Australia and the US deepen their relationship on critical minerals and renewables

Introduction

As demand for critical minerals and renewable technology continues to rise, the US is expanding its proactive measures to secure supply, hold out competitors and maintain leadership on the energy transition. In doing so, the US has continued to look to its allies such as Australia as close partner in trade and in the Indo-Pacific region. US capital is the leading source of foreign investment in Australia.

Australia was already a beneficiary of US policy when it passed the Inflation Reduction Act. There are clear advantages to the US of increased trade and cooperation on the energy transition:

• Australia is one of the world’s foremost producers of the critical minerals essential to electric vehicles and solar panels (such as copper, lithium, nickel, cobalt, and rare earths).
• Australia has the potential for massive renewable energy generation capacity to support the greening of many industrial inputs that will be necessary for the US’ own transition.
• As a free trade agreement partner of the US (since the Australia – US Free Trade Agreement entered into force in 2005), Australia already offered advantages over US allies such as Japan and the European Union (neither of which have free trade agreements with the US).

Nonetheless, the latest announcement of the Climate, Critical Minerals and Clean Energy Transformation Compact (Compact), following last week’s meeting in Japan between President Biden and Prime Minister Albanese, represents yet another huge step forward in leveraging the mutual benefits that will flow from working more closely together. It:

• further strengthens the conditions for US-Australian preferential trade and investment and is likely to increase investment opportunities in both the US and Australia;
• should smooth supply chains and increase supply chain interconnectedness for companies operating across the two countries;
• brings more of the benefits of strong US domestic policy to Australia; and
• is likely to be a welcome development for critical minerals companies and renewables developers who are looking for capital and off-takers to help translate their bold ambitions for their Australian projects into reality.

If the potential of the Compact is realised, it should make it easier than ever for Australian and US companies to invest and do business between the two countries, likely leading to:

• an increase in US investment in Australian critical minerals and renewables projects;
• an expansion of critical minerals refining in Australia;
• supported routes to market for Australian exports (including through interconnected supply chains, preferential tariffs, and long term supply agreements); and
• potentially, a meaningful pathway to Australian manufacturing of electric vehicle batteries.

Most significantly of all (in a detail that deserves emphasis) it will involve President Biden asking Congress to have Australia join Canada in being declared a “domestic source” under Title III of the Defence Production Act (DPA). The DPA is a US federal law originally enacted to assist in mobilisation efforts with respect to the Korean War, and it has been President Biden’s key tool in increasing the speed and scope of clean energy technology manufacturing in the US through incentives for “domestic sources”.

This development could create an unprecedented opportunity for Australian resources companies to secure US investment in mining projects, for the development of more Australian based refineries, and for advanced manufacturing in Australia (largely absent from Australia since the closure of the car manufacturing industry).

What happens now?

• A new Taskforce on Critical Minerals led by the US National Security Council (NSC) and the Australian Federal Department of Industry, Science and Resources (DISR)(the Taskforce), will lead implementation of the Compact’s goals, and engagement with key stakeholders.
• Australia and the US will work towards co-ordinated policies and investment frameworks on critical minerals and renewables technology. This will include removing barriers to investment – noting that US investors already enjoy the most favourable conditions of all foreign investors in Australia.
• The two countries will accelerate the expansion and diversification of end-to-end clean energy supply chains, identifying areas where efforts can be coordinated to develop their respective clean energy industrial bases, including solar, wind, storage, and hydrogen materials and technologies. This will have the aim of an expansion of renewable energy generation, clean energy technologies manufacturing and critical minerals supply, and a reduction in the cost of clean energy.
• The Taskforce will work to align Australian and US emissions standards, which is aimed at securing a harmonised supply chain.
• There will be increased co-ordination in approaches to research and deployment of clean hydrogen.

What can critical minerals and renewables producers hope to see?

• Increased investment opportunities in both Australia and the US.
• Increased government incentives for investment into clean energy technologies and supply chains.
• Increased government engagement with industry in order to identify and remove barriers to the development of critical minerals and renewable energy in each country.
• Collaboration on skills and training for the workforce.
• Further technical engagement from governments on, and standardisation of, battery technologies.
• Development of emissions accounting methodologies for key sectors and products, such as "clean hydrogen" and "green steel", and aligned standards.
• Further research into approaches for deploying green hydrogen.

Joined up efforts to meet the climate adaptation and resilience needs of the Indo-Pacific

Australia and the US have also committed to supporting Pacific-led initiatives to enhance climate change mitigation, adaptation, and resilience efforts. This will include working with Multilateral Development Banks to implement the COP27 decision to establish new climate finance funding arrangements to accelerate climate adaptation, and address loss and damage associated with adverse impacts of climate change in the Pacific Islands. This is likely to go hand-in hand with Australia’s bid to host COP31.

Next steps

This latest announcement is further evidence that climate change and the energy transition has moved to the front and centre of the Australia – US relationship, which will be welcome news for many domestically, and in the region. It will be a particularly welcome development for those in the Australian resources, manufacturing and renewables industries. As the Compact is implemented, we expect to see a significant boost to Australian developers of Australian renewable and critical minerals assets, with more investment sources and greater pathways to high value global trade.

It will be important for industry to engage with the Taskforce to help shape the implementation of the Compact. Opportunities lie in the translation of the Compact to tangible measures. We will be tracking this closely and will continue to share updates and insights.