Australia is looking beyond supporting the production of low carbon liquid fuels to consider whether a stronger demand signal is also needed to establish a domestic industry.
A federal consultation opened on 18 August is examining a conceptual framework for a mechanism that could increase the uptake of low carbon liquid fuels in Australia.
The Department of Climate Change, Energy, the Environment and Water says industry and other stakeholders have advised that supply-side support alone is unlikely to attract the investment needed to grow domestic production.
“A stronger demand signal is also needed to support industry growth and unlock these benefits,” the department said.
That puts the focus of the latest consultation on the market for cleaner fuels and how a demand mechanism could work, including its potential impacts and implementation.
No decisions have been made on the final design. Submissions close at 11.59pm AEST on 15 September.
Demand joins support for production
The consultation follows existing Commonwealth support for low carbon liquid fuel production, including the $1.1 billion Cleaner Fuels Program.
The Federal Government’s 18 August announcement said the consultation would consider the level of ambition for a demand mechanism and how it could be implemented, as well as potential effects on businesses and consumers.
Low carbon liquid fuels are being considered particularly for industries where electrification is difficult. The DCCEEW consultation identifies aviation and heavy transport among those sectors, along with mining, agriculture and defence.
The government is seeking evidence and practical experience from across the fuel supply chain, including producers and suppliers as well as fuel users and investors, before making future decisions.
The consultation therefore extends the cleaner fuels policy discussion beyond how domestic production can be supported to how uptake could be increased once those fuels are available.
Cleaner fuels tied to fuel security
The demand mechanism is also being considered as part of a broader government focus on Australia’s reliance on imported fuel.
The Federal Government announcement was released alongside a separate consultation on fuel security measures, including plans for an Australian Fuel Security Reserve.
For low carbon liquid fuels, the government has linked increased domestic production with both emissions reduction in difficult-to-electrify industries and greater fuel security.
Infrastructure, Transport, Regional Development and Local Government Minister Catherine King said Australia currently exports up to $6 billion worth of feedstocks each year, including canola and tallow.
“By building a low carbon liquid fuels industry right here, we will create more jobs, build regional economies, strengthen our fuel security and future-proof our transport industries.”
The government is considering whether stronger domestic demand for cleaner fuels could form part of that approach.
Industry backs focus on demand
Bioenergy Australia has welcomed the consultations, including the consideration of demand-side measures for low carbon liquid fuels.
The industry organisation has argued for policy covering both sides of the emerging market, with support for domestic production accompanied by measures addressing demand.
That position goes directly to the question now being considered by the Commonwealth. DCCEEW says feedback received from industry and other stakeholders is that supply-side assistance alone is unlikely to attract the investment required to grow a domestic low carbon liquid fuels industry.
The consultation is seeking views on a conceptual framework rather than presenting a settled policy, with DCCEEW stating that evidence gathered through the process will inform future government decisions.
NSW developing its own approach
The federal consultation is occurring while NSW is separately preparing to broaden its own renewable fuels policy.
The NSW Government plans to expand its Renewable Fuel Scheme to include low carbon and renewable liquid fuels, with industry consultation on options for the expansion planned during 2026.
The existing scheme creates a financial incentive for renewable fuel production through certificates. Eligible producers can create certificates for fuel they produce, while liable parties must obtain and surrender certificates against scheme targets or pay a shortfall penalty.
Under the proposed expansion, NSW is considering sustainable aviation fuel and renewable diesel, as well as biodiesel.
The state has identified sectors where electrification is more difficult as potential users of these fuels, including aviation and freight.
The Commonwealth and NSW processes are separate, and neither consultation establishes what the eventual policy settings will be. For businesses operating across NSW, however, both processes put the production and use of low carbon liquid fuels under active policy consideration.
Resources sector among potential fuel users
The federal process has a direct connection to the Hunter’s resources sector because DCCEEW specifically identifies mining as one of the industries that is difficult to electrify and where low carbon liquid fuels can help reduce emissions.
At state level, NSW is considering renewable diesel within the planned expansion of its Renewable Fuel Scheme. For fuel-intensive businesses across the region, the consultations provide an opportunity to contribute evidence about the practical impacts of increasing low carbon liquid fuel use before either government settles its future policy settings.
