Recent geopolitical shocks have sparked renewed interest in biofuel as a pathway to energy security. But policy and engineering roadblocks could be holding Australia back from capitalising on its significant biofuel potential.
Before 2026, the conversation around biofuels in Australia focused largely on reducing emissions and meeting net-zero targets. But the closure of the Strait of Hormuz in March quickly reframed biofuels from a green alternative to a critical economic lifeline.
While the peace agreement in the Middle East has eased immediate supply concerns, questions remain about Australia’s dependence on imported fuel and how the country might respond to another prolonged disruption in supply.
Against this backdrop, the Federal Government recently fast-tracked approvals for two low-carbon liquid fuel projects through its Investor Front Door initiative. Meanwhile, industry groups have renewed calls for federal biofuel mandates to help drive domestic demand.
Unless the call for new mandates is answered, it’s unlikely that the latest investments will translate into real change, according to Keith Sharp FIEAust CPEng, Engineering Manager at TfA Project Group, who has spent 40 years working in the fuel industry.
“Most countries in the world have modified their fuel standard, so that if you are to sell fuel legally, it must have a certain percentage of ethanol or biodiesel, for example,” he said.
“Australia only has two state-based mandates, but in the six-to-10 years that we’ve had them, nobody’s ever been fined or forced to comply with them. Without those federal mandates, you don’t have a driver to change.”
In order for Australia to successfully scale up its domestic biofuel industry, it must also tackle deeper systemic challenges around demand drivers, infrastructure and domestic capability.
Sharp spoke with create to unpack these obstacles and Australia’s path forward.
Australia’s biofuel opportunity
While Australia is currently lagging behind global leaders such as the US, the nation has a huge amount of untapped potential to produce biofuels at scale.
According to the Australian Renewable Energy Agency, a domestic renewable fuels industry could eventually contribute more than $10 billion annually to the economy and support more than 26,000 jobs.
Australia is also rich in the feedstocks needed to support a thriving biofuel industry, such as canola, tallow, sugar cane, wheat straw, forestry residues and municipal waste streams.
“For example, millions of tons of wheat straw are burned in the fields in Victoria every year because they only harvest the tufts of wheat off the top,” Sharp said.
“We could also take our waste wood – such as sawdust and wood chips – and, instead of turning them into wood pellets to send over to Denmark to put in boilers, we could turn that into low-carbon liquid fuels.”
So, what’s stopping Australia from realising its biofuel potential?
“Ironically, we export a lot of what we grow for biofuels overseas,” Sharp said. “Part of the reason is that those mandates in other countries have made it more cost-effective for those countries to take our feedstocks.”
Without a mandated domestic market to absorb these materials locally, Australia will likely continue to ship away the building blocks of its own fuel security, he said. Currently, roughly 80 per cent of our tallow and up to 70 per cent of our canola grain are sent to Europe and the US.
Beyond the lack of federal mandates, Australia also faces infrastructure challenges. The real roadblock isn’t growing the feedstocks, Sharp said, but building the physical refining and blending infrastructure needed to process them.
A pathway to fuel security
According to Sharp, the path forward isn’t about waiting for a single, perfect biofuel technology. Instead, it will require a diverse, multi-staged approach that combines short-term optimisation with long-term scaling.
In the immediate term, ethanol and biodiesel are the most promising pathways to boosting Australia’s fuel security without an enormous price tag.
“We have some existing ethanol and biodiesel plants today that could be ramped up to full production, and expanding those could be done without impacting the existing refineries,” Sharp said.
Currently, Australia’s biodiesel facilities are operating at just 20-30 per cent of their capacity, he explained. Bringing them up to full scale would allow the country to immediately use standard blends such as B5 (5 per cent biodiesel) and E10 (10 per cent ethanol) across existing transport and commercial fleets.
There is also potential to convert or adapt Australia’s existing oil refineries, many of which have closed down after struggling to remain competitive against huge facilities in Asia.
However, Sharp stressed that ethanol and biodiesel alone will not be enough to ensure long-term fuel security.
“Electric vehicles are slowly eating away at petrol demand, and it’ll probably be 25 years before we hardly need any petrol anymore. But that won’t affect heavy vehicles, aviation and shipping.
“They’re still predicting we’re going to need 30 billion litres a year of liquid fuels by 2050. So there’s a long-term need for this, and there’s a limit to how far we can go with biodiesel and ethanol.”
This is because they are strictly “blend” fuels rather than direct “drop-in” replacements, he explained, meaning they cannot be run at 100 per cent concentration in ordinary engines without causing compatibility issues.
In the longer term, Australia may need to rely on technologies such as sustainable aviation fuel (SAF) and renewable diesel. These fuels are far more expensive to produce in the short-term, but they can act as a “drop-in” replacement for sectors that cannot easily be electrified, such as aviation and mining.
An SAF plant is already under construction in Townsville, led by Jet Zero Australia, and is due to begin operations in late 2027.
“That is an alcohol-to-jet-fuel plant, so that will take ethanol and turn it into sustainable aviation fuel and renewable diesel,” Sharp said. “There’s virtually no difference between renewable diesel and normal diesel. You can use 100 per cent renewable diesel in vehicles without any problems at all.”
What engineers need to build next
The emerging biofuel industry represents major opportunities not only for Australia’s economy, but also for engineers themselves.
“We’re in a time when a lot of our process industries are disappearing and our manufacturing jobs are disappearing,” Sharp said.
“But biofuel is an opportunity for engineers in all disciplines. It will need structural engineers, it will need electrical engineers, process and mechanical engineers, environmental planners – it’s a diverse approach we need to develop and operate these plants and maintain them.”
By deploying their skills across these new projects, engineers will play a key role in securing the nation’s long-term fuel independence.
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