Australia’s 2025–26 Budget: What Climate Investors Need to Know
The Albanese Government’s 2025–26 Federal Budget signals a clear intention to back clean energy and industrial decarbonisation — but investors will also note where support falls short. While there are new incentives for green manufacturing and large-scale renewables, funding for nature, adaptation, and climate resilience remains modest. And despite the broader climate agenda, fossil fuel subsidies continue largely untouched.
Clean Energy and Heavy Industry: New Capital Signals
Central to the budget is the Future Made in Australia strategy — a $22.7 billion commitment over a decade to position Australia as a clean energy and green manufacturing hub. For institutional investors and asset managers, this offers a clearer and more de-risked pipeline of investable projects.
Key announcements include:
$2 billion Green Aluminium Production Credit, supporting smelters to transition to renewable power by 2036 through production-based grants. The aim is to ensure Australia’s aluminium becomes among the world’s cleanest.
$1 billion Green Iron Investment Fund to support new or transitioning low-emission iron production facilities.
$1.5 billion Innovation Fund, including targeted funding for green metals, clean energy tech manufacturing and low-carbon fuels.
$2 billion for the Clean Energy Finance Corporation (CEFC), expected to unlock $8 billion in private capital.
Over $666 million to Australian Renewable Energy Agency (ARENA) in 2025–26 through special appropriations for energy innovation.
These measures offer clearer signals for investors in the early and growth-stage green industry. The additional funding to CEFC and ARENA expands public capital available for blended finance and concessional lending, helping to reduce risk for private-sector participants.
Short-Term Relief for Households and SMEs
In addition to industry support, the government is offering energy bill relief to consumers, with households receiving $150 and small businesses also eligible for rebates. We see this as short-term in nature, and is designed to cushion the impact of energy price volatility and build goodwill during the clean energy transition.
Funding Peaks, Then Declines
Despite these strong headlines, total funding for climate and environmental programs is set to decline sharply. According to the Climate Council, climate and environment funding will fall from $7.6 billion in 2024–25 to just $2 billion by 2027–28. KPMG’s analysis shows the same trend, with spending peaking early and tailing off over the forward estimates.
Environmental programs fare no better. Total spending drops from $2.7 billion to $1.8 billion by 2027–28, with real-term cuts to the Natural Heritage Trust and the Reef Trust of 12% and 33% respectively.
In contrast, fuel tax credits — which largely benefit fossil fuel-intensive sectors — will cost $42.4 billion across the same period. That’s more than double the combined climate and environment budget.
Nature and Adaptation: Missed Opportunities
The budget includes a $250 million commitment to protect bushland and help meet Australia’s “30 by 30” conservation target. But there’s no significant new investment in climate adaptation, resilience or disaster preparedness — despite the Climate Council estimating that climate-fuelled disasters are already costing the economy $13.5 billion a year.
Investors focused on nature-positive strategies, biodiversity credits or resilience-linked infrastructure will find few new opportunities. Mandatory nature-related financial disclosures are still progressing — a welcome development for ESG-aligned portfolios — but funding for implementation remains unclear.
Investor Perspective: Where to Focus
Takeaways for Investors
Positive: Strong signals and concessional capital for clean energy manufacturing, hydrogen, and heavy industrial decarbonisation.
Cautious: Nature-based and adaptation investments remain underfunded and policy-fragile.
Watchlist: Implementation of nature-related financial disclosures and clarity on long-term energy market design.
The Bottom Line
The 2025–26 Budget extends Australia’s commitment to a clean industrial transition and is deploying public capital to attract private investment into key technologies. This is good news for investors in renewables, green manufacturing, and emissions-reducing infrastructure.
However, the sharp decline in environmental funding, the absence of major adaptation measures, and the ongoing support for fossil fuels create policy inconsistency. Investors seeking long-term, climate-aligned returns will need to tread carefully — following the funding signals while being mindful of the structural gaps that still need to be addressed.
Resources
2025-26 Portfolio Budget Statements. March 25 2025 Department of Climate Change, Energy, the Environment and Water https://www.dcceew.gov.au/about/reporting/budget
KPMG “Climate and Energy” March 26, 2025 https://kpmg.com/au/en/home/insights/2025/03/federal-budget-australia.html?pageAccordionID=climate-and-energy&nocache=true#/
Climate Council "Federal Budget: Climate-fuelled disasters already cost us $13.5 billion” March 25, 2025 https://www.climatecouncil.org.au/resources/federal-budget-climate-fuelled-disasters-already-cost-us-13-5-billion/
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