The Albanese Government has announced $1.1 billion in funding to support the production of low-carbon liquid fuels in Australia. While solar and wind are vital to the clean energy transition, they are not always practical for industries like aviation, shipping and heavy freight. With demand for practical, scalable solutions rising, low-carbon biofuels could become a game-changer in reducing emissions while creating jobs across regional Australia.
What are low-carbon biofuels and why this matters
Low-carbon biofuels, often called low-carbon liquid fuels, are alternatives to fossil fuels made from renewable feedstocks. These can include crops like sorghum, sugar and canola, or waste materials such as used cooking oil and tallow. The fuels produced range from renewable diesel and biodiesel to sustainable aviation fuel (SAF). Crucially, many are ‘drop-in’ fuels, meaning they can replace or blend with conventional fuels without requiring major changes to engines or infrastructure.
This makes them particularly attractive for transport modes that are difficult to electrify or power with hydrogen in the short term. Heavy haulage, shipping and aviation can benefit from low-carbon biofuels sooner rather than later.
How they work in practice
Low-carbon biofuels are produced through several key steps. First, the feedstock is sourced from agriculture or waste streams. Next, conversion processes like hydroprocessing, fermentation or chemical upgrading turn the feedstock into liquid fuel. Finally, the refined fuel is distributed and used either directly or in blends with fossil fuels.
The versatility of these fuels means they can cut emissions without waiting for massive infrastructure overhauls. Trucks, planes and ships can start reducing their carbon footprint with minimal disruption.
Environmental impact: the promise and the pitfalls
The promise
When produced sustainably, low-carbon biofuels offer significant greenhouse gas savings. Some studies suggest Australia could avoid around 230 million tonnes of carbon dioxide equivalent by 2050 if the industry scales up. Domestic production also strengthens fuel security, reducing reliance on imports and protecting supply chains. Beyond climate benefits, the industry promises billions in economic value and thousands of regional jobs.
The pitfalls
The environmental credentials of biofuels depend on how feedstocks are grown and processed. If cultivation is carbon-intensive or leads to deforestation or biodiversity loss, the net benefit shrinks. Land competition with food crops is another risk. Scaling production requires investment in refining, certification and infrastructure. Costs remain high for sustainable aviation fuel and renewable diesel, meaning government policy and market demand will shape the speed of uptake.
Labor’s latest announcement
The $1.1 billion Cleaner Fuels Program announced by the Labor Government will provide grants over 10 years to build Australia’s capacity to produce renewable diesel and sustainable aviation fuel. Prime Minister Anthony Albanese described the initiative as a central part of building a “Future Made in Australia,” adding:
“We want to make sure that Australia is at the forefront of this global shift, cutting emissions while creating good jobs at home.”
The funding signals a strong commitment to tackling emissions from transport and industry while opening new export opportunities. The government estimates the low-carbon fuels sector could grow into a $36 billion industry by 2050, cutting millions of tonnes of emissions and securing long-term economic gains.
What’s expected from leadership and industry
Policy certainty will be essential to attract private investment. Standards for sustainability, certification of fuels, and clear guarantees of origin will build confidence in the sector. Feedstock sustainability is also critical; if done right, Australia could turn agricultural residues and waste into a climate solution, not a liability.
Building the necessary refining, blending and distribution facilities will take time, but early action is key. By the mid-2030s, low-carbon fuels must be produced at scale if they are to meet Australia’s climate targets.
Strengthening fuel security
Low-carbon biofuels offer Australia a rare chance to cut emissions in some of the hardest-to-abate sectors without waiting for next-generation technology. With Labor’s $1.1 billion commitment, the pathway is clearer than ever. If the fuels are produced sustainably, they could become a cornerstone of Australia’s clean energy future, slashing emissions, strengthening fuel security, and creating jobs where they are needed most.
