Australia's green bank will have its remit expanded to include carbon capture and storage, green steel and hydrogen.
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The Morrison government is expanding the mandate of the Clean Energy Finance Corporation and Australian Renewable Energy Agency as part of a $1.9 billion package to develop low-emission technology.
ARENA will be guaranteed baseline funding of $1.43 billion over the next decade and $193 million in grants for targeted programs.
The government believes wind and solar projects are commercially viable without the need for government subsidies.
Prime Minister Scott Morrison said limiting the agencies to certain technologies would let Australia down.
"We can't have these artificial constrictions. A closed shop - an ideological, frankly, closed shop - on how ARENA works," he told reporters in regional NSW on Thursday.
"What matter is lower emissions. What matters is lowering costs. What matters is creating jobs."
Labor leader Anthony Albanese said the coalition had never liked ARENA or the CEFC, which were established under the Gillard government.
"They have tried to abolish it and now they are trying to emasculate it," he told reporters in Sydney.
"The fact is that this government don't support renewables."
Left-wing think tank the Australia Institute argues the changes will adulterate the agencies to fund fossil fuel technologies.
"The government champions clean hydrogen which is just clean coal 2.0, using the same failed technology of carbon capture and storage to support the same high-polluting fuels of coal and gas," the institute's Richie Merzian said.
Carbon Market Institute chief executive John Connor said carbon capture and storage should not be used to prolong the scheduled closure of high-emissions power generation.
"The initiatives and funding announced today are important and can enhance Australia's ability to emerge from the COVID recession with a more resilient and cleaner economy," he said.
A new Technology Co-Investment Fund will be set up with $95.4 million to help businesses in agriculture, manufacturing, industry and transport enhance productivity and adopt new technologies.
The package also includes money for a regional hydrogen export hub, microgrids and improved energy and emissions data.
Energy Minister Angus Taylor has pushed for technology to play a central role in reducing Australia's emissions.
He is expected to outline the federal government's energy technology roadmap at the National Press Club next week.
Earlier in the week, Mr Morrison threatened to build a gas-fired power plant unless the private sector provides more baseload generation.
Australian Associated Press
