The US has agreed to work with Australia on greenhouse gas (GHG) emissions reduction, with US president Joe Biden promising to advocate for Australia's inclusion for tax credits under his $369bn Inflation Reduction Act (IRA).
Australian prime minister Anthony Albanese announced the bilateral cooperation under a climate, critical minerals and clean energy transformation compact, establishing climate and clean energy as a "central pillar" of the US-Australian alliance. The deal was announced on the sidelines of the G7 meeting taking place in the Japan's Hiroshima, which has focused on clean energy and manufacturing.
Albanese welcomed the IRA as the "largest ever action" to tackle climate change, but concern has been building about the effects the tax credit policy will have in drawing renewable energy investment away from key US allies such as Japan, the EU and Australia, while also harming foreign manufacturers.
Albanese said Biden will push the US Congress to treat Australian suppliers and activity as "domestic activity in the United States" for the purpose of the Defense Production Act, given that the nations work together on nuclear submarines.
"If we think about industries like hydrogen, without that support, there would be a massive incentive for hydrogen-based industries to be based in the United States," Albanese said. "So the big risk with the Inflation Reduction Act to the world because we need to reduce the world's emissions, not just that one nation state, is that you'll see capital leave Australia to go to the United States. This is about addressing that."
Australia assures Japan over gas, coal security
Albanese has separately promised his Japanese counterpart Fumio Kishida that reliable energy supplies will continue to flow, following an unusual intervention in domestic politics by the Japanese ambassador to Australia last year.
"The prime minister underscored Australia's commitment to remaining a reliable supplier of energy to Japan as both countries transition to net zero," a statement from Albanese's office said.
Australia provides about 70pc of Japan's coal imports and 40pc of its gas imports. Japanese ambassador to Australia Shingo Yamagami last year said business and government leaders were concerned over some policies, including a coal royalty increase in the state of Queensland.
Proposed gas developments in Australia's north will face stronger regulatory scrutiny under changes to climate laws that require net zero scope 1 CO2 emissions from new projects. Japan is a major investor in Australian gas and LNG, including the 8.9mn t/yr Inpex-operated Ichthys LNG project near Darwin, the nation's largest single foreign investment.
