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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