Production Tax Credit for value-add processing of Australia’s critical minerals
REPORT

Production Tax Credit for value-add processing of Australia’s critical minerals

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28.02.2024 - 03:30

Energy transitionNet ZeroClimateData

Our report ‘Production Tax Credit for value-add processing of Australia’s critical minerals’, commissioned by the Association of Mining and Exploration Companies (AMEC), explores how targeted production tax credit for value-add processing of critical minerals can improve Australia’s competitiveness and help our domestic critical mineral sectors reach their potential. Our report finds that introducing a production tax credit for lithium, nickel, vanadium and rare earth metals can make Australia cost-competitive and create opportunities in the downstream processing of critical minerals. Australia’s critical minerals are central to the global energy transition, however global competition has put Australia at a cost disadvantage in downstream processing of critical minerals. Introducing a production tax credit of 10 per cent in Australia would help to equalise production costs with global competitors. While the production tax credit will increase fiscal costs over the forward estimates and medium-term, it will add $2.4 billion of economic activity and support 4,220 ongoing jobs.

Australia needs a targeted policy response to improve its competitiveness in critical minerals while adding $2.b billion to the economy and supporting 4,220 ongoing jobs.

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Australia’s critical minerals are central to the global energy transition, however we are missing out on opportunities to refine our raw materials.

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Australia’s critical minerals are central to the global energy transition; however, we are missing out on opportunities to refine our raw materials. Across lithium, nickel, vanadium and rare-earth metals, Australia has significant reserves and extraction potential, however we currently perform only limited processing, despite enjoying a natural advantage from proximity to raw materials and significant forecast global demand.

This is occurring against a backdrop of a global policy trend introducing policies to secure important industries, which have increased 46 times over the last 12 years. In critical minerals in particular, competitor countries such as the US, Canada and China have all introduced significant new initiatives to secure their sovereign capabilities.

A production tax credit for critical minerals can improve Australia’s competitiveness in the downstream processing of raw materials.

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The IRA has left Australia at a significant disadvantage to the US for downstream processing of critical minerals. Using proprietary industry data from ten firms in Australia’s critical minerals industry, we have determined that Australia’s production is on average 10 per cent more expensive than in the US when it comes to refining critical minerals and producing battery active materials. This has been caused first and foremost by the US’ PTC which provides for a 10 per cent production subsidy both for critical minerals and active materials.

Downstream processing of critical minerals could add $2.4 billion and 4,220 jobs to Australia’s economy by 2035.

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Eliminating the cost differential will lead to an additional $2.4b of economic activity, which is concentrated in mineral refining. This could result in an additional 4,220 jobs in the industry on an ongoing basis. The construction required to develop the plants required to refine minerals and produce active materials will create an additional 1,800 construction jobs at peak construction activity.

Read the full report here.

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Our report ‘Production Tax Credit for value-add processing of Australia’s critical minerals’, commissioned by the Association of Mining and Exploration Companies (AMEC), explores how targeted production tax credit for value-add processing of critical minerals can improve Australia’s competitiveness and help our domestic critical mineral sectors reach their potential. Our report finds that introducing a production tax credit for lithium, nickel, vanadium and rare earth metals can make Australia cost-competitive and create opportunities in the downstream processing of critical minerals. Australia’s critical minerals are central to the global energy transition, however global competition has put Australia at a cost disadvantage in downstream processing of critical minerals. Introducing a production tax credit of 10 per cent in Australia would help to equalise production costs with global competitors. While the production tax credit will increase fiscal costs over the forward estimates and medium-term, it will add $2.4 billion of economic activity and support 4,220 ongoing jobs.

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