Executive summary
The three consultations now underway will influence which technologies become commercially available, which infrastructure is built or retained and which choices industrial and transport users have when major assets are replaced.
AIDC supports stronger fuel security, an Australian low carbon liquid fuels (LCLF) industry and credible renewable gas markets. However, we are concerned about designing these policies predominantly around the existing fuel system. Mandates, storage support, refinery support and infrastructure investment can make incumbent pathways progressively easier to use. If emerging alternatives do not receive equivalent attention to their own demand, infrastructure and investment barriers, Government can narrow future technology choices while appearing to leave them open.
Methanol illustrates this risk. Low emissions methanol is recognised elsewhere in Government policy and project support, including as a prospective maritime fuel, but it has received little explicit attention in the development of the LCLF market framework. If Government expects methanol to play a future role, including in shipping or aviation fuel supply chains, that role should be considered explicitly when demand, infrastructure and market formation policy is designed.
Fuel and energy policy should preserve the ability of industrial users to operate competitively through the transition while expanding the set of credible low carbon options available when major investment decisions are made. That requires Government to distinguish between fuels that can reduce emissions from assets operating today and the technologies likely to serve the next generation of assets.
Production support alone does not make emerging fuels investable. Projects need customers, infrastructure and commercial arrangements that can support financing and long-lived investment. Biological feedstocks create an additional constraint because biomass and biogenic carbon are finite and cannot be assumed to satisfy every projected use across biomethane, SAF, renewable diesel, biological hydrogen production and other markets. Government should therefore plan constrained feedstocks and common infrastructure across the competing transition pathways expected to depend upon them.
For the proposed LCLF demand mechanism, lifecycle carbon intensity should influence compliance value from commencement. The mechanism should create a market large and durable enough to support investment while rewarding fuels that deliver greater verified lifecycle emissions reductions. Government should also be explicit about the Australian production capability it intends the combined LCLF policy package to establish, the expected contribution of imports and whether production support, infrastructure, procurement and the demand mechanism are sufficient to make that domestic capability investable.
Fuel security should likewise be planned for the system Australia is moving towards. Strategic stocks, storage and existing refining capability remain important through a lengthy transition, while resilience policy should also consider closely connected industrial inputs whose disruption can affect essential activities. Fertiliser is a clear example: Australia’s exposure to urea supply affects agricultural production, and technical-grade urea is also required for AdBlue used across freight, mining and other diesel dependent activity. The appropriate response may involve domestic production, diversified imports, strategic stocks or a combination of measures, depending on the vulnerability.
Recommendations
Across the three consultations, AIDC’s central proposition is that Government should assess the productive capability an intervention retains, transforms or creates, the barrier it resolves and the future options it preserves. Current fuel security and the development of future lower-emissions alternatives should be planned together.
Recommendation 1: Design LCLF and renewable gas policy around how industrial and transport users are expected to transition, including when major assets are replaced.
In finalising the LCLF and renewable gas frameworks, the Australian Government should test proposed policy settings against representative industrial and transport investment pathways. This should include mines, major industrial facilities and transport users, and consider fuel costs, lifecycle emissions, technology availability, infrastructure, Safeguard obligations, asset replacement cycles and the timing of major investment decisions.
The purpose of this work should be to ensure that policy supports emissions reduction from existing assets while preserving credible options for the technologies and fuels that may be needed when those assets are replaced. Support for fuels or infrastructure that can be deployed through the existing system should not make alternative pathways unavailable when a user reaches its next major investment decision.
Recommendation 2: Where Government expects an emerging fuel or industrial product to play a material role in the transition, create the market and supply chain conditions required to make that pathway investable.
Where national transition pathways rely on emerging fuels or industrial products, the Australian Government should develop the demand, infrastructure and commercial conditions required for credible Australian projects to reach investment. Where several end markets can support the same production chain, policy should consider their combined contribution rather than treating each market separately.
Government should specifically examine low emissions methanol as a cross-sector pathway, including its prospective use in maritime fuel markets and aviation fuel supply chains, and identify whether existing policy provides a credible route from Australian production to those end markets.
Recommendation 3: Design the National Renewable Gas Policy to preserve credible industrial pathways across biomethane, renewable hydrogen and other renewable gases.
In developing the National Renewable Gas Policy, the Australian Government should ensure that support is capable of responding to the different renewable gas pathways that may be required by industrial users. Biomethane can provide a strong option where suitable feedstock and infrastructure are available, while renewable hydrogen and other renewable gases may provide stronger long-term pathways for particular industrial processes, feedstocks and future production systems.
Policy and certification frameworks should also be capable of recognising different renewable hydrogen production pathways where they can demonstrate robust lifecycle emissions performance, rather than unnecessarily limiting eligibility to particular production technologies.
The proposed Domestic Supply Obligation renewable gas premium should be developed as one market formation tool, with sufficient duration and revenue certainty to support investment and with robust certification, lifecycle emissions accounting and safeguards against double counting. Its design should not make access to existing gas infrastructure the determining factor in which renewable gas pathways are able to develop. Where renewable hydrogen or another renewable gas provides a credible industrial pathway, policy should provide a practical route for that pathway to reach investment as well.
Recommendation 4: Maintain a national view of bioenergy feedstock availability, production inputs and competing uses.
The Australian Government should maintain an evidence base on the sustainable biomass and biogenic carbon likely to be available across Australia, the agricultural and other inputs required to produce projected supply, and competing demand from biomethane, SAF, renewable diesel, biological hydrogen production and other fuel and industrial uses.
The analysis should identify where constrained biological resources can deliver the greatest emissions, industrial and system value, and inform decisions on demand measures, production support and infrastructure. It should also consider how expanded feedstock production interacts with food and fibre production, including dependencies on land, water, nutrients and fertiliser supply.
Recommendation 5: Plan and support common user infrastructure according to the full range of industries and transition pathways it can enable.
Where transmission, renewable generation, hydrogen infrastructure, ports, storage, water, pipelines or other enabling assets can support several credible industrial users or emerging markets, the Australian Government should recognise that wider value in infrastructure planning, financing and decisions about public support. The economics of the first project should not be the sole test of infrastructure that may become efficient and valuable as additional users connect.
Government should also identify the dependencies between common user infrastructure, industry support, customer markets, Safeguard obligations and sector transition pathways early enough to influence investment decisions. Where first mover or early utilisation risk prevents otherwise credible projects from proceeding, Government should consider structures that allow risk and cost to be shared across future users and public and private participants. The objective should be to prevent a missing piece of common user infrastructure from closing off several viable industrial transition pathways at once.
Recommendation 6: Plan fuel security around the capability Australia will need over the life of the investments now being supported.
In implementing the Australian Fuel Security Reserve, additional stockholding requirements and any continuing support for refining and storage, the Australian Government should plan for the fuel system Australia is expected to need over the life of those investments. This should include the changing role of existing refining and storage assets, domestic production of low carbon fuels, diversified import supply and the infrastructure required for emerging fuels.
The objective should be to strengthen resilience through the transition while avoiding public investment that unnecessarily locks Australia into the current fuel mix. Existing assets should be supported where they continue to provide valuable security capability and can adapt economically as demand changes. At the same time, Government should identify and address infrastructure or investment gaps that would prevent future domestic fuel and industrial capability from developing.
Recommendation 7: Apply a wider resilience test to fuel security and closely connected critical industrial inputs.
In implementing the Fuel Security Strategy and considering future resilience measures, the Australian Government should examine vulnerabilities that could disrupt fuel supply or the essential activities that depend on it. This should include critical industrial inputs where their interruption could constrain freight, agriculture, mining, manufacturing or other essential functions. We recommend fertiliser supply, including urea, as a priority for further government action to support Australian resilience and sovereign capability.
Recommendation 8: Apply lifecycle carbon intensity to the LCLF demand mechanism from commencement.
The Australian Government should design the LCLF demand mechanism so that verified lifecycle emissions performance affects compliance value from the beginning of the scheme. Fuels delivering greater lifecycle emissions reductions should receive greater value within the mechanism, supported by robust measurement, certification and accounting.
This is particularly important during the period in which the Australian industry is being established. Investment made between 2029 and 2035 will shape production capacity, infrastructure, feedstock demand and customer relationships for many years. The mechanism should therefore reward the emissions performance Government ultimately wants the market to deliver from the point at which those investment decisions are being made.
Recommendation 9: Retain specific treatment for aviation within the LCLF demand mechanism, including the separate jet fuel requirement from commencement.
The Australian Government should retain the proposed separate treatment for jet fuel in recognition of aviation’s limited near and medium-term alternatives to liquid fuels and the need to establish a viable SAF market alongside other LCLF markets. The design should provide sufficient demand certainty for SAF production and associated supply chains to develop without requiring SAF to compete solely against lower cost fuels serving end uses with a wider range of alternatives.
Similar treatment may be appropriate for other applications where Government can demonstrate that alternatives are materially constrained and a distinct market is required to bring forward production. Any such treatment should be based on the characteristics of the end use and the transition pathway Government is seeking to establish.
Recommendation 10: Retain the option for the LCLF mechanism to recognise direct displacement of fossil liquid fuels through electrification and renewable hydrogen.
As the LCLF mechanism develops, the Australian Government should retain the ability to recognise investments that directly and verifiably displace fossil liquid fuel use where electrification, renewable hydrogen or another technology provides the stronger emissions and industrial pathway for the user.
Any future crediting should be based on measured fossil fuel displacement and verified emissions reduction, avoid double counting with other policy mechanisms and preserve sufficient demand to support investment in LCLF production. The purpose should be to direct low carbon liquid fuels towards applications in which they provide enduring value while allowing users with viable alternatives to move to those technologies as assets and equipment are replaced.
Recommendation 11: Define the Australian production outcome the LCLF policy package is expected to deliver.
In finalisingthe LCLF demand mechanism and Cleaner Fuels Program, the Australian Government should publish its assumptions for Australian production through 2030 and 2035, including the share of demand it expects to be met by Australian production, and test whether the combined policy package is sufficient to deliver that outcome.
Recommendation 12: Understand and manage how the costs of the LCLF demand mechanism will move through industrial, transport and fuel value chains.
In finalising the LCLF demand mechanism, the Australian Government should model how compliance costs are likely to be passed through by fuel suppliers and where those costs ultimately land across transport, mining, industrial production and other major fuel users. The analysis should identify users with limited capacity to change fuel use in the near term, limited ability to recover higher costs from customers, or significant exposure to international competition. It should also account for interactions with Safeguard obligations and other fiscal settings affecting the same fuel use.
Where the mechanism would impose material or disproportionate costs on foundational industrial capability or other Australian activities with a demonstrated public interest or resilience case, Government should consider complementary measures that address the identified competitiveness or transition problem while preserving the emissions reduction and demand signal created by the LCLF policy.
Recommendation 13: Use Government procurement and strategic reserves as anchor demand where this can meet a genuine public requirement and help establish useful Australian production capability.
The Australian Government should use its own fuel demand strategically where procurement can satisfy an existing public requirement while also helping credible Australian production reach commercial scale. This should include Defence and other Government fuel purchasing where operational requirements allow, and consideration of Australian-produced LCLF for the Australian Fuel Security Reserve where fuel specifications, storage characteristics and stock management requirements can be met.
Procurement should be designed to provide commercially useful demand and should be coordinated with infrastructure and market development where an early Government customer can help establish initial utilisation. Where common user infrastructure will ultimately serve several users, Government demand may also help reduce the early utilisation risk that would otherwise prevent the first production or infrastructure investment from proceeding.