Securing Australia’s Cleaner Fuels Industry: Consultation Paper on a Demand Mechanism (2026)
The Australian Government released this consultation paper to seek feedback on a proposed demand mechanism to support the development of a domestic low carbon liquid fuels (LCLF) industry. Existing fuel security, industry development and emissions reduction policies have not been sufficient to establish predictable offtake demand to support development of a domestic LCLF market. This consultation therefore focuses on a proposed framework designed to encourage greater use of low carbon fuels while strengthening fuel security, creating economic opportunities and reducing emissions.
This Industry Note provides a snapshot of the current state of dedicated electric truck charging infrastructure in Australia and considers what this may indicate for the future of heavy vehicle electrification.
Why is a Low Carbon Liquid Fuels Industry Required?
Australia remains heavily reliant on imported liquid fuels, with more than 90% of fuel either imported directly or produced from imported crude oil. At the same time, demand for liquid fuels is expected to remain significant throughout the 2030s, particularly in sectors such as aviation, freight, mining, agriculture and defence where electrification will take many years or may simply not be practical. Australia also exports large quantities of feedstocks that could be used for domestic LCLF production, meaning economic opportunities are being lost overseas. The Government believes that developing a domestic LCLF industry would improve fuel security, reduce emissions and create regional jobs and investment opportunities.
Proposed Framework – Phase 1: Market Formation (2029-2035)
The Government proposes an initial phase focused on building demand and supporting investment certainty. During Phase 1, fuel suppliers would be required to supply specified volumes of eligible LCLF into the Australian market. This volumetric mandate approach is intended to provide a clear and predictable demand signal to encourage investment in production facilities, feedstock supply chains and supporting infrastructure. A separate requirement for sustainable aviation fuel (SAF) is also proposed to support decarbonisation of the aviation sector.
Proposed Framework – Phase 2: Carbon-Intensity Targets (From 2035)
From 2035, the framework would transition away from volume requirements and move to a carbon-intensity standard. Under this approach, obligated entities would be required to reduce the carbon intensity of their fuel supply rather than deliver a fixed volume of LCLF. This system would provide greater flexibility and reward fuels that achieve greater lifecycle emissions reductions. The separate SAF requirement would continue to ensure ongoing demand for aviation fuels with lower emissions.
Key Design Features
The Government is proposing that the framework initially cover diesel, jet fuel and petrol, representing approximately 95% of Australia’s liquid fuel market. Compliance could be achieved through the supply of eligible fuels such as renewable diesel, sustainable aviation fuel, biodiesel, ethanol and e-fuels. A credit market is also being considered to allow trading of credits between participants and improve flexibility. The framework would include certification requirements, carbon-intensity reporting, sustainability criteria and regular policy reviews to ensure it remains effective as technologies and markets evolve.
Implementation and Next Steps
The Government is seeking stakeholder feedback on targets, fuel coverage, obligated entities, compliance arrangements, certification requirements and support for domestic production. Subject to consultation outcomes, legislative development would occur during 2027, with the compliance framework commencing in 2029. The first formal policy review is proposed by 2032.
TfA’s Position
TfA Project Group strongly supports the Australian Government’s initiative to establish a national framework for low carbon liquid fuels (LCLF) and considers the policy an essential step in improving both emissions performance and long-term fuel security. However, the submission stresses that policy certainty, domestic industry protection and enforceable mandates will be critical if Australia is to successfully establish a cleaner fuels industry after more than a decade of limited investment and project development.
A central theme of the submission is that Australia has fallen significantly behind international markets in the development of ethanol, biodiesel, renewable diesel and sustainable aviation fuel (SAF) industries. While numerous projects have been announced domestically over the last 15 years, none have progressed to final investment decision or construction. TfA believes the primary barrier remains the absence of long-term demand certainty required to secure project finance, with lenders typically requiring firm offtake agreements extending five to ten years.
TfA strongly supports the inclusion of petrol, diesel and jet fuel within the proposed scheme and advocates for long-term volumetric mandates as the most practical mechanism for establishing a domestic industry. The submission recommends progressive targets culminating in E10 petrol across all grades, 10% LCLF content in diesel, and 10% SAF in jet fuel by 2035. Ethanol and biodiesel are identified as the most cost-effective and immediately deployable LCLF pathways, leveraging existing infrastructure, proven technologies and abundant Australian feedstocks.
The submission also focuses on prioritising domestic production over imported low carbon fuels. Without safeguards, fuel suppliers may favour lower-cost overseas supply, which would undermine Australia’s fuel security objectives and prevent local projects from reaching financial close. The company recommends policy settings that encourage long-term domestic offtake agreements, provide temporary protection from international competition and support investment in Australian production facilities through to at least 2040.
TfA further highlights significant opportunities for biodiesel and renewable diesel in heavy transport, mining and other hard-to-electrify sectors, while recognising SAF as the only practical decarbonisation pathway currently available for commercial aviation. Overall, the submission advocates for a practical, staged policy framework that simultaneously reduces emissions, strengthens fuel security, supports regional industry development and establishes a globally competitive Australian cleaner fuels sector.
For queries in relation to these consultation papers, please contact the TfA Project Group team.
Telephone – 1300 794 300
Email – enquiry@tfa.com.au
Website – www.tfa.com.au