Biden’s Inflation Reduction Act and Why It Matters

The bill is a massive boon in the shift to net zero. The Act will provide USD $370 billion in incentives, mostly for clean energy manufacturing including hydrogen and electric vehicles.

What is the relevance for Australia? On one hand, the scale-up in clean energy manufacturing favours Australian mineral producers. In order to redeem subsidies, the Act requires automakers and battery manufacturers to source materials from the US or nations with which the country has a free-trade agreement.

Ron Mitchell of Global Lithium Resources told AFR on Monday that US senators have made assurances that the bulk of that material is expected to be sourced from Australia and Canada. Chile and Peru would also be significant competitors in the minerals sector.

On the other hand, if Australia hopes to be more than just the world’s quarry in the net zero transition, the Act presents challenges. Most notable is the hydrogen production tax credit. 

According to the law, hydrogen producers will get a tax credit of USD $0.60 per kilogram of hydrogen produced. 

One analysis suggests this credit could be increased cumulatively if federal regulations surrounding wages and apprentice involvement are satisfied. In this way, the subsidy could potentially reach USD $3 per kg.

Hydrogen production tax credits will be valid for 10 years for any project whose construction commences before 1 January 2033. All in all, it will give a major kick-start to hydrogen produciton in the US.

“It’s absolutely causing people to do projects that they wouldn’t have considered before,” said a commentator for Bloomberg. The AFR claims Fortescue Future industries has already “shifted focus” to producing hydrogen in the US.

One proposal that would radically reduce emissions is producing hydrogen from solar and wind when energy is abundant, then burning hydrogen in high-demand periods.

Unfortunately, all of this is difficult to contemplate for the Australian grid when we still produce only about 40% of our energy through renewables. A decade of inaction has put us clearly behind the 8-ball now that this new opportunity has arisen.

Follow Christian on Twitter for more news updates.

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