Australia's battery supply chain players are turning to the federal government for help in the face of lucrative overseas incentives boosting clean energy metals.

Fears of "market-distorting" incentives for clean energy metals and processing provided by the U.S. Inflation Reduction Act have triggered more activity by other countries seeking to diversify their supply chains and move away from China. The European Union launched its Critical Raw Materials Act on March 8 to rival the Inflation Reduction Act, while Canada might adjust its tax policies to stay competitive.

Australian Prime Minister Anthony Albanese launched a consultation for the National Battery Strategy in February. Albanese is pushing for more domestic manufacturing of batteries and solar panels and making other efforts to add value to the country's critical mineral resources.

To make that a reality, chemicals companies and miners in Australia's Future Battery Industries CRC said they need more help from the government in the face of increasing competition from the U.S. and Europe. The Future Battery Industries Cooperative Research Centre is a collaboration formed in 2019 between industry, government and universities that focuses on the battery industry and the energy transition.

"Australia cannot compete with the US$45 subsidy for battery packs, approximately one-third of the total cost," Future Battery Industries CEO Shannon O'Rourke told S&P Global Commodity Insights about the planned subsidies for battery cell production and battery packs in the U.S. O'Rourke said Australia's government needs to "work with the U.S. regarding [Inflation Reduction Act] subsidies and with the EU to secure mutually beneficial free-trade outcomes."

Massive cost disparity

Mineral Resources Ltd. is talking with the Australian government about low-cost, long-term loans and other ideas to come "close to some of the tax breaks and financial investments that other countries are willing to make," Managing Director Chris Ellison said on a Feb. 24 call covering half-year earnings.

Ellison said he struggles to convince joint venture partners to build more downstream processing capacity in Australia in the face of cheaper costs elsewhere. Cost estimates for 60%-owner Albemarle Corp. to add 50,000 tonnes of lithium carbonate-equivalent capacity at the Kemerton lithium hydroxide plant in Western Australia were "well north" of US$1.5 billion, compared with US$600 million for the "same plant exactly" in China, Ellison said.

"They like the ore bodies out here, they're very positive about Australia, but their experience at Kemerton is making it very difficult for me to be able to convince them I can do something for a very different number," Ellison said.

Mineral Resources agreed to pay US$660 million in February to buy half of Albemarle's Qinzhou and Meishan plants in China as part of a joint venture restructuring, but Ellison said: "I have not lost my desire one bit to build whatever I can here in Western Australia."

"If we can get our government to come across with some more benefits to help us to convince our [joint venture] partners to get involved, we will have a much better shot at getting plants built here," Ellison said.

Albemarle expects to take a final investment decision soon to double the capacity of Kemerton, with the third and fourth trains to deliver up to 100,000 tonnes per year of capacity as part of a multibillion-dollar investment, a spokesperson told Commodity Insights.

"More analysis was needed ahead of any decision on a future new conversion facility in Australia, including understanding its cost competitiveness against other locations," an Albemarle spokesperson said.

As a free-trade compliant supplier of lithium, Australia "remains a key part of Albemarle's strategy to build a globally diversified portfolio of assets," the spokesperson said.

Spodumene from the first three trains of the Albemarle/Mineral Resources joint venture's Wodgina lithium mine will be processed in China, but "options will continue to be investigated for conversion locations in the Asia-Pacific (including Australia) for a potential Train 4," the spokesperson said.

Lack of downstream applications

Several challenges "must be navigated in symbiosis between industry and government" to attract downstream investment, said Namali Mackay, managing director of the Critical Minerals Association Australia. Challenges include a lack of large, local terminal markets for critical minerals' midstream and downstream applications, as Australia does not make cars or otherwise have sufficient domestic demand, Mackay told Commodity Insights.

Australia has a "relatively lighter budget allocation and centralized policy initiatives" compared to trading partners and allies, Mackay said. Mackay cited the Inflation Reduction Act and the U.S. Energy Department Loan Programs Office, which "are a significant order of magnitude greater than Australia's, even when normalized by GDP." Mackay also noted the difficulty of coordinating across federal and state agencies.

Australia's government submitted comments to the U.S. Treasury Department and Internal Revenue Service's consultation process in November 2022 with respect to the Inflation Reduction Act, a spokesperson for the Department of Industry, Science and Resources said in an email. It "highlighted a number of benefits Australian critical minerals companies can provide in helping the U.S. meet their objectives under the Act," the spokesperson said.

The Australian government engages both the U.S. and EU "on an ongoing and frequent basis ... to encourage investment in critical minerals to meet global demand and help strengthen global supply chains," the spokesperson said.

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