The Australian Parliament passed legislation on 11 February 2025 for two significant tax incentives aimed at bolstering Australia’s critical minerals and hydrogen production sectors.
The incentives form a significant part of the Government’s ‘Future Made in Australia’ policy. The policy is designed to stimulate investment and support Australia’s transition to a Net Zero economy, while enhancing our production capabilities in critical minerals and renewable hydrogen, which are seen as key to Australia’s economic future.
Why was the legislation introduced and who does it apply to?
The Critical Minerals Production Tax Incentive (‘CMPTI‘) and the Hydrogen Production Tax Incentive (‘HPTI‘) were introduced to improve Australia’s domestic capability in processing critical minerals and renewable hydrogen, improving Australia’s national security, economic resilience, reduce dependence on foreign imports and fostering value added domestic industries.
The CMPTI targets critical minerals such as lithium, cobalt and rare earth minerals which are essential inputs for modern technology and the transition to renewable energy. There are currently 31 critical minerals which are listed on the Australian Government critical minerals list. The HPTI seeks to promote the production of renewable hydrogen, which is seen as key transitioning to low carbon energy production. The final legislation, as amended by the Greens, has removed Uranium from eligibility to the CMPTI.
What is the intended impact on the Australian economy?
The intended impact of the incentives is to encourage investment in developing technologies, creating jobs and stimulating economic growth (including in regional areas), and creating a robust domestic industry that will make Australia a leading country in the global supply chain in the transition to renewable energy and a low carbon economy. It is hoped that this will increase Australia’s economic competitiveness and resilience, improve national security, reduce dependence on imports, and ensure more value is added to commodities mined in Australia.
The incentives are aimed to reduce operating costs to improve the economic viability of large-scale projects within Australia. This in turn will lead to improved technological innovation and support downstream investment in manufacturing and the renewable hydrogen sector.
When is the legislation applicable and what is the current status?
The CMPTI and HPTI are set to commence from 1 July 2027, until 30 June 2040, with a maximum incentive period of 10 years for each project.
The timeframe is intended to provide long-term support and certainty for investors as well as aligning with Australia’s climate obligations.
The stakeholder response has been mixed as to the duration of the incentives, with some arguing that they are too short given the typical lead times for exploration, discovery, development, and extracting of mineral resources, particularly given the high levels of regulation around mining life cycle. Others argue that the timeframe is sufficient for Australia to establish a foothold in these emerging technologies before the innovation opportunities are taken by other nations.
The legislation was introduced to the House of Representatives on 25 November 2024. On 28 November 2024, the legislation was referred to the Senate Economics Legislation Committee which tabled the report on its findings to Parliament on 31 January 2025, recommending that the bill be passed. The bill was subsequently passed on 11 February 2025.
How does the legislation operate?
The CMPTI offers a 10 per cent refundable tax offset for eligible processing and refining costs in relation to Australia’s (currently) 31 critical minerals. Eligible costs include operational expenditure such as materials, labour, energy costs, however excludes depreciation and financing costs, as well as feedstock expenses. A maximum credit period of 10 years will apply to each project.
The HPTI provides a refundable tax offset of $2 per kilogram of renewal hydrogen produced for up to 10 years for projects that have reached final investment decision by 2030. There is a minimum 10 MW facility threshold, ensuring large scale projects are targeted. In order to qualify, the project must meet stringent environment requirements around emissions intensity thresholds. Australia’s Guarantee of Origin scheme will overlay, ensuring the environmental data is verifiable to international standards.
What are the opportunities associated with the incentive?
The main opportunities for industry and the Australian economy are as follows:
- Increasing Australia’s international competitiveness by decreasing the costs of operating processing facilities in the critical minerals and hydrogen sectors
- Encourage investment in new projects and innovation due to improved economic feasibility of projects
- Stimulate growth in the critical minerals and hydrogen sectors with the aim of establishing Australia as a significant player in these sectors
- Assisting to deliver on Australia’s objectives and international obligations to transition to a low carbon economy.
- What are the risks associated with the incentive?
The main risks for industry and the Australian economy include:
- The incentive period is too short to attract the necessary investment required, due to long lead times for projects
- The start date is too late given the need to establish projects quickly to stay ahead of international competition
- Regulatory requirements in Australia are complex and counteract the objective to reduce costs to establish and operate projects
- Markets are volatile and subject to large changes in the viability of projects, particularly in the critical minerals space
- The rate of technological change is rapid and the incentive can only partially de-risk projects.
There is no doubt that the incentives provide important initial steps in establishing value added critical minerals and hydrogen production industries in Australia. These are crucial in playing a role in Australia’s transition to a low carbon economy, as well as fostering a more diversified and innovative economy that is less dependent on high value imports and exports of low value-added commodities.
