proposed measures through the lenses of investment, delivery, and innovation, where we believe the government now has the most significant role to play in Australia's domestic decarbonisation and its ability to capitalise as a leader in the global transition.

The energy transition has been placed at the centre of the Federal Government’s economic agenda in this year’s Budget, marking a significant opportunity to unlock the immense potential Australia has to power itself and other international markets with low-cost, renewable energy.

Incentivising investment

It is most likely that we have the US Inflation Reduction Act (IRA) to thank for creating the heightened government and public awareness that Australia is competing with many other global players in the race to capitalise on the energy transition. This has enabled new and continued efforts to stimulate investment in Australia's energy transition and introduced the use of similar production tax-credit type arrangements.

The devil will be in the details (as US-based green hydrogen proponents have discovered with the IRA) and the complexities will need specialists across multi-disciplined technical and advisory areas to navigate pathways to successfully de-risk commercial outcomes and achieve final investment decisions.

Below we share our initial observations about the headline measures, and stand ready to work with our clients as the details of the Future Made in Australia Act and regulations evolve.

Critical minerals

Critical minerals are front and centre with the announcement of a Critical Mineral Production Tax Incentive ($7.0 billion over 11 years from FY 2023-24) to help reduce processing and refining costs and support for pre-feasibility studies for critical mineral common-user processing facilities ($10.2 million in 2024-25).

The question we're keen to explore with clients is whether that is enough to unlock private sector investment, given Australia's higher cost base than most of its global competitors. By comparison, the renewable Hydrogen Production Tax Incentive we have explored below is approximately 30% of the cost of production at scale.

Given that resource export is traditionally the powerhouse of Australia's balance of trade, we think generous investment into this sector is in the national interest but respect the Treasurer's need to also walk the tightrope of fiscal prudence. An alternative at this stage could be to provide a more significant incentive to a smaller cohort of successful proponents and supplement the funding in future budgets as the reward becomes more apparent.

Capacity Investment Scheme

The $65 billion commitment to the Capacity Investment Scheme (CIS) cements it as a key driver and de-risker for investment in renewable capacity through the transition.

To date, close to 3.8 gigawatts of capacity made up of renewable energy generation, storage and demand response projects have received support via the first three rounds of the New South Wales Long-Term Energy Service Agreement (LTESA) scheme, including Round 2, which was bolstered by an initial round of CIS funding.

The first CIS tender round covering South Australia and Victoria is anticipated to support a further 2,400 MWh of dispatchable capacity. The first NEM-wide CIS tender round is due to commence in May and targets supporting an additional 6 GW of renewable electricity generation.

Furthermore, this scheme is set to extend to Western Australia, with 500 MW of storage expected to benefit from the initial round. Given the success of the earlier and current rounds, we can see this scheme continuing to drive investment in renewables and firming the need to fill gaps in capacity from coal plant retirements.

The need for deep storage, which has been more economically provided by pumped hydro, will become most critical late in the transition as we approach very high levels of variable renewable penetration. However, pumped hydro projects take the longest to develop and implement. In the future, it will be pleasing to see support beyond the CIS for pumped storage proponents to help achieve investment decisions now.

*GHD Advisory has been the technical advisor for all previous LTESA rounds and the current CIS round to AEMO Services.

With the 'Rewiring the Nation' program already in place and committed to providing $20 billion of low-cost financing for new transmission lines, it was less surprising that direct investment in transmission featured less prominently in the Federal Budget. Nevertheless, transmission infrastructure is critical to the development path for many renewable generation projects, and streamlined approvals will assist in their delivery.
GHG-reducing fuels and commodities

While we maintain our science-based view that decarbonising those aspects of the global economy that cannot be electrified should be employing all viable pathways, we can see the opportunities, challenges, and relative commercial readiness across the various groupings of 'renewable hydrogen' and the derivatives - 'clean hydrogen', low carbon liquid (and gaseous) fuels and 'green metals' production - as a complementary or alternative method to support global decarbonisation using Australia's renewable potential.

Ideally policy and spending strategy here would allow these alternative industries to compete for funding and investment on the lifecycle global GHG emissions benefit and cost. However, we acknowledge that the Treasurer must work within the framework established by others.

The $32 million to fast-track the Guarantee of Origin scheme and extending it from hydrogen to green metals and low-carbon fuels is fundamentally important to setting up Australia to take advantage of the many options available to develop low-GHG fuels and commodities.


The $2/kg Production Tax Incentive for renewable hydrogen is significant and an interesting comparison with the IRA. It would support projects that come online after 2027 for up to 10 years, with a sunset in 2040, which should help support business cases for many proponents. The cost of renewable power is the biggest commercial viability challenge for this industry and $2/kg is roughly equivalent to reducing the cost of power by over $30/MWh.

Whilst this is not going to close the substantial cost gap with current fuels (even with a carbon pricing impact), when coupled with the ongoing Hydrogen Headstart program and significant potential funding from trading partners like Japan and South Korea, it should make a material difference to Australian proponents and help keep Australia in the running against other global renewable hydrogen competitors.

The similarity to the IRA support for clean hydrogen in the US is superficial. The headline difference is the IRA provides double the support: USD3/kg (AUD4.5) for very low GHG emissions hydrogen (<0.45kg CO2e per kg H2) and has a sliding scale of support as the lifecycle GHG emissions increase with a cut off at 4 kg/kg. A key difference that could play out to be material in securing early market share and longer run global positioning is that the IRA process is agnostic to the production process whilst the Australian support is restricted to renewable hydrogen.

If we have learned anything from the IRA, it is that the detail is necessarily complex to ensure the industry genuinely achieves holistic emissions reductions at a national and global level.

Green metal

The $15 million allocated to support the development of green metal production appears low given the tremendous opportunity this presents for Australia, but it is qualified as a 'foundational activity,' which we take as an implication that there will be more investment in the future.

Green metal production is another method to export renewable power indirectly. For Australia to achieve 'renewable energy superpower' status, rapid assessment of this sector is also important to proponents pursuing the hydrogen and derivatives export option. This will provide both sectors with greater confidence to commit to long-term mega-scale investments. 

Low-carbon liquid fuels

The Budget refers to support for low-carbon liquid fuels; this is important because the biofuel industry presents the near-term solution to several of Australia's decarbonisation requirements that electrification alone cannot meet. Our view is that the industry needs and is overdue for acceleration. It remains to be seen how much of the $1.7 billion over 10 years for the Innovation Fund administered by ARENA will be used to support this industry.

A mechanism equivalent to the $/kg hydrogen production tax incentive but for biofuels could be transformative in achieving investment decisions across several projects. The strategic benefits to Australia of having a stronger domestic liquid fuels supply are multifaceted and significant, and we expect the importance of biofuels in achieving Australia's 2030 carbon reduction targets will become more pressing. 

Unlocking investor confidence

Attracting investment to realise the ambitions of a 'Future Made in Australia' will require a range of elements to come together. Tax incentives applied to such things as hydrogen production or critical minerals processing are a welcome step to attracting investors. Branding Australia as an indispensable green product supplier will also add to the investor appeal, as retailers compete for the all-important social license to operate.

Nobody will deny that the simplification and expediting of project approvals, albeit whilst maintaining the rigours that Australians demand, will be a breath of fresh air to those investors daunted by the sometimes confusing and often drawn-out approvals processes. We have had major international energy clients suggest that current processes and delay could cause investment to be redirected to other regions. However, maintaining investor confidence will demand that these good intentions translate into firm plans.

The proposed 'front door' approach for investors should create a more streamlined environment for investment. But once you open the door, how do you select which projects are priority investments? A national master plan would be a helpful next step to coordinate federal and state investment and provide a synchronised approach to common user infrastructure, such as ports, water, and transportation.

We would support seeing the Federal Government invest in further bolstering the development of the six sector plans, paying detailed attention to the interconnectedness of the sectors, and leading to the development of an overarching and granular master plan.

We note the $19.9 million over four years for the Department of Climate Change, Energy, the Environment and Water to develop, agree and maintain a national priority list of renewable energy related projects and process assessments for priority projects and see that this may go part of the way to clarifying the national requirements for investors.

By considering a range of factors, including energy use and environmental constraints, the master plan would help proponents navigating how to elevate their project on the priority investment list and structure their value proposition accordingly.

The Federal Budget and announced related initiatives have gone a long way to addressing key challenges that have been holding back final investment decisions. We now watch with interest to see the extent to which it successfully stimulates the much-needed acceleration in private-sector investment.

Accelerating delivery

We see our colleagues in the construction sector currently underwhelmed by the flow of significant energy infrastructure into full delivery, knowing that, at some point soon, the delivery sector must move into a state of overwhelm if Australia is going to meet its 2030 targets and ambitions.

The government holds the keys to unlocking the current two bottlenecks: policy and support that provide sufficient certainty of investment return and the ability to give timely approvals, whilst giving the appropriate attention to all the necessary considerations. We can see clear evidence in the Budget that government has been listening to industry and has paid attention to this second aspect.

Another role that government has to play to support delivery is in the intervention to stimulate the growth in the skilled workforce required to deliver and run this transformed energy infrastructure, and we see that this has also been given attention in the budget.


It is pleasing to see announcements on the streamlining of approvals to support delivery of the Federal Government's Future Made in Australia agenda, including Australia's transition to a net zero economy. Key funding highlights include:

  • $96.6 million over four years from FY 2023–24 for the Department of Climate Change, Energy, the Environment and Water to support timely environmental approval decisions, aiming to provide more support for project assessment, better planning in priority regions and more funding for threatened species research.
  • $20.7 million over seven years from FY 2024–25 to improve community engagement and social licence outcomes through permanent establishment of the Australian Energy Infrastructure Commissioner, development of voluntary national developer standards with the support of the Clean Energy Regulator, and the development of a regulatory reform package to realise community benefits in regional communities.
  • $19.9 million over four years from FY 2024–25 for the Department of Climate Change, Energy, the Environment and Water to develop, agree and maintain a national priority list of renewable energy related projects and process assessments for priority projects.

A recurring theme we hear from the investor and developer community is the significant and increasing time it takes to secure approvals for renewable energy projects in Australia. Committing material funding to the realisation of a more streamlined approach to renewable energy project approvals should help improve investor confidence without compromising biodiversity.

We envisage that the additional funding would support an increase in skilled assessment officers, improved environmental data and regional-scale planning, and enhanced First Nations and community engagement.


The Budget acknowledges investing in a skilled workforce is required to "make Australia a renewable energy superpower", including $44.4 million for an Energy Industry Jobs Plan and $134.2 million for skills and employment support in key regions impacted by the net zero transition.

An allocation of $91.0 million over the next five years is intended to accelerate the development of the clean energy workforce through expanded access to the New Energy Apprenticeship Program and investments in VET clean energy courses.

This Budget also expands support for women training in male-dominated industries through $55.6 million to launch the Building Women's Careers program, focused on supporting women to access training in clean energy, construction, tech and advanced manufacturing, and $38.2 million to support diversity in science, technology, engineering and maths.

Boosting innovation

The global energy transition is an unprecedented opportunity to positively differentiate Australia's long-term global standing through innovation and well-targeted, generous support now, which is in Australia's national interest.

Our thoughts turn to the complex aspects that will help drive the transition, those that can be implemented and repeated at scale across relevant parts of Australia and play to Australia's inherent strengths.

The $1.7 billion to establish the Future Made in Australia Innovation Fund is a helpful continuation of the ARENA's success, and we support its extended focus to the deployment of innovative technologies in green metals, batteries, and low-carbon liquid fuels.

Battery and energy storage

The deployment of Battery Energy Storage Systems is already a booming sector. The daily nature of revenue generation and the relatively small footprint and impact have enabled many of our clients to achieve a final investment decision and execute their projects. Innovation leading to the commercial viability of battery systems in deep storage applications could help de-risk this aspect of the transition.

At GHD, we're working across a few battery technologies and see potential in upscaling flow battery technology by breaking it out of containerised systems and deploying it using large-scale process plant economies of scale. There is also a strong critical minerals link with battery innovation that could bring multifaceted benefits to the Australian economy through a well-funded successful innovation program.

Resources processing
As a global leader in the export of ore, Australia has more than most countries to gain from technological breakthroughs in processing. Not least of which is that we can directly drive emissions reductions in other global regions through the provision of low GHG emissions commodities. Using Australia's renewable power riches to conduct some onshore processing will effectively achieve this goal.
Low-carbon liquid fuels

Unlike green metal technology, the low-carbon liquid fuels industry has viable technology ready to be deployed at scale when the commercial conditions are supportive. However, innovation is needed to further improve the industry performance and competitiveness and the knock-on benefits of reducing low-carbon fuel costs domestically will be substantial.

As we approach the pointy end of achieving Australia's 2030 commitment and the need to push more non-electrified transport into using low-carbon fuels, the benefit of government subsidies will become an imperative. We consider the investment to innovate in the emerging low-carbon fuels industry and differentiate itself globally worthwhile. The question is whether $1.7 billion spread across these sectors and others will be sufficient for Australia to keep up with its global competitors.

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