Economic cooperation between Australia and India could unlock new opportunities for investment in clean energy technology. The Institute for Energy Economics and Financial Analysis (IEEFA) explores how public funding and resource pooling could support both nations’ manufacturing ambitions.
Australia’s New Supply Chain Act
Australia’s recently introduced Future Made in Australia Act mirrors initiatives from the US, Europe, and India to channel public funds into domestic clean energy supply chains. This industrial package offers subsidies and incentives to boost local manufacturing, with a focus on decarbonizing economies through ambitious targets, particularly in the power sector.
Challenges and Realities in Clean Energy Supply Chains
As the world’s leading provider of clean energy technology, China controls at least 60% of the global manufacturing capacity for solar panels, wind systems, and batteries. The country also holds about 79% of the world’s polysilicon capacity—half of which is in Xinjiang—leaving global wind and solar companies vulnerable to disruption. This dominance is supported by robust domestic demand, affordable labor, lenient environmental regulations, and favorable government policies.
A key challenge for clean energy supply chains is a heavy reliance on imports from just a few countries. With electricity generation from solar and wind projects outside China projected to increase significantly by 2030, achieving these ambitious targets will require far more stable markets and resilient supply chains.
Building Resilient Clean Energy Supply Chains
Clean energy technology depends on raw materials and minerals such as aluminum, glass, copper, silicon, lithium, cobalt, and nickel. Because extracting and processing some of these materials can be a lengthy process, nations that rely on imports—particularly from China—must invest strategically in their own supply chains.
With clean energy manufacturing concentrated among a few nations and corporations, emerging producers face significant challenges in obtaining funding, entering global markets, and scaling up. Boosting public funding is therefore crucial to mitigate risks in innovation and investment, helping attract more private capital into these supply chains. In response, governments are formulating policies and incentives to encourage domestic manufacturing.
The US Inflation Reduction Act (IRA), for example, allocates nearly $30 billion in production tax credits for the renewable energy supply chain, an approach mirrored by initiatives in the European Union, Japan, and South Korea. India’s production-linked incentive (PLI) scheme for module manufacturing, budgeted at $2.4 billion, is similarly designed to reduce imports and foster domestic clean energy employment.
Governments face the complex challenge of using public funds to boost supply chain resilience and promote local production without imposing trade barriers. However, sourcing domestic content often requires importing materials from the very countries these measures are meant to provide an alternative to. For instance, India’s PLI program has struggled to attract interest in vertical integration, despite its incentives, because of its continued reliance on Chinese raw materials.
Rather than pursuing overly ambitious goals that may not yield the desired outcomes, developing nations like India could focus on offering tailored incentives across various supply chain segments to attract private investment.
Energy Goals through Collaboration
When Australian Prime Minister Anthony Albanese unveiled the Future Made in Australia Act, he highlighted collaboration as essential for reaching clean energy objectives and leveraging each nation’s comparative strengths. By aligning their efforts, countries can reduce supply chain vulnerabilities and ensure fair competition.
The Australia-India Economic Cooperation and Trade Agreement (ECTA), for instance, is designed to facilitate strategic investment by Indian companies in Australia’s critical mineral mining, particularly for resources like lithium and cobalt that are crucial for battery production. The agreement also envisions technical cooperation between Indian and Australian enterprises on mining technology.
Establishing a mutual pool of public funds could ensure sufficient capital is available to finance these agreements. Such funding could be redirected from current expenditures, including India’s PLI for battery manufacturing and the Future Made in Australia Act.
With contributions from multilateral development banks (MDBs), this shared capital pool could act as a catalyst for clean energy. It could provide funding for capacity building, project preparation, and R&D in technology refinement and low-carbon mining in both India and Australia. This approach would enable companies from each nation to strategically invest in the other using these incentives.
Additionally, long-term concessional debt from MDBs could support the expansion of these operations. If managed effectively, these capital injections can attract significant private investment and promote strategic cross-border ventures between private entities in both countries.
A potential model already exists: India’s quasi-sovereign National Investment and Infrastructure Fund (NIIF) recently launched a $600 million bilateral India-Japan fund with the Japan Bank of International Cooperation to finance low-carbon technology in India and encourage collaboration between Indian and Japanese firms. The NIIF could establish a comparable fund in partnership with its Australian counterparts.
