Get ready for fast-tracked investment for critical minerals and clean energy in Australia under new US-Australia Compact

Investors and industry participants should get ready now for co-ordinated policies and investment frameworks on critical minerals and renewable technology within and between Australia and the United States, following agreement on an Australia-United States Climate, Critical Minerals and Clean Energy Transformation Compact at the G7 over the weekend.

Details of the Compact are currently scarce, but so far we know the following from the US and Australian Governments' joint release.

The overall objectives of the Compact are to:

• establish the foundation of the "global clean energy economy";
• reduce the cost of clean energy;
• expand renewable energy generation, clean energy technologies manufacturing and critical minerals supply; and
• meet the climate adaptation and resilience needs of the Indo-Pacific.

Central to the Compact is the establishment of the Clean Energy Industrial Transformation Forum that is to set the deliverables of the Compact, with an agreed action plan planned by the end of 2023.

All renewable energy technologies are targeted, although solar, wind, storage and clean hydrogen were expressly referenced in the announcements.

Removing barriers to investment between the US and Australia and creating investing incentives are identified, although how this is to be achieved is not yet clear and will presumably be primary considerations of the Forum. What we do know is that Australia might be listed as a domestic source in the US Defense Production Act (DPA). The DPA is a US federal law originally enacted to assist in mobilisation efforts with respect to the Korean War, and was relied upon by President Biden in June 2022 to increase the speed and extent to which manufacturing of clean energy technologies was undertaken. Its focus is on incentivising "domestic sources" and, to date, only Canada has been considered a "domestic source" for the purposes of the DPA.

The potential for Australia to be classified as a domestic supplier under the DPA would significantly remove barriers for US investment in Australian critical minerals and renewable technologies and manufacturing. With its large reserves of critical minerals (such as copper, lithium, nickel, cobalt and rare earths) and massive renewable energy capacity, Australia stands to benefit greatly from the Compact.

Areas targeted by the Compact include:

• a new Taskforce on Critical Minerals comprising the Australian federal Department of Industry, Science and Resources and the US NSC, which will include engagement with key industry stakeholders;
• government incentives for investment into clean energy technologies;
• increased information sharing on co-ordination of critical mineral supply, focusing on building on existing channels such as:
  • the Minerals Security Partnership (Australia, Canada, Finland, France, Germany, Japan, Korea, Sweden, the United Kingdom, the United States, and the European Union);
  • the Conference on Critical Materials and Minerals (in which Japan, the US, the EU, Australia, and Canada exchange information on policies governing critical materials and minerals); and
  • the Minerals and Energy Resources Governance Initiative (founded by Australia, Botswana, Canada, Peru and the US to foster better governance and resilient supply chains in the energy mineral sector);
• further technical engagement on, and standardisation of, battery technologies;
• co-ordination in approaches to research and deployment of clean hydrogen.

The Forum will identify specific measures for achieving the goals, however the Joint Release has already signalled an intention for the Compact to facilitate:

• engagement with industry to identify and remove barriers to development of critical minerals and renewable energy in each country, including enhancing two-way investment flows between the financial sectors of both countries;
• collaboration on projects and standards for clean energy supply chains to support implementation of domestic policy agendas (including in connection to the Inflation Reduction Act and the Powering Australia Plan) and to boost the production of high-quality and sustainable clean energy products that are competitive in global markets;
• development of emissions accounting methodologies for key sectors and products, such as "clean hydrogen" and "green steel", and align standards; and
• collaboration on skills and training for the workforce.

Lastly, the Compact includes commitments by Australia and the United States to support Pacific-led initiatives to enhance climate change mitigation, adaptation, and resilience efforts. Australia is bidding to host COP31 in partnership with the Pacific islands to highlight the existential threat climate change is posing to these nations. According to the Compact, both countries are committed to working closely together, and with partners including Multilateral Development Banks, to implement the decision at COP27 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.