Australian Government commits to $1.1bn investment into low carbon liquid fuel production

What you need to know

The Australian Government has committed significant investment into the production of low carbon liquid fuel with the aim of generating further interest from private investors and stimulating a potential $36 billion new industry for Australia.

What you need to do

Consider how this new initiative could generate potential new investment opportunities.

The Cleaner Fuels Program

The Australian Government has committed to a $1.1 billion investment in supporting the future Australian production of low carbon liquid fuels (LCLF) such as renewable diesel, sustainable aviation fuels (SAFs) and e-fuels. The Cleaner Fuels Program will offer grants to domestic producers of LCLF over a period of ten years and aims to stimulate private investment into the development of cleaner fossil fuel alternatives particularly for hard-to-abate industries that are difficult to electrify such as aviation, heavy freight and mining. The program forms one of five priority areas of the federal government in their plan to achieve their recently announced 2035 climate change target range.

This new funding program builds on existing government support for the development of a LCLF industry including the Sustainable Aviation Fuel Funding Initiative and the Future Made in Australia Innovation Fund. Qantas and Airbus have also recently committed $15 million with Climate Tech Partners for investment into early-stage and at-scale commercial production of sustainable aviation fuel production and value-chain innovations.

In the upcoming financial year, the government will conduct public consultation and design work with respect to eligibility for the Cleaner Fuels Program. It is envisioned that grants under the fund will be awarded through a competitive process.

Globally, the demand for LCLFs like SAF is set to increase over the coming years due to various demand-side policies being enacted by governments. This year, both the UK and the EU have enacted SAF mandates requiring 2% of jet fuel to comprise of SAFs. These mandates will increase to 10% (by 2030) and 22% (by 2040) for the UK and 6% (by 2030), 20% (by 2035) and 70% (by 2050) for the EU. South Korea has also recently introduced a SAF mandate, requiring a minimum of 1% of fuel used for outbound flights to contain SAF which will increase to 3-5% in 2030 and 7-10% in 2035.

The Clean Energy Funding Corporation predicts that the production of LCLF could be a $36 billion market opportunity for Australia. With adequate investment from both the government and private investors which is supported by growing global demand, the development of an Australian LCLF market could establish Australia as a leading player in clean fuels innovation and production.

It remains to be seen if the design of the proposed competitive program will shadow a similar model to other recent Commonwealth schemes like the Hydrogen Headstart program. We will continue to keep you updated as the consultation and design process for the program evolves, including as eligibility criteria for LCLF producer participation becomes clearer.

Other author: Sean Tran, Lawyer.