Australia and US sign agreements on clean energy transformation

The two countries signed the agreement on the sidelines of the G7 summit, which was held in Japan in May. They agreed to “deepen bilateral collaboration on the critical minerals and materials that are vital to clean energy as well as defense supply chains”.

The US has long been Australia’s largest direct investor. The two-way investment relationship between the countries is worth a remarkable US$1.47 trillion and is growing every year. 

Under the agreement, the US and Australia have committed to building up a responsible, secure and inclusive global clean energy economy; take steps to expand the clean energy supply chain and address the growing needs of the Indo-Pacific region. The countries have also committed to prioritise improving mechanisms for information sharing and technical cooperation as well as advancing defence and security cooperation. Critically, as part of this initiative, US President Biden is seeking to include Australia as a "domestic source" within the meaning of Title III of the Defence Production Act (DPA), a status that to date is shared only by close US ally and neighbour Canada.

Under the DPA, the US president is authorised to incentivise production and supply of critical materials and goods via loans, loan guarantees, direct purchase commitments and by establishment of voluntary agreements with private industry. Relevantly for Australia’s already highly developed mining industry, section 303 of the DPA allows the president to incentivise mining exploration and development. If successfully implemented, these powers will allow the US government to treat relevant Australian businesses as if they were within their own jurisdiction for funding purposes.

As an example of how this would work in practice, on 31 March 2021 Canada was listed as a “domestic source” for the purposes of the DPA. Since then, US government funds have been applied to spend US$50 million jointly on US and Canadian production capabilities in relation to printed circuit boards which were in short supply that year. Additionally, despite Canada’s relatively small deposits of critical minerals, the US administration has also looked at funding new mining projects, specifically in relation to lithium for electric vehicle batteries.

Underlying these commitments and initiatives are US policymakers’ increasing awareness of the vulnerability of US supply chains, particularly in relation to critical minerals such as cobalt, lithium and antimony among others, needed for production of defence materiel and electric vehicles. A second factor is the US and Australia’s joint ambition in seeking to develop solutions to tackle climate change by transitioning to cleaner sources of energy.

Australia is particularly well placed to provide the minerals, technologies and manufacturing capabilities sought after by the US and the region given the country’s vast mineral wealth, its world class expertise in mining and its well-developed technology sector. Companies that are geared towards clean energy, defence and mining technologies as well companies capable of making Australia’s extraction, processing, manufacturing and export of critical minerals more efficient, stand to gain renewed attention and potential financial incentives. The re-classification of Australia will allow Australian companies to take advantage of capital previously out of reach and it will enable targeted investment in critical Australian industries and infrastructure.

The initiative of seeking to recalibrate and coordinate US and Australian climate change mitigation actions will be undertaken by a newly established forum on Clean Energy Industrial Transformation whereas coordination on initiatives relating to securing critical minerals will be undertaken by a Taskforce on Critical Minerals. As such, industry leaders in clean energy technologies, critical resources mining, manufacturing and defence production and related industries should keep a close eye on these bodies and any further developments.

Co-written by Robert Merrillees-Larsen of Pinsent Masons.