Australia's Next Energy Challenge: Cleaning Up Liquid Fuels

By Owais AliReviewed by Laura ThomsonMay 29 2026

Why Liquid Fuels Still Matter for Australia?
The Main Pathways for Low-Carbon Liquid Fuels
Key Challenges Associated with e-Fuels and Biogenic Fuels
Which Option Looks More Viable?
Recent Developments in Australia’s Low-Carbon Liquid Fuel Sector
Policy and Government Support for Low-Carbon Liquid Fuel
Can Australia Build the Low-Carbon Liquid Fuel Industry at Scale?
References and Further Reading

Australia’s many sectors face roadblocks that hinder electrification due to energy density, range, and infrastructure constraints. This means the country still relies heavily on liquid fuels that produce high emissions. Could low-carbon fuels be the answer? 

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Why Liquid Fuels Still Matter for Australia?

Electrification of energy systems is progressing rapidly in Australia, particularly in passenger transport and light-duty vehicles, where battery-electric technologies are gaining efficiency and cost advantages.

However, more than half of Australia’s final energy consumption comes from liquid fuel, with the country importing more than 50 billion liters of refined petroleum products annually, of which approximately 60% is diesel.

This is because Australia has a resource-intensive, geographically dispersed economy, with strong dependence on mining, agriculture, freight transport, and maritime shipping. These sectors are inherently difficult to electrify due to high energy demand, long operational ranges, and the need for continuous power in remote and off-grid locations. This means that liquid fuels remain essential for economic productivity and national connectivity.

However, these sectors account for approximately 30% of Australia’s national carbon emissions.

To reduce these emissions, low-carbon liquid fuels could be a transitional solution. These fuels act as drop-in replacements for conventional petroleum products, reducing emissions without major infrastructure changes, and supporting improved energy security through domestic production in feedstock-rich, renewable-energy-abundant regions.¹

The Main Pathways for Low-Carbon Liquid Fuels

Australia’s low-carbon liquid fuel strategy is primarily based on two pathways: e-fuels produced from renewable electricity and biogenic fuels derived from biomass and waste.

E-Fuels

Power-to-Liquid (PtL), or e-fuels, are synthetic liquid hydrocarbons produced using renewable electricity, water, and carbon dioxide (CO₂).

The process begins with green hydrogen generation via water electrolysis, followed by CO₂ capture from industrial sources, biogenic streams, or direct air capture systems. These constituents are converted into synthesis gas and subsequently into liquid hydrocarbons through catalytic processes such as Fischer–Tropsch synthesis, producing fuels including synthetic kerosene, diesel, and methanol.

Lastly, fuel upgrading processes such as hydrocracking and isomerization refine the molecular structure and properties of fuels to meet transport, aviation, and industrial fuel standards.^2,3

Biogenic Fuels

Biofuels are renewable fuels derived from biomass such as plants, algae, or organic waste.

First-generation biofuels are derived from dedicated energy crops such as corn, sugarcane, rapeseed, and palm oil, and are converted into bioethanol and biodiesel. Second-generation biofuels utilize non-food biomass and waste materials, including forestry residues, agricultural waste, sawmill by-products, straw, algae, and urban organic waste.

Advanced biogenic fuel production commonly involves thermochemical conversion routes such as gasification, which converts biomass into synthesis gas. This syngas is then processed into liquid fuels, such as methanol, or other fuel molecules via catalytic synthesis pathways.⁴

Key Challenges Associated with e-Fuels and Biogenic Fuels

Low-carbon liquid fuels face several technical, economic, and infrastructure-related challenges that limit large-scale deployment.

E-fuels require substantial amounts of renewable electricity for hydrogen production, carbon capture, and fuel synthesis, making them highly energy-intensive and currently more expensive than conventional fossil fuels. The limited availability of low-cost, climate-neutral CO₂ sources, dependence on large electrolyzer capacity, and the need for significant investment in new production infrastructure further constrain their scalability.

Although e-fuels offer strong potential for aviation, shipping, and other hard-to-electrify sectors, many production pathways remain at an early commercial stage and are not yet economically competitive at scale.

Biogenic fuels also face major constraints, particularly related to feedstock sustainability and supply availability. First-generation biofuels are constrained by competition with food production, land-use change impacts, and associated risks to food security and biodiversity. Advanced biofuels derived from agricultural residues, forestry waste, and municipal waste offer improved sustainability but are constrained by high conversion costs, feedstock variability, and scaling limitations.

Across both pathways, regulatory uncertainty, inconsistent sustainability standards, and limited long-term policy stability continue to affect investment confidence and commercial deployment.^3,4

Which Option Looks More Viable?

Biogenic fuels currently present the more viable near-term pathway for the Australian economy due to their reliance on established feedstock systems, lower technological complexity, and faster scalability using existing biomass and waste supply chains.

Australia has over 50 million tons of underutilized biomass per year, including agricultural residues, forestry by-products, and municipal waste, which can be mobilized within existing energy systems. This enables the earlier deployment of commercial-scale facilities for biodiesel and renewable diesel, supporting the decarbonization of road freight, mining logistics, and regional transport while aligning with circular-economy objectives through waste-to-fuel conversion.⁵

In contrast, e-fuels remain at an earlier stage of development and are constrained by high energy intensity, elevated production costs, and reliance on large-scale renewable electricity and green hydrogen infrastructure.

Although e-fuels offer strong long-term potential for sectors such as aviation and maritime shipping due to their compatibility with existing fuel systems, current deployment is limited by scale and economic competitiveness.¹

However, pathways such as synthetic kerosene blending provide strategic relevance for hard-to-electrify sectors.

Recent Developments in Australia’s Low-Carbon Liquid Fuel Sector

HIF Tasmania Project

The HIF Tasmania facility, in Burnie (north-west Tasmania), is Australia’s first commercial-scale e-fuels production plant. The project targets approximately 210,000 tons per year of e-methanol production, using around 280 MW of electrolyzer capacity powered by renewable electricity and CO₂ from industrial or biogenic sources, such as forestry residues.

It also plans to recycle approximately 300,000 tons of CO₂ annually and leverage Burnie’s deep-water port for export-oriented distribution.

The project has achieved key milestones, including pre-FEED completion, environmental permitting licenses, and early-stage partnerships supporting commercial development.⁶

Renewable.Bio Esperance Project

Renewable.Bio in Esperance, Western Australia, is developing a biofuel production facility using regional canola feedstock, targeting an initial production of approximately 60 million liters per year of renewable diesel and biodiesel.

The project is designed to use locally available biomass to produce drop-in liquid fuels compatible with existing diesel infrastructure. It also plans phased expansion to around 200 million liters annually by 2035, reflecting a staged scaling approach aligned with feedstock availability and processing capacity.⁷

Policy and Government Support for Low-Carbon Liquid Fuel

Last year, the Australian Government committed approximately $1.1 billion under the Cleaner Fuels Program to stimulate domestic production of low-carbon liquid fuels and reduce reliance on imported fuels, alongside $33.5 million for sustainable aviation fuel initiatives and $250 million through the Future Made in Australia Innovation Fund.

It has also established renewable diesel fuel standards and expanded the Guarantee of Origin Scheme to verify emissions performance and strengthen supply chain transparency.⁸

Can Australia Build the Low-Carbon Liquid Fuel Industry at Scale?

Australia has the potential to develop a large-scale low-carbon liquid fuel industry due to abundant renewable energy resources, significant biomass and waste availability, and strong demand from hard-to-electrify sectors such as aviation, mining, heavy freight, and maritime transport.

Early momentum is evident through emerging projects and policy frameworks aimed at reducing investment risk and enabling market development. However, scaling remains constrained by high e-fuel production costs, biofuel feedstock and logistics challenges, and the need for integrated hydrogen, carbon capture, and fuel synthesis infrastructure.

The sector’s near-term growth is likely to be driven by biogenic fuels, while e-fuels are expected to expand over longer time horizons, with overall success depending on whether policy, investment, and supply chains can align to achieve commercial competitiveness at scale.^9,10

References and Further Reading

1. Janssen, J. (2026). Energy resilience: Australia’s alternative fuel opportunities. https://www.csiro.au/en/news/All/Articles/2026/March/Liquid-Fuels
2. Marques, L., Vieira, M., Condeço, J., Sousa, H., Henriques, C., & Mateus, M. (2023). Review of Power-to-Liquid (PtL) Technology for Renewable Methanol (e-MeOH): Recent Developments, Emerging Trends and Prospects for the Cement Plant Industry. Energies, 17(22), 5589. https://doi.org/10.3390/en17225589
3. Yilbasi, Z. (2024). Biofuels, E-Fuels, and Waste-Derived Fuels: Advances, Challenges, and Future Directions. Sustainability, 17(13), 6145. https://doi.org/10.3390/su17136145
4. Su, J., Ringsred, A., Prussi, M., Saddler, J., & Scarlat, N. (2021). Tracking the Biogenic Component of Lower-Carbon Intensive, Co-Processed Fuels - An Overview of Existing Approaches. Applied Sciences, 12(24), 12753. https://doi.org/10.3390/app122412753
5. Lang, A., Kopetz, H., Stranieri, A., & Parker, A. (2014). Australia’s Under-Utilised Bioenergy Resources. Waste and Biomass Valorization, 5(2), 235–243. https://doi.org/10.1007/s12649-013-9247-6
6. HIF Global. (2026). HIF Tasmania. https://hifglobal.com/locations/tasmania
7. Nicholas R Ward. (2026). Stagnant biofuel industry looks to expand on Western Australia's south coast. https://www.abc.net.au/news/2026-05-28/esperance-on-cusp-of-expanding-biofuel-industry/106710214
8. Department of Climate Change, Energy, the Environment and Water. (2025). New production incentive for low carbon liquid fuels. https://www.dcceew.gov.au/about/news/new-prod-incentive-low-carbon-liquid-fuels
9. GRDC. (2025). Low carbon liquid fuel roadmap. https://grdc.com.au/__data/assets/pdf_file/0033/627855/low-carbon-liquid-fuels-roadmap-grdc-20251010.pdf
10. O’Sullivan, C.A., Mishra, A., Mueller, S., Nadeem, H. and Flentje, W. (2025). Opportunities and Priorities for a Low Carbon Liquid Fuel Industry in Australia. https://research.csiro.au/tnz/lclf-industry-in-australia/

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