Overview
The Australian Government has signalled a fundamental shift in its approach to low carbon liquid fuels (LCLFs), moving beyond supply-side financial incentives to introduce a mandatory domestic demand-side measure. This development, analysed in detail by Clayton Utz legal experts in a briefing published on 15 June 2026, marks one of the most significant fuel policy interventions in Australia’s recent history. The shift is embedded within the broader Future Made in Australia agenda and is reinforced by specific allocations in the 2026-2027 Federal Budget, including the Fuel Supply and Security Package.
Until now, the government’s approach centred on stimulating domestic production through grant funding, most notably $250 million in LCLF grants and the $1.1 billion Cleaner Fuels Program. These supply-side measures were designed to reduce the cost of domestic production but left a critical gap: without guaranteed demand, financiers remained reluctant to commit capital to large-scale refining or feedstock processing projects. The proposed demand-side mandate is intended to close that gap by creating what the Clayton Utz analysis describes as “bankable demand” for sustainable aviation fuel (SAF) and renewable diesel produced domestically.
For environmental professionals, developers, infrastructure investors, and heavy-emitting industries in Australia, this policy shift is not an abstract regulatory development. It will drive a material increase in the number, scale, and complexity of projects requiring environmental assessment, approval, and ongoing compliance management. From regional feedstock processing plants to port bunkering upgrades and airport fuel system modifications, the pipeline of infrastructure requiring environmental input is set to grow substantially over the next five to ten years.
Key details of the mandatory LCLF demand measure and proposed Low Carbon Fuel Standard framework
The proposed demand-side mechanism is expected to adopt a Low Carbon Fuel Standard (LCFS) model, a regulatory framework already operating in jurisdictions including California and British Columbia. Under an LCFS structure, fuels are assessed against a lifecycle carbon intensity (CI) metric, typically expressed in grams of carbon dioxide equivalent per megajoule (gCO2e/MJ). Fuels with a CI below a declining standard generate credits, while fuels exceeding the standard incur deficits. Obligated parties, generally fuel suppliers and importers, must surrender sufficient credits to cover their deficits, creating a direct financial incentive to blend or substitute low-carbon alternatives into their fuel pools.
Australia’s domestic LCLF industry has historically underperformed relative to its feedstock potential. A critical data point from the Clayton Utz analysis is that Australia currently exports approximately 80 per cent of its canola crop unprocessed, with that feedstock subsequently converted into biofuels in overseas refineries. Under a mandatory demand framework, that value chain is expected to shift onshore. This has direct implications for agricultural regions, particularly in Western Australia, South Australia, Victoria, and New South Wales, where canola is a major broadacre crop. The policy would incentivise construction of domestic hydroprocessed esters and fatty acids (HEFA) refineries and other conversion facilities capable of processing canola, tallow, used cooking oil, and other feedstocks into compliant LCLFs.
The Clean Energy Finance Corporation (CEFC) has estimated that a fully developed domestic low-carbon liquid fuel industry could be worth up to $36 billion by 2050. This figure encompasses refining capacity, feedstock supply chains, storage and logistics infrastructure, and associated port and airport fuel handling upgrades. The 2026-2027 Federal Budget’s Fuel Supply and Security Package provides some of the scaffolding for this investment, but the introduction of mandatory demand measures is the mechanism most likely to unlock private capital at scale. Without mandated offtake or a credit market that monetises low-carbon fuel production, the business case for large capital expenditure in domestic refining remains fragile.
The green fuel bunkering strategy announced alongside the demand measure targets Australia’s maritime sector, which operates significant domestic and international shipping routes from ports including Port Hedland, Newcastle, Brisbane, and Fremantle. Bunkering infrastructure for renewable diesel and potentially green methanol or ammonia will require engineering assessments, dangerous goods storage approvals, and marine environment protection reviews under both Commonwealth and state frameworks. The regulatory pathway for these projects is not straightforward, involving interactions between the Australian Maritime Safety Authority (AMSA), port authorities, state environment protection authorities, and potentially the Commonwealth Department of Infrastructure.
Australian regulatory context for LCLF infrastructure, environmental approvals, and mandatory climate disclosures
The environmental regulatory framework that applies to LCLF infrastructure in Australia is multi-layered and varies by jurisdiction. At the Commonwealth level, projects with a significant impact on matters of national environmental significance (MNES) require assessment and approval under the Environment Protection and Biodiversity Conservation Act 1999 (EPBC Act), now subject to ongoing reform under the Nature Positive Plan. Large-scale feedstock processing facilities and refineries located near sensitive ecological areas, waterways, or threatened species habitat are likely to trigger EPBC referral requirements. The upcoming transition to the proposed Nature Repair Market and revised biodiversity offset frameworks will add further complexity to project approvals for greenfield LCLF infrastructure.
At the state level, planning and environment legislation varies significantly across jurisdictions. In Western Australia, where canola production is concentrated, major processing facilities will engage the Environmental Protection Act 1986 and the state’s Environmental Impact Assessment process administered by the Environmental Protection Authority (EPA). In New South Wales and Victoria, equivalent assessment pathways apply under the Environmental Planning and Assessment Act 1979 and the Environment Effects Act 1978 respectively. Proponents should expect that facilities of the scale likely to emerge from a fully mandated LCLF demand framework will require formal environmental impact assessment rather than lower-level referral or exemption pathways.
On climate disclosure, the mandatory reporting framework introduced under Australia’s amended Corporations Act will require large entities involved in LCLF production, distribution, and use to disclose climate-related financial risks in line with the Australian Sustainability Reporting Standards (ASRS). For infrastructure investors and project developers, this means that the carbon intensity profile of their LCLF assets will become a material disclosure item, reinforcing the commercial logic of investing in genuinely low-carbon fuel pathways rather than marginal compliance plays. Environmental professionals with experience in lifecycle assessment and carbon accounting will be increasingly in demand as project teams work to verify and report CI metrics that meet both regulatory and investor scrutiny.
References and related sources
- Primary source: www.claytonutz.com
- ifminvestors.com
- graincorp.com.au
- smartenergy.org.au
- claytonutz.com
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This is an iEnvi Machete news summary. Prepared by iEnvi to summarise the source article for contaminated land, groundwater, remediation, approvals and site risk professionals.
Published: 15 Jun 2026
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