Clean technology investors show increased interest in Australia following the government’s introduction last month of a A$22.7bn ($15.1bn) green subsidies package, with some firms already pledging more capital to the country. 

But nearly two years after the US Inflation Reduction Act (IRA) kicked off the green subsidies race, there are signs of wariness over incentives’ ability to foster long-term investment in self-sustaining industries. 

On May 14, the federal government launched the Future Made in Australia (FMIA) plan to support private investment in green hydrogen, critical minerals processing and other clean technologies. 

Incentives in the US and other advanced economies are “the new competition” and “we need sharper elbows” to attract investment, said prime minister Anthony Albanese in a statement. 

Australian investors active abroad tell fDi that FMIA has spiked their interest in the country. “[It] has indeed prompted us to invest more in Australia,” says Christiaan Jordaan, CEO and founder of Sicona Battery Technologies. The New South Wales-based firm is now considering establishing two projects in Australia, each valued at up to $430m.

Sicona is expanding in the US with the goal of becoming the country’s largest producer of silicon-carbon anode materials, and is in ongoing talks regarding IRA benefits. But Jordaan is “optimistic about the opportunities [FMIA] creates for furthering our contributions to [Australia’s] clean energy sector”.

Rod Bristow, CEO of Australian and Singapore-based venture capital firm Investible, believes FMIA will help make the country’s cleantech more competitive. “The government’s commitment to subsidise the production of green hydrogen and solar panels will certainly boost Australia’s capabilities in renewable technologies,” he says. 

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Subsidies race heads south

Australia has gained a reputation as a clean energy leader, ranking third in fDi’s inaugural global renewables league table. But Mr Albanese has warned “it’s always a race” to attract investment and “Australia can’t afford to sit on the sidelines” of the new style of competition.

Since the US approved the $369bn IRA in August 2022, other subsidies packages offered by free-market economies include the EU’s Net-Zero Industry Act, Canada’s record-breaking electric vehicle incentives, Japan’s $19.2bn-worth of hydrogen subsidies and South Korea’s $29bn in battery support. 

FMIA is intended in part to diminish China’s dominance of green supply chains. But like EU and Canadian incentives, it is also a tool to stop investors being lured away from Australia and towards the US’s IRA. 

“We were increasingly hearing companies saying, ‘we'll put our Australian decarbonisation project on hold, because the US government’s throwing hundreds of millions of dollars of subsidies at each project,” says Tim Buckley, founder of local think tank Climate Energy Finance. He points to local resources giant Fortescue last year pledging $550m towards a green hydrogen project in Arizona compared with $50m towards a green iron project in Australia. 

Climate Energy Finance is among industry bodies calling on the government to offer a total of A$100bn in green incentives to compete with the US. If the government is re-elected next year, Mr Buckley expects “significantly more money allocated” to FMIA.

But others have seized on FMIA to warn that incentives risk creating sectors reliant on government handouts, and that they alone cannot reduce Australia’s economic dependence on exporting natural resources.

The global shift towards interventionist industrial policy “doesn’t mean we should forget about economic principles”, says Marina Zhang, an associate professor at the University of Technology Sydney. “We're living in a world where everybody benefits because we’re exchanging comparative advantages,” she says, adding that Australia’s high costs cannot compete with Asia’s and Latin America’s on manufacturing and critical minerals processing.   

A February poll of Australia’s leading economists found that less than 10% recommended the country offer subsidies similar to the IRA, while Australia’s government-appointed Productivity Commission chief told local press that FMIA risks “creating a class of businesses that is reliant on government subsidies, and that can be very effective in coming back for more”. 

Investible’s Bristow also says that “subsidies alone aren’t a silver bullet” and must be part of a broader strategy to ensure locally manufactured products can compete on cost. He also urged the government to give taxpayers full transparency on how incentive allocations are made.

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