The Australian Federal Government has announced it is investing $1.1 billion in low carbon liquid fuels.
This investment will reportedly bolster the sustainable fuel supply chain for all modes of transport.
The new 10‑year Cleaner Fuels Program is designed to stimulate private investment in Australian onshore production of low carbon liquid fuels, such as renewable diesel and sustainable aviation fuel.
The first production of ‘drop‑in’ cleaner fuels, which can be directly substituted for existing fuels and work in today’s engines, is estimated by 2029.
Australia has access to feedstocks including canola, sorghum, sugar and waste – the goods needed to make cleaner liquid alternatives.
Liquid fuels make up around half of Australia’s national energy use. Replacing those fossil fuels with cleaner alternatives could deliver a massive climate and economic opportunity.
Australia already exports nearly $4 billion of suitable feedstocks like canola and tallow.
The Clean Energy Finance Corporation (CEFC) estimates an Australian low carbon liquid fuel industry could be worth $36 billion by 2050.
Funding to make cleaner fuel on Australian shores, from Australian feedstock, will reportedly help back Australian innovators from the farmer to the fuel bowser, make domestic fuel supply greener and more resilient and make low carbon fuels available for early adopters.
Details about eligibility will be considered through public consultation and design work to take place this financial year. Grants will be awarded through a competitive process to ensure we get value for taxpayer funds.
The new production‑linked incentive builds on the government’s support via the Sustainable Aviation Fuel Funding Initiative and the Future Made in Australia Innovation Fund. Recipients will also need to deliver benefits according to the community benefit principles under the Future Made in Australia Act.
The Government is also supporting the market by expanding the Guarantee of Origin Scheme to include low carbon liquid fuels and has established a fuel quality standard for renewable diesel.
A recent report from the CEFC found that a mature Australian low carbon liquid fuels industry could deliver around 230 million tonnes CO2‑e in cumulative emissions reduction by 2050. This is equivalent to 2.3 times Australia’s current annual transport emissions, or the annual emissions from 86 million cars.
“Low carbon liquid fuels are an enormous economic opportunity for Australia,” said Federal Treasurer Jim Chalmers.
“It’s about making Australians and our economy big beneficiaries of the global Net Zero transformation.
“Developing this industry has potential to make us an indispensable part of growing global Net Zero supply chains.
“This is a downpayment on developing an entirely new industry in Australia.
“From the farm to the refinery, from primary production to processing, this will create more jobs and more opportunities for Australian workers and businesses.
“It’s another way we’re helping Australians grasp the big benefits on offer in the transformation to cleaner and cheaper energy – to help lift wages, grow living standards, create jobs and grow our economy.”
Minister for Climate Change and Energy, Chris Bowen, said making cleaner fuels locally from Australian feedstocks creates the path for emissions reduction in sectors that are hardest to clean up.
“Across the nation we have 2 billion litres worth of projects in the pipeline, many of which are ready to scale up production,” he said.
“A new thriving domestic industry with more jobs in our regions, from farmers growing the inputs to workers refining the fuels of the future is within our reach.
“$1.1 billion for low carbon liquid fuels production here in Australia builds on the $250 million we have already allocated to low carbon liquid fuels research and development through the Future Made in Australia Innovation Fund.”
Murray Watt, Acting Minister for Infrastructure, Transport, Regional Development and Local Government, said it is essential to invest in future fuels as demand for air travel grows and more goods are moved by road and rail.
“Low carbon fuels have the potential to be a $36 billion industry here in Australia, and we have the opportunity to lead the way on the production of these new fuels,” he said.
“We have the renewable feedstocks, access to clean energy and a strong agriculture base, all of which will allow us to develop this new industry, create new jobs and power how Australians move for decades to come.”
Julie Collins, Minister for Agriculture, Fisheries and Forestry, said this investment is great news for farmers and regional communities.
“Producing more low carbon liquid fuels right here in Australia won’t just benefit our fuel security and emissions reduction, it will support Australian farmers, foresters and our regions,” she said.
“Our farmers and foresters have always been innovators and our government is putting their expertise and world‑class production practices at the centre of growing Australia’s low carbon liquid fuel industry.
“This investment will complement our National Bioenergy Feedstock Strategy – which we are developing so our agricultural sector can seize the economic opportunities that come with feedstocks.”
NatRoad CEO, Warren Clark, also welcomes this announcement which is in line with NatRoad’s recommendations as part of its advocacy efforts.
“It’s good to see the Federal Government is listening to industry and taking action,” said Clark.
“NatRoad has been working behind the scenes for years now and thanks the government and the departments for making solid progress.
“We have provided multiple submissions recommending low carbon diesel as a key component of the broader plan, and providing monetary support to help kick-start the support and businesses required to reduce heavy vehicle emissions as we transition to Net Zero.
“This includes NatRoad’s Stronger Economy, Lower Emissions policy paper that included low carbon liquid fuels as one of our critical recommendations to government, and this week we provided a submission to the Productivity Commission’s inquiry into cheaper, cleaner energy solutions that supported policies aimed at increasing supply and lowering prices of low-carbon fuels.”
Clark added that while NatRoad welcomes this investment, managing the cost of using alternative fuels for road transport operators will be critical to their effectiveness in lowering heavy vehicle emissions.
“We have made it clear in our advocacy that the road transport industry needs a ‘fair go’ transition strategy, with a clear and cost-effective policy framework to ensure road transport operators aren’t forced to absorb higher fuel costs,” said Clark.
“This is particularly important at a time when margins are incredibly tight, and operators are already dealing with significant uncertainty around costs.”
Clark said the road freight sector is ready to adapt and support the transition to lower carbon-emitting ways of operating, but it is vital that measures are put in place to ensure as many road transport businesses can participate as possible.
“About 98 per cent of the road freight industry consists of small businesses, and we must ensure carbon reduction initiatives aren’t too costly, time consuming or complicated for them to take part,” said Clark.
“We look forward to continuing to work with the Federal Government to help bring about a transition to net zero emissions that is fair, cost-effective and accessible for all the road freight industry.”
In addition to its regular submissions to government on emissions-reduction initiatives, NatRoad has developed a Get Fleet Fit roadmap aimed at helping truck operators cut costs, improve fuel efficiency and reduce emissions as part of the Net Zero transition.
Meanwhile, Victorian Transport Association (VTA) CEO, Peter Anderson, described this investment as a vital step in supporting the industry’s transition to a lower-emissions future.
“Low carbon liquid fuels are essential for heavy vehicles and machinery that cannot yet be easily electrified,” he said.
“Supporting local production of these fuels will help reduce emissions while maintaining the reliability and resilience of our supply chains.
“The VTA has long advocated for a supported and realistic transition, and this announcement shows the government understands that decarbonising freight will take time, investment and collaboration.
“We also urge continued support for freight operators, particularly small and medium businesses, as they adapt to new fuel technologies and infrastructure.”
The VTA continues to lead industry efforts to decarbonise through education, advocacy and collaboration.
On 18 November, the VTA hosted its Alternative Fuel Summit in Melbourne, bringing together experts, operators and policymakers to explore the theme ‘Is transport ready to decarbonise?’.
Now in its fourth iteration, the summit reflects the VTA’s ongoing commitment to helping members navigate the transition to low-emission technologies. The event will provide a platform for robust discussion and practical insights into the readiness of the freight sector for this significant shift.
“The Alternative Fuel Summit is about bringing the industry together to ask the hard questions and share knowledge,” said Anderson. “We’re proud to play a role in guiding our members through this transition and ensuring they’re equipped to meet the challenges and opportunities of a low-carbon future.”
Australian Logistics Council CEO, Dr Hermione Parsons, said the commitment is a milestone that recognises the scale of change required across the economy.
“Freight and supply chains enable every sector from agriculture to resources to health care,” she said.
“Decarbonising these systems is not simply an environmental imperative, it is essential to national productivity, resilience and prosperity. The Net Zero Plan sets a platform for action, and the ALC advocates for freight to be positioned at the centre of this transition.”
The plan, according to the ALC, identifies clean electricity, electrification, low carbon fuels and technology innovation as national priorities to ensure freight can contribute effectively to these goals.
“The ALC considers it essential to develop a nationally coordinated transition plan for heavy vehicles,” said Dr Parsons.
“This should include measures such as corridor charging and hydrogen refuelling infrastructure, depot energy planning, targeted operator incentives and reforms to licensing frameworks that currently limit workforce participation.
“The ALC also recommends addressing the operational realities of rail freight, including access regimes, pricing and last-mile bottlenecks to enable genuine mode shift rather than a narrow focus on new technologies.
“Freight continuity, redundancy and cross-border protocols should be embedded into disaster and infrastructure planning to strengthen resilience and prevent communities and businesses from being isolated during crises.”
The transition will also require a workforce transformation, the ALC added.
Investment in skills, training and VET pathways must be matched with deliberate measures to boost diversity and First Nations participation. Licensing and regulatory reforms should also support broader workforce participation, ensuring freight remains safe, efficient and inclusive as the sector modernises.
Infrastructure and construction must also be part of the solution according to the ALC. Measuring and reducing embodied emissions in steel, cement and concrete, embedding circular economy practices and aligning procurement standards will be critical to lowering the carbon footprint of freight infrastructure.
This demands cross-government collaboration, harmonised policy settings, consistent emissions reporting frameworks and interoperable data systems.
Dr Parsons said ALC will work closely with government to ensure the freight sector is positioned at the heart of the transition.
“Australia cannot reach its climate goals without freight,” she said.
“Placing freight at the centre of planning and reform will strengthen supply chains, deliver energy security and create new opportunities for investment and jobs.
“We welcome the ambition of the 2035 target and the Net Zero Plan, and we look forward to working with government and industry to build a resilient, productive and sustainable freight system that supports a prosperous, low-emissions future for Australia.”
Fast Fact
A mature Australian low carbon liquid fuel industry could be worth $36 billion by 2050 and cut emissions equal to taking 86 million cars off the road.
Fast Fact
Australia’s new $1.1 billion Cleaner Fuels Program aims to kick-start domestic production of renewable diesel and sustainable aviation fuel, with first ‘drop-in’ cleaner fuels expected by 2029.
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