Fortescue’s push to axe diesel subsidies could cost ASX miners billions

ASX miners could lose a sizeable subsidy for diesel if it’s switched to green energy.

| More on:
Group of children dressed in green hold up a globe relating to climate change.

Image source: Getty Images

ASX miners could lose sizeable cashflow from the government as Fortescue Metals Group Limited (ASX: FMG) campaigns for the diesel subsidy to be shifted to green energy instead.

The Australian has reported that Fortescue chair Dr Andrew Forrest has been meeting with senior government figures, including Prime Minister Scott Morrison. It’s reported Forrest says the subsidy money could be used to “retool Australia, to support green hydrogen, green ammonia and green electricity”. He has also reached out to Labor to try to achieve bipartisan support.

If the subsidy were ended to Australia’s miners, it could mean that the government would keep between $5 billion to $7 billion a year. It’s estimated that the tax credit total could reach $8.9 billion by 2024.

But most of that subsidy money goes to a select few, large companies like BHP Group Ltd (ASX: BHP), Rio Tinto Limited (ASX: RIO) and Fortescue. It’s reported Fortescue receives around $300 million, with BHP and Rio Tinto getting even more. Newcrest Mining Limited (ASX: NCM) was another that was named as a sizeable recipient.

Forrest is reportedly proposing that the rebate be tapered off from 2025.

Miners aren’t the only ones that claim this diesel credit

The Australian reported that mining companies claim approximately 45% of the total subsidy.

Forrest’s plan reportedly would allow small, medium-sized and family businesses to be able to claim a rebate, as would most agricultural businesses and tourism operators, and that it would be phased out over five years.

It was noted that environmental groups call this rebate a subsidy for fossil fuels, whilst miners say it’s important for Australian industry to be competitive on costs.

Efforts to go green by Fortescue and the world

The Australian reported that last month, Goldman Sachs analysts have calculated that decarbonising Fortescue’s Pilbara operations could cost the company more than US$7 billion.

However, Forrest has said repeatedly that Australia (and the world) doesn’t really have a choice and it’s better to decarbonise sooner rather than later.

I will refer to Fortescue Future Industries in a moment, but the large shift of decarbonisation is identified by some investors as a huge opportunity, not just purely a cost. For example, Nick Griffin from Munro Partners recently told Livewire:

I’d just leave you with this: we think it’s roughly a $30 to $50 trillion expense to de-carbonise the planet. And that’s a $30 to $50 trillion revenue opportunity for the companies that can provide these solutions.

This has potential to be as big an opportunity as the internet was for the last 20 years. That’s the one that we sit and look at today, and go, “This is what excites us about the next 10 years of doing our job.

Fortescue Future Industries (FFI) is the green division of the company that is aiming to take a global leadership position in the renewable energy and green products industry. It wants to make green hydrogen the most globally traded seaborne commodity in the world.

Fortescue says FFI is a key enabler of the ASX miner’s decarbonisation strategy, including Fortescue’s recently announced industry-leading target to achieve net zero scope 3 emissions by 2040.

FFI’s teams have made progress on a number of areas.

There has been the successful combustion of ammonia in a locomotive fuel.

It has completed the design and construction of a combustion testing device for large marine (ship) engines with pilot test work underway and a pathway to achieve completely renewable green shipping fuel.

It has also finalised the design of a next generation ore carrier (ship) that will consume renewable green ammonia.

As well, FFI has been testing battery cells to be used on Fortescue haul trucks.

Further, it has designed and constructed a hydrogen powered haul truck and a hydrogen powered drill rig for demonstration, with systems testing underway.

Fortescue Future Industries has successfully completed production of high purity green iron from Fortescue ores at low temperature in a continuous flow process.

Finally, it has successfully initially trialled to use waste from the green iron ore process noted above, with other “easily sourced materials” to make green cement.

Should you invest $1,000 in Fortescue right now?

Before you consider Fortescue, you'll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Fortescue wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of January 13th 2022

Motley Fool contributor Tristan Harrison owns shares of Fortescue Metals Group Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Resources Shares

a woman wearing a gold top and carrying a gold bar gives the thumbs down signal as she leans against a wall with a sombre look on her face.
Gold

Here’s why the Ramelius (ASX:RMS) share price tumbled 8% to 4-month lows today

Key points The Ramelius share price sank 8% today Investors did not warm to the company’s quarterly results Gold production …

Read more »

A graphic image of three upward pointing arrows with smoke coming from their bottoms, indicating the arrows are taking off just like the Althea share price today
Resources Shares

Did this just cause the American Rare Earths (ASX:ARR) share price to surge 30% higher?

Key points American Rare Earths’ shares are rocketing higher today A letter to shareholders may have given its shares a …

Read more »

ASX miners crash opportunity broker buy asx shares represented by investor throwing hands up towards icons of buy and sell broker upgrade buy
Broker Notes

Time to sell? Macquarie just downgraded these 3 ASX shares from buys

Key points Macquarie comes out with a list of downgrades today The 3 ASX shares are all concentrated in resources …

Read more »

mining worker making excited fists and looking excited
Resources Shares

Is the BHP (ASX:BHP) share price a buy in all of this volatility?

Key points The BHP share price has been outperforming the ASX 200 in 2022 Iron ore continues to rally higher, …

Read more »

A man in a blue collared shirt sits at his desk doing a single fist pump as he watches his Neometals shares rising on his laptop
Resources Shares

Why is the BHP (ASX:BHP) share price leaping ahead today?

The S&P/ASX 200 Index (ASX: XJO) has unfortunately slipped into negative territory so far this Thursday, after an initially strong market …

Read more »

Man open mouthed looking shocked while holding betting slip
Broker Notes

Broker tips Fortescue (ASX:FMG) share price to sink 30% and warns of dividend cuts

The Fortescue Metals Group Limited (ASX: FMG) share price is pushing higher today after a rise in the iron ore …

Read more »

Business man marking Sell on board and underlining it
Broker Notes

Mineral Resources (ASX:MIN) share price falls 5% following brokerage downgrade

Key points The Mineral Resources share price is coming under more pressure after JPMorgan downgraded it to underweight or sell …

Read more »

Female worker sitting desk with head in hand and looking fed up
Resources Shares

Own Rio Tinto (ASX:RIO) shares? What options does the company have in response to the Serbian government’s decision

Key Points Rio Tinto shares withstand market pressure Management looking at legal options to overturn the Serbian Government’s decision Rio …

Read more »