Chapter 1Introduction
1.1On 28 November 2024, the Senate referred the provisions of the Future Made in Australia (Production Tax Credits and Other Measures) Bill 2024 (the bill) to the Senate Economics Legislation Committee (the committee) for inquiry and report by 30 January 2025.
1.2The first chapter of this report outlines the purpose and provisions of the bill.Chapter two examines stakeholder views on the bill and provides the committee view and recommendation.
Purpose of the bill
1.3Key features of the bill include:
the establishment of the Hydrogen Production Tax Incentive (HPTI) in the form of a new tax offset;
the establishment of the Critical Minerals Production Tax Incentive (CMPTI) in the form of a new refundable tax offset; and
the amendment of the Aboriginal and Torres Strait Islander Act 2005 (ATSI Act) to reform Indigenous Business Australia’s (IBA) borrowing powers to enable greater investment in First Nations individuals, communities and businesses.
1.4The bill partially implements the Future Made in Australia – Making Australia a Renewable Energy Superpower and the Future Made in Australia – Attracting Investment in Key Industries measures in the 2024-25 Budget.
1.5In his second reading speech, the Treasurer, the Hon Dr Jim Chalmers MP, stated:
We have been dealt the most incredible set of cards as a country to make ourselves the primary beneficiaries of the global net zero economy. We have a unique combination of geological, meteorological, geographical and geopolitical advantages. And we know that it would be an egregious breach of our generational responsibilities as a government if we didn't play this winning hand. This legislation is part of how we make the most of that opportunity.
1.6Further, the Treasurer asserted that the bill:
provides industry the clarity and certainty that it needs to invest in Australian renewable hydrogen and critical minerals projects;
opens the door to create green metals including iron, steel, alumina, and aluminium;
creates trade opportunities in products that are produced from green hydrogen, like green ammonia or green metals;
takes advantage of Australia’s ownership of some of the world's largest reserves of lithium, cobalt and rare earths;
encourages critical mineral companies to create more value within Australia by helping critical minerals miners to become critical minerals refiners and processors as well.
1.7The final part of the bill expands the role and remit of IBA by amending the ATSI Act to give IBA the flexibility to pursue a range of opportunities with government and private partners to support First Nations economic empowerment. IBA promotes First Nations economic self-determination through lending and investment in home ownership, business support, and assets and investments. These activities support First Nations people to start, grow, and sustain businesses, purchase homes, and invest in commercial ventures with the aim of long-term self-sufficiency and economic empowerment.
1.8The Explanatory Memorandum states that the amendments to the ATSI Bill enable IBA to directly borrow to allow increased investment to support First Nations economic empowerment. Access to capital continues to be a significant barrier to First Nations economic development and empowerment, and without amendments to the ATSI Act, the IBA is constrained in its ability to pursue opportunities to finance activities that align with government priorities.
Background
1.9In the 2024-25 Budget, the government announced a $22.7 billion Future Made in Australia agenda. The initiatives in the package aim to create new jobs and opportunities across Australia by maximising the economic and industrial benefits of the move to net zero carbon emissions. The agenda included a National Interest Framework to guide targeted public investment into priority industries and sectors.
1.10Renewable hydrogen was identified as being aligned with the Net Zero Transformation Stream of the National Interest Framework as it was assessed that public investment could aid in unlocking private investment to drive the development of a renewable hydrogen industry. Australia has committed to reaching net zero greenhouse gas emissions by 2050, and the development of the renewable hydrogen industry will go towards facilitating the net zero transition and meeting Australia’s international commitments.
1.11Similarly, the processing of critical minerals was identified as a priority sector under the Economic Resilience and Security stream of the National Interest Framework. Investment in downstream critical minerals processing is seen as a way to value-add from the initial stages of mining critical minerals and growing capability in processing and refinement.
Guarantee of Origin Scheme
1.12Supporting the Future Made in Australia agenda is the Guarantee of Origin Scheme (GO Scheme). The GO Scheme is a voluntary framework to track and verify emissions associated with renewable electricity and clean products, including hydrogen. Participants in the scheme will be able to use emissions accounting methodologies to create certificates for each kilogram of hydrogen produced. These certificates can then be used as evidence of the characteristics associated with their product.
1.13The GO Scheme uses profiles to capture information about users of the scheme. Three types of profiles can be registered:
A production profile – which captures information about the production facility, including the owners, the location, capacity, or electrolyser size.
A delivery profile – which captures information about entities transporting or storing the product between the point of production and point of use.
A consumption profile – which captures details about the end consumption of the product.
1.14Holders of a production profile can create certificates for each kilogram of hydrogen. These will contain details including the production pathway and the emissions-intensity of the hydrogen. Once a delivery profile holder has added post-production information to the certificate, the holder of the production profile can apply to the Clean Energy Regulator (CER) to register the certificate. If the CER approves, the certificate will be published on the register.
Community Benefit Principles
1.15As part of the Future Made in Australia agenda, the government established the Community Benefit Principles. These principles aim to ensure that public investment, and the private investment it attracts, flows to communities in ways that benefit local workers and businesses. The Community Benefit Principles are:
promote safe and secure jobs that are well paid and have good conditions;
develop more skilled and inclusive workforces, including by investing in training and skills development and broadening opportunities for workforce participation;
engage collaboratively with and achieve positive outcomes for local communities, such as First Nations communities and communities directly affected by the transition to net zero;
supporting First Nations communities and traditional owners to participate in, and share in the benefits of, the transition to net zero;
strengthen domestic industrial capabilities including through stronger local supply chains; and
demonstrate transparency and compliance in relation to the management of tax affairs, including benefits received under Future Made in Australia Supports.
1.16Decision makers must consider these principles when delivering Future Made in Australia programs to ensure that the benefits of these investments are widely shared. As the explanatory memorandum to the Future Made in Australia Bill 2024 sets out, this requirement:
…can be satisfied through further specification of requirements for Future Made in Australia supports on a program-by-program basis, such as by issuing guidance in a Statement of Expectations to an independent authority, implementing specific requirements as part of relevant legislation or program guidelines, or requiring the satisfaction of a Future Made in Australia Plan.
1.17Specific commitments can be made enforceable through contractual or legal mechanisms, which could also specify appropriate consequences if these conditions are not met.
Previous reports
1.18In September 2024, this committee tabled its report into the provisions of the Future Made in Australia Bill 2024 and the Future Made in Australia (Omnibus Amendments No. 1) Bill 2024. The committee recommended that the bills be passed and was strongly of the view that ‘the Community Benefit Principles are an integral aspect of the Future Made in Australia agenda’. The committee particularly supported the requirement for government to have regard to these principles during decision-making, and for recipients of Future Made in Australia funding to adhere to them, to ensure that ‘the public benefit of the Future Made in Australia agenda is genuinely felt in the community and the economy’.
Provisions of the bill
1.19The bill contains three schedules:
Schedule 1 established the HPTI in the form of a new tax offset called the hydrogen production tax offset. This is a refundable tax offset that is available at a rate of $2 per kilogram of eligible hydrogen.
Schedule 2 establishes the CMTPI, in the form of a new refundable tax offset, to support the processing of critical minerals in Australia.
Schedule 3 amends the ATSI Act to reform IBA’s borrowing powers to enable greater investment in First Nations individuals, communities and businesses.
Schedule 1
1.20Schedule 1 to the bill amends the tax law to allow the establishment of the HPTI. The HPTI takes the form of a refundable tax offset of $2 per kilogram of eligible hydrogen. The offset is available to companies that meet the requirements set out in the bill and there is no cap on the amount a company can receive under the offset. The HPTI can only be claimed for hydrogen produced between 1 July 2027 and 1 July 2040, as it is the government’s intention that this measure support early investment.
1.21The Department of Climate Change, Energy, the Environment and Water (DCCEEW) reported that hydrogen production and export targets are central aspects of Australia’s 2024 National Hydrogen Strategy. The strategy sets a target for Australia to produce at least 15 million tonnes of renewable hydrogen per year by 2050, supported by 5-yearly milestones. Achieving these targets requires significant private investment. According to DCCEEW, the HPTI will ‘help to bridge the commercial gap currently facing renewable hydrogen projects and enable the sector to achieve scale by supporting early movers and building familiarity within the hydrogen and finance sectors with large scale projects’.
Eligible companies
1.22There are four requirements for a company to be eligible for the HPTI in any income year. A company must:
be a constitutional corporation;
hold the GO Scheme production profile under which the hydrogen was produced;
be subject to Australian tax in relation to any income from its activities relating to the production of the hydrogen; and
comply with the rules implementing the community benefit principles for the HPTI.
1.23The first requirement for a company to be entitled to the tax offset is that it is a constitutional corporation. Entities that are not corporations, such as trusts or partnerships, cannot be constitutional corporations and are not eligible for the hydrogen production tax offset. If a company that is a member of a consolidated group is a constitutional corporation and satisfies all the other requirements to be eligible for the hydrogen production tax offset, the head entity for the group will be able to claim the hydrogen production tax offset in respect of the member’s entitlement.
1.24The second requirement for a company to be entitled to the offset is the creation of the Product Guarantee of Origin (PGO) certificate for hydrogen under the GO Scheme. To be able to create a PGO certificate, the company must be the holder of the production profile related to the hydrogen. This requirement will make it clear which company exactly is entitled to the tax offset for any quantity of hydrogen.
1.25The third requirement for tax offset eligibility is the need to be subject to Australian tax on income from ‘the activities in the course of which it created the PGO certificate’. This makes it so that a company must be in a position where any income derived from their activities relating to the production of hydrogen must be taxable in Australia. It should be noted that this does not mean that the company must derive taxable income in a particular income year, just that it must be subject to tax on any income it might derive.
1.26The final requirement for a company to be eligible is the need for the company to comply with the community benefit principles for the HPTI. The rules implementing the community benefit principles for the HPTI are made by the Treasurer and specify conditions that must be met for a company to be eligible for the offset. A company may also have its offset reduced in a given year if they do not comply with the rules. The Explanatory Memorandum notes that the rules will need regular updating to address changing circumstances, and so it is not considered feasible to include the requirements in primary law. However, the rules will be subject to disallowance and sunsetting after ten years and will therefore be subject to appropriate parliamentary scrutiny.
Eligible hydrogen
1.27Eligibility rules also apply to the hydrogen produced. For a kilogram of hydrogen to be eligible for the offset it must meet the following criteria:
produced in Australia between 1 July 2027 and 1 July 2040;
a registered PGO certificate for the kilogram of hydrogen that indicates the hydrogen was:
produced at the facility specified in the production profile,
the production emissions intensity of the hydrogen did not exceed 0.6 kg of carbon dioxide per kilogram of hydrogen, and
if electricity used to produce the hydrogen was sourced from a grid, it meets the grid matching requirements;
the nominated production profile was certified at the time of production;
the kilogram of hydrogen was produced during the offset period for the facility and the production pathway; and
no correction notice for the PGO certificate is in force.
Administration
1.28The HPTI will be jointly administered by the Australian Taxation Office (ATO) and CER. The CER’s responsibilities are mainly in the certification of production profiles. All significant decisions of the CER are subject to administrative review by the Administrative Review Tribunal.
1.29The ATO will be the main administrator of the tax offset. The tax offset will be self-assessed by the company with an amount included in the company’s income tax return in relation to a given income year. The ATO’s general administration, dispute, and compliance powers and functions will apply.
Schedule 2
1.30Schedule 2 to the Bill establishes the CMPTI in the form of a new refundable tax offset. The offset is available for income years starting 1 July 2027 and ending 1July 2040 and is equal to ten per cent of the eligible expenditure of the company.
1.31A company is eligible for the offset if it meets the following requirements:
it is a constitutional corporation;
the income year starts on or after 1 July 2027 and ends on or before 30 June 2040;
it carries out one or more CMPTI processing activities for which it is registered within the income year;
it incurred CMPTI expenditure for the income year through carrying out one or more of these processing activities;
it is not an exempt entity;
the company meets the conditions of any rules implementing the community benefit principles for that income year; and
it satisfies residency requirements during the income year.
1.32A company can register an activity for the CMPTI by applying to the Secretary of the Department of Industry, Science and Resources (DISR). The application must detail the critical mineral processing activities, the facilities at which the activities will occur, and the basis on which the company considers it will satisfy the requirements to be eligible for the CMPTI tax offset.
1.33Eligible activities are those that involve transforming a critical mineral through extractive metallurgical processing into a purer or more refined form of the mineral. Eligible critical minerals can be found on DISR’s Critical Minerals List as of 14 May 2024. Any minerals added or removed from the Critical Minerals List after this time will not automatically result in changes to the status of critical minerals in the legislation for the purposes of the CMPTI tax offset.
1.34Activities including mining, beneficiation, and manufacturing are not included as CMPTI processing activities. In most cases, these activities would not involve extractive metallurgical processing or transformation of a critical mineral. Also, it does not matter if these activities occur as part of a wider process. If an activity involves one of these excluded activities it is not a CMPTI processing activity. The regulations may prescribe further exclusions in future.
Schedule 3
1.35According to the Explanatory Memorandum, Schedule 3 of the bill:
…amends the ATSI Act to give IBA a power to borrow money in connection with the performance of its functions where it is authorised by the PGPA Act or where the Minister for Finance has agreed to rules prescribing the circumstances and limits of the borrowing.
1.36IBA’s objective is to promote self-sufficiency and long-term economic empowerment for First Nations communities across Australia. It does this through lending, investment, and support for First Nations home ownership, business support, and assets and investments. Access to capital is a key barrier for economic development and empowerment and, without amendments to the ATSI Act, IBA is constrained in how it can pursue opportunities for finance.
1.37The amendments provided for in Schedule 3 would repeal and substitute the existing Section 183 with the following:
183 Borrowing
(1)Indigenous Business Australia must not borrow money for a purpose in connection with Indigenous Business Australia’s functions unless the borrowing is authorised by subsection (2) or under section 57 of the Public Governance, Performance and Accountability Act 2013.
(2)Indigenous Business Australia rules (see section 189A) may prescribe:
(a)circumstances in which Indigenous Business Australia may borrow money for a purpose in connection with Indigenous Business Australia’s functions; and
(b)limits or conditions on the borrowing of such money.
1.38These amendments allow IBA to borrow for a purpose connected to its functions, as long as the borrowing is authorised by rules agreed to by the Minister for Finance or under section 57 of the Public Governance, Performance and Accountability Act 2013 (PGPA Act). Doing so allows IBA to borrow in a tailored way while maintaining appropriate controls to limit financial risks.
1.39Schedule 3 also enables the Minister to make rules, in the form of a legislative instrument, called the Indigenous Business Australia rules. The rules would prescribe the circumstances and limits for borrowing by IBA and will be subject to the same level of parliamentary scrutiny as regulations, including consideration by the Senate Standing Committee for the Scrutiny of Delegated Legislation.
1.40Any rules that are inconsistent with the ATSI Act are taken to be consistent to the extent that they can operate concurrently with existing regulations.
Financial impact
1.41Schedule 1 of the bill is estimated to have a financial impact of $6.7 billion over the ten years from 2024-25, beginning in 2027-28. Schedule 2 of the bill is estimated to have a financial impact of $7 billion over the 11 years from 2023-24, beginning in 2027-28.
1.42Schedule 3 to the bill has been assessed to have no financial impact.
Human rights implications
Schedules 1 and 2
1.43The Explanatory Memorandum states that Schedules 1 and 2 of the bill are ‘compatible with human rights as [they do] not raise any human rights issues.’ The sole effect of these two schedules is to provide for payments and reductions in tax liabilities for affected companies and industries.
Schedule 3
1.44Schedule 3 to the Bill engages the right to self-determination in Article 1 of the International Covenant on Civil and Political Rights (ICCPR) and Article 1 of the International Covenant on Economic, Social and Cultural Rights (ICESCR). The right to self-determination under the ICCPR and ICESCR is a collective right that applies to groups of peoples and entails the entitlement of people to have control over their destiny and to be treated respectfully. This includes the freedom to collectively pursue their economic, social and cultural development without interference.
1.45Additionally, the United Nations Declarations on the Rights of Indigenous Peoples (UNDRIP) provides for Indigenous peoples to participate in decision-making for matters which would affect their rights. Participation is through representatives chosen by themselves in accordance with their own procedures. The Explanatory Memorandum explains that although UNDRIP is not included in the definition of ‘human rights’ under the Human Rights (Parliamentary Scrutiny) Act 2011, it informs the way governments engage with and protect the rights of First Nations people.
1.46The Explanatory Memorandum states that:
Access to capital continues to be a significant barrier to First Nations economic development and empowerment. Schedule 3 to the Bill 2024 will allow IBA to borrow and raise funds, providing IBA with flexibility to pursue a range investment opportunities and ultimately deploy a greater amount of finance and investment to support First Nations economic empowerment.
1.47The Explanatory Memorandum concludes that Schedule 3 to the bill is compatible with human rights as it promotes the right to self-determination under the ICCPR and ICESCR.
Conduct of the inquiry
1.48The committee advertised the inquiry on its website and wrote to relevant stakeholders and interested parties inviting written submissions by 9 January 2025.
1.49The committee received 49 submissions as well as answers to questions on notice, which are listed at Appendix 1.
1.50The committee held a public hearing for the inquiry in Canberra on 23January2025. The names of witnesses who appeared at the hearing can be found at Appendix 2.
Acknowledgements
1.51The committee thanks all individuals and organisations who assisted with the inquiry, especially those who made written submissions and participated in the public hearing.
Notes on references
1.52In this report, references to the Committee Hansard are to the Proof Hansard and page numbers may vary between Proof and Official Hansard transcripts.