A domestic low carbon liquid fuel (LCLF) industry could contribute up to $36 billion to the economy and reduce emissions by 230Mt by 2050 – but only if Australia acts promptly, according to a new report published by the Clean Energy Finance Corporation (CEFC).
The report, Refined Ambitions: Exploring Australia’s Low Carbon Liquid Fuel Potential, found that LCLFs are crucial to Australia’s net-zero future, particularly for sectors such as aviation, mining, heavy freight and defence, where electrification is challenging.
It was commissioned by the CEFC and developed by Deloitte, in consultation with industry participants, investors, researchers and government stakeholders.
CEFC CEO, Ian Learmonth, said LCLFs are a present-day necessity for sectors that can’t electrify.
“If we get the settings right, Australia can lead in clean fuels innovation and production – not just supply the feedstocks.”
Learmonth said Australia has all the ingredients to be a clean fuel superpower – abundant feedstocks, world-class research, and growing demand.
“Policy accelerators, including mandates, certification schemes and offsets, are key components to assist the industry reach scale. The first movers will reap the rewards of this global market.”
The report’s key findings include:
- $36 billion market opportunity by 2050: A domestic LCLF sector could contribute significantly to Australia’s economic growth and clean energy exports.
- 230Mt CO₂-e savings: Cumulative abatement over the next 25 years, equivalent to nearly half of Australia’s annual emissions.
- Fuel security risk: 80 per cent of Australia’s liquid fuel is imported, costing $50.7 billion in 2023, which the report said exposes the nation to supply chain shocks.
- Untapped potential: Australia exports $3.9 billion in LCLF feedstocks such as canola and tallow, but lacks local refining capacity to realise full value, according to the report.
- Persistent demand: Even with rapid electrification, large quantities of liquid fuel could still be needed by 2050.
- The report said that without domestic LCLF production, Australia remains vulnerable to geopolitical disruptions and misses a significant economic opportunity, particularly for regional areas.
It points to earlier CSIRO modelling that indicates that Australian feedstock could produce billions of litres of LCLFs annually by 2050, utilising existing land and practices without impacting food production.
The CEFC said its report aligns with the Federal Government’s Future Made in Australia agenda, showing how clean fuel production can bolster sovereign capability, create regional jobs and meet climate targets.
CEFC Executive Director, Rupert Maloney, said, “We export the raw materials but miss the opportunity to build the industry here at home. This is about regional development, national resilience, and emissions reduction, all at once.”
Despite the growing momentum and a pipeline of more than two billion litres in proposed projects, the report found that Australia’s LCLF industry faces significant structural, financial, and regulatory challenges.
It found that the cost of production remains higher than that of conventional fuels, while the lack of national mandates has limited investor confidence and demand certainty.
Additionally, the report found that emerging fuel technologies require further R&D and de-risking before they can be commercially deployed at scale. The report identified key hurdles:
- Cost gap: LCLFs remain more expensive than fossil fuels without policy support.
- Policy potential: By introducing targeted policies, such as mandates, national procurement programs and low carbon fuel certification, Australia can provide the demand certainty and price signals needed to scale a local clean fuel industry.
- Investment risk: Next generation fuel technologies need R&D support and commercial de-risking.
To close the gap between potential and reality, the report outlines an actionable framework to help scale Australia’s LCLF industry.
The roadmap focuses on enabling market demand, lowering investment risk, supporting innovation, and coordinating the value chain, drawing on proven models from clean energy and international biofuel markets.
With the correct settings in place, the CEFC said that Australia can unlock a globally competitive and sovereign clean fuels sector. To take advantage of this opportunity, the report details seven key steps:
- Improve market access – e.g., trade relationships
- De-risk investments – e.g., concessional finance to de-risk private capital
- Reduce transaction challenges – e.g., standardised contract terms
- Consider credible demand signals – e.g., sustainable aviation fuel and freight fuel blending mandates
- More transparent data on demand, supply and feedstocks
- Leverage innovation to reduce costs and support for advanced fuel technologies – e.g., hydrogen-based e-fuels
- Better coordination and alignment across the value chain – e.g., from feedstock supplier to fuel producer to end user
Maloney said with the right market signals and collaboration, Australia can build a globally competitive clean fuels industry and lead the region in climate-era innovation.
“Clean fuel plants could revitalise manufacturing hubs and create skilled careers in some areas hit hardest by the decline of fossil fuels,” he said. “But we need investment commitments this decade to avoid missing the window.”
