The treasurer says digging up lithium and other minerals needed to fuel the low carbon transition could be Australia’s opportunity of the century.

Jim Chalmers has laid out his government’s vision for another mining boom that would tap into Australia’s rich critical mineral resources as well as the nation’s mining prowess.

“Critical minerals could be the opportunity of the century,” he said in a speech on Friday.

“This is a generational opportunity that we cannot miss or mishandle.”

The Labor government is preparing an update to the critical minerals strategy, with the former coalition government releasing a refresh to its plan earlier this year.

Dr Chalmers welcomed and encouraged foreign investment in critical minerals.

“In fact attracting more global capital to our shores will be essential for us to realise the full benefits of this opportunity,” he said.

“Foreign investment is a good thing when it’s in our national interest.”

Boosting Australia’s manufacturing capacity in clean energy technologies will also be a central plank of Labor’s critical minerals strategy in a bid to move away from a “digging and shipping” model.

While Australia already supplies 55 per cent of the world’s lithium – a critical mineral used in batteries – Dr Chalmers said the nation plays only a small role in battery manufacturing.

“And this is where our great opportunity lies – not just in extracting and then exporting the rare earths that we have and that the world needs – but also in moving our way up and along the value chain,” he said.

Labor has allocated $1 billion for value-adding in resources via the national reconstruction fund, which includes funding for lithium processing for batteries, as well as more funding for innovation and research in the space.

This will add to big sums already committed by the former government, including setting up the $2 billion critical minerals facility to help finance relevant projects.

As countries race to decarbonise, global demand for lithium is expected to become 40 times greater by 2040.

Demand for graphite is tipped to expand 25-fold and demand for cobalt 21-fold.

Dr Chalmers said the war in Ukraine was a reminder the world’s critical commodities were highly concentrated in the hands of a few suppliers.

“This means that some of the world’s more confronting geopolitical realities are also compelling opportunities for our country,” he said.

– AAP