On Tuesday night, the Australian Government handed down the 2022/23 Federal budget.
In our full Federal Budget Report, we reflected on the fact that Australia remains a ‘lucky’ country in having a stable political environment, vast natural resources and low unemployment. The challenge for the Government will be capitalising on those advantages and being able to smooth short term issues while still ensuring long term prosperity.
Will the energy and infrastructure initiatives provide an opportunity for longer term prosperity? We summarise two key themes that were announced last night:
- A dramatic but temporary halving of the fuel excise tax; and
- A continuation of Minister Angus Taylor’s ‘technology not taxes’ approach to energy security and prices.
The 50% fuel excise reduction will apply for 6 months, lowering the excise for petrol and diesel from 44.2 cents to 22.1 cents per litre. The reduction will not apply to aviation fuel. The reduction is one of the major planks in the government’s policy to ease cost-of-living pressures ahead of a looming election, and the government will be watchful that the reduction is passed on to motorists.
Turning to energy prices, energy security and emissions:
- This is the first budget since Australia committed to net zero emissions by 2050.
- There were no surprise policy announcements that deviated from Taylor’s ‘technology not taxes’ mantra. Projects were talked about, carbon pricing was not.
- The budgetary narrative was focused on balancing the new net zero goal with maintaining energy security. So, investment to support Darwin as a clean hydrogen production hub was balanced with investment in priority gas infrastructure to firm up dispatchable electricity supply.
In total, the budget includes $1.3 billion of new investments directed at maintaining energy security, exerting downward pressure on energy pricing and reducing emissions. This $1.3 billion includes:
- $300 million to support low emissions LNG and clean hydrogen production at Darwin
- $247 million to support private sector investment in low emission technologies
- $200 million to increase onshore processing of iron ore exports to support low emission steel production in Indo-Pacific customer countries
- $200 million to enhance Australia’s supply chain security through new low emissions manufacturing facilities
- $148 million to support investment in affordable and reliable power, including community microgrid projects in rural Australia
- $100 million to de-risk private sector investment in grid firming in the Pilbara region
- $100 million to support pre-final investment decision activities to make Newcastle port ‘hydrogen ready’
- $50 million to accelerate the development of priority gas infrastructure projects and support investment in carbon capture and storage pipeline infrastructure
The budget papers also spruiked the already-announced $1.4 billion support for the expansion of the Snowy Mountains Hydroelectric Scheme, Snowy 2.0, which will increase the capacity of the Snowy system by almost 50%. The government is understandably proud of the initiative: Snowy 2.0 will contribute to both renewable and dispatchable targets, to both net zero and energy security.
In summary, the size of the opportunity to participate in the federal government’s investment in its energy infrastructure is significant. More than a billion dollars is earmarked for private-sector projects that firm up the grid, expand dispatchable supply, and support the growth of Australia’s low emission technology manufacturing facilities.