'Farm to the refinery': $1b funding injection to spark biofuel industry

Feedstocks such as canola, sorghum, sugar and agricultural waste would power the industry, offering new revenue streams for regional producers if the plan is fully realised.

Peak industry groups have long lobbied for such an initiative and described the funding envelope as a major step forward for the nascent industry.

Treasurer Jim Chalmers said the ten-year Cleaner Fuels Program would provide production-linked incentives to drive private investment in the onshore manufacture of renewable diesel and sustainable aviation fuel.

"Australia has what it takes - the feedstocks, clean energy, and world-class farming base - to become an indispensable part of global net zero supply chains," Dr Chalmers said.

"This is a down payment on developing an entirely new industry in Australia, from the farm to the refinery."

The government will consult with stakeholders on the scheme's design this financial year, including the bedding down of demand side mechanisms needed to stand up a new LCLF industry and to create a sustainable market.

Grants will be awarded competitively.

In a joint statement, GrainCorp, Ampol and IFM Investors said, as global demand for biofuel increases, Australia was well-placed to leverage its "comparative advantages" in agriculture, land availability and refining expertise to become a global LCLF leader, including in the production of high-value aviation fuel and renewable diesel.

In July last year, the three parties signed an MoU to explore the establishment of an integrated renewable fuels supply chain in Australia and are completing a feasibility study for a renewable fuels facility, with capacity to produce over 750 million litres annually, at Ampol's Lytton Refinery in Brisbane.

Australia currently exports nearly $4 billion worth of suitable feedstocks, like canola and tallow.

However, the Clean Energy Finance Corporation estimates a domestic low-carbon fuels sector could be worth $36 billion by 2050 and cut 230 million tonnes of emissions.

The announcement comes just days before the government announces its 2035 emissions reduction target and the imminent release of its industry sector decarbonisation plans.

Labor has previously said that feedstocks present a pathway to clean up hard-to-abate sectors, like transport and construction.

Sustainable fuels have been embraced overseas, with the United States and European Union using subsidies and mandates to accelerate production.

Global airlines, including Qantas, are already using small volumes of biofuel on commercial flights.

Australia has trialled biofuel projects since the early 2000s, but a lack of policy certainty and domestic refining capability has seen most of those initiatives stall.

The new funding is designed to overcome that barrier by underwriting local production.

GrainCorp head of agri-energy Jesse Scott said around 70 per cent of Australia's canola is currently exported unprocessed, with much of it used overseas for renewable fuel production.

"This project is about using Australia's strengths in agriculture to fuel a new energy industry - one that helps to cut emissions while driving investment in the regions," he said.

The new funding follows the release of $250 million last year to stimulate sustainable technologies, particularly those promising to convert biomass from agricultural feedstocks into cash for farmers.

Grain Producers Australia chief executive Colin Bettles congratulated the government on pulling the policy lever, saying the organisation would continue to work with it and other stakeholders to ensure the potential benefits were fully unlocked from the farmgate to refineries.

The organisation included a circular economy business case for the measures in its submission to Labor's recent Economic Reform roundtable.

"GPA has advocated these policy views consistently in different consultation processes over time, focused on making sure the balance is right, and shared value and benefits optimised, by incentivising local production, starting with the productivity of Australian grain producers," he said.

The incentives build on the Sustainable Aviation Fuel Funding Initiative and the Future Made in Australia Innovation Fund, and will sit under the new Future Made in Australia Act, which requires recipients to meet community benefit principles.

Canegrowers chief executive Dan Galligan said the policy would provide confidence to airlines, freight and the heavy industry that local feedstocks can help them meet global benchmarks.

Agriculture Minister Julie Collins said farmers and foresters would be central to the industry's success.

"Our farmers have always been innovators, and this is a chance to turn their world-class production into new income streams while strengthening fuel security," she said.

The government has also recently expanded its Guarantee of Origin scheme to cover low-carbon fuels and introduced fuel quality standards for renewable diesel.

The first 'drop-in' fuels, which can be used in existing engines, are expected to be produced domestically by 2029.

National Farmers' Federation interim chief executive Su McCluskey said a local biofuels industry would place agriculture as a central player in Australia's race to net zero emissions and diversify market opportunities for producers, "a key element of risk management".