Cleaner Fuels Program

Executive Summary

• Scalable low-carbon liquid fuels provide the fastest, lowest risk pathway for near term emissions reductions whilst maintaining freight productivity and avoiding disruption
• A fixed per-litre production credit is critical to overcoming first-mover disadvantage, attracting private investment, strengthening Australia’s sovereign fuel capability and supporting SME businesses
• Program design should prioritise mature production and commercial proven pathways, lifestyle abatement outcomes and nationally consistent standards to ensure emission reduction targets and ensure value for the taxpayer

About NatRoad
As Australia’s largest association representing thousands of road freight transport businesses, the National Road Transport Association (NatRoad) advances the interests of a $96 billion industry. Our Board draws from operators across the sector, from owner drivers to national fleets, ensuring our advocacy reflects practical realities and commercial pressures. As a leading voice for the industry, NatRoad works with government, members, industry and partners to improve the operating environment for freight operators nationally.

The Department of Infrastructure, Transport, Regional Development, Communications, Sports and the Arts (the Department) is seeking feedback as part of the Cleaner Fuels Program Policy Design and Engagement Paper (the Paper) to gain industry perspectives and insights on the transition to cleaner fuels and pathways for decarbonisation. As the peak body representing road freight operators of all sizes, NatRoad has a direct interest in ensuring reforms are practical, proportionate and support productivity whilst reducing emissions. It is important to ensure outcomes of the consultation align with broader Productivity Commission, National Transport Commission (NTC) and National Freight and Supply Chain Strategy reform processes.

Overarching Principles Guiding NatRoad’s Position
NatRoad supports a transition to cleaner fuels that is practical, nationally consistent and achievable for the diverse road freight industry. Our position is underpinned by the following principles:
• Technology neutrality: Policy settings should enable diesel efficiency improvements, biofuels, renewable diesel and emerging electric and hydrogen technologies to compete on their merits, without prematurely mandating specific solutions.
• A viable transition for SMEs: With 97% of operators classified as small businesses, any transition pathway must recognise limited capital reserves and avoid imposing regulatory or technological shifts that SMEs cannot reasonably absorb.
• Infrastructure must lead regulation: Cleaner fuel policy must be supported by adequate supply chains, refuelling and charging infrastructure, grid capacity and vehicle availability before any regulatory obligations are introduced.
• National consistency: Fuel standards, emissions rules and blending requirements should be harmonised nationally to prevent fragmented state-based approaches that complicate cross-border freight operations.
• Shared responsibility across the supply chain: Emissions and cleaner fuel policy must incorporate fair charging and equitable cost-sharing arrangements between operators, shippers, receivers and government.
• Productivity must be protected and enhanced: Cleaner fuel initiatives must be integrated with broader productivity reforms including PBS access, bridge and axle-load limits, and HVNL amendments, to ensure operators can move more freight with fewer emissions and avoid unintended efficiency losses.

Current State of the Heavy Vehicle Fuel Landscape
In August 2025, the International Road Union (IRU), of which NatRoad is a member, released the ‘IRU Green Compact Survey Report 2025: Decarbonising commercial road transport: Progress and future pathways’, which examines the decarbonisation status of commercial road transport operations in Australia, Central Asia, Europe, Mexico and Türkiye8. Transport operators are deeply concerned about the challenges posed by decarbonisation. In Europe, they expressed the highest level of apprehension (around 80%). This worry stems primarily from uncertainties about cost recovery and customers’ willingness to absorb higher operational costs.

Australia’s heavy-vehicle sector remains overwhelmingly reliant on diesel, with alternative fuels not yet commercially viable at scale for long-haul, regional or high-productivity freight tasks. Evidence from national datasets and previous NatRoad submissions highlights several structural constraints shaping the industry’s transition pathway.

Diesel Reliance
• More than 98% of Australia’s heavy-vehicle fleet continues to operate on diesel, reflecting the fuel’s current advantages in range, payload and refuelling availability.¹
• Fleet turnover is slow, with prime movers typically replaced every 10–12 years, and significantly longer in regional and remote operations where capital constraints and utilisation patterns extend asset life.2

Fuel Cost Pressures

• Fuel remains one of the largest operating costs for freight businesses, representing 30–40% of linehaul costs depending on operating model and task.³
• Diesel prices have experienced sustained upward pressure over the past decade, driven by global energy markets and domestic supply factors.^{4 5 6}
• Recent Road User Charge increases and changes to Fuel Tax Credit eligibility have further intensified cost pressures for operators, especially SMEs.⁷

Emerging Cleaner Fuels
• Renewable diesel – Hydro-treated Vegetable Oil (HVO) – presents a promising near-term, drop-in cleaner fuel option that can reduce emissions without requiring new engines or vehicle modifications. However, supply into Australia remains limited and is currently uncompetitive against conventional diesel.^{8 9}
• Biodiesel blending variability across jurisdictions creates operational uncertainty and inconsistent engine warranty acceptance from Original Equipment Manufacturers (OEMs), limiting uptake.^{10 11}
• Battery-electric and hydrogen heavy vehicles are progressing but face significant adoption barriers, including limited model availability, payload and range constraints. These vehicles have significant upfront costs compared to internal combustion engines and lack adequate refuelling/charging infrastructure to support operations, particularly on regional freight corridors.^{12 13}

Eligible Fuels and Prioritisation
NatRoad supports a broad, technology neutral approach to the eligibility of Low Carbon Liquid Fuels (LCLFs), reflecting fuel readiness, lifecycle abatement potential and the operational realities of Australia’s road freight task. Heavy vehicle decarbonisation cannot rely on a single technology pathway given long-haul distances, climatic conditions, supply chain constraints and slow fleet turnover, particularly for small operators who comprise around 97% of the sector.^{14 15} Eligibility should therefore include all LCLFs capable of delivering meaningful emissions reductions while maintaining productivity, fuel availability and cost efficiency.

Advanced biofuels such as renewable diesel (HVO) and advanced biodiesel should be prioritised for road freight as the most practical near-term option. These fuels deliver approximately 50–90% lifecycle emissions reductions and offer full drop-in compatibility with existing vehicles, fuel systems and logistics operations.^{16 17} This is critical given heavy vehicles typically remain in service for 10–12 years or longer, especially in regional and remote fleets.¹⁸
Co-processed renewable diesel blends and sustainable aviation fuel by-products should also be eligible, as they enable rapid scaling using existing fuel infrastructure, while biomethane derived liquid fuels, synthetic e-fuels and hydrogen-derived liquid fuels should be recognised for their longer-term decarbonisation potential in hard-to-electrify freight segments.¹⁹
With road freight consuming more than 8 billion litres of diesel annually, even partial substitution with renewable diesel offers substantial abatement. A 10% displacement can reduce emissions by approximately 1.5–2 million tonnes of CO₂-e per year without requiring new vehicles or infrastructure.^{20 21} By contrast, zero-emission heavy vehicle pathways remain constrained by limited model availability, range and payload penalties, significantly higher capital costs, and the absence of national charging or hydrogen refuelling networks.²²
Prioritising renewable diesel for road freight would therefore deliver high abatement at the lowest transition cost and would reduce financial pressure on SMEs for whom fuel represents 30–40% of operating costs. Further, it would support domestic fuel security whilst preserving freight productivity and avoiding payload losses. It is essential the LCLF framework prioritises deployable fuels; while allowing complementary pathways to mature, this would accelerate emissions reduction and ensure no segment of the freight industry is left behind.

Type of Production Support
NatRoad supports the use of a fixed, per-litre production credit as the most effective mechanism to accelerate domestic LCLF production and overcome first-mover disadvantage. A fixed, transparent credit provides certainty for producers and investors whilst supporting long-term supply development. A fixed mechanism would avoid exposing the Program to volatility in global fuel, feedstock and energy markets.^{23 24} Certainty is critical in the early stages of market development, where investment decisions depend on predictable revenue streams and clear policy signals.²⁵ By contrast, variable or price-linked credits introduce uncertainty, administrative complexity and exposure to external market shocks, which can undermine project financial viability, delay financial close and discourage investment.
From an operator perspective, fixed production credits are more likely to translate into predictable fuel pricing and reliable availability, supporting uptake across the road freight sector.²⁶ Variable credits offer theoretical efficiency by adjusting support during periods of high fuel prices but run the risk of inconsistent outcomes through reduced confidence for both producers and fuel users.
Fixed credits should be accompanied by clear targets and safeguards with transparent reporting to ensure scaling of production, increased competition and ultimately reduction of production and supply costs. Further, having clear targets and reporting will preserve investor confidence while protecting taxpayer value.
A well-designed LCLF program can deliver meaningful near-term emissions reductions while laying the foundations for long-term decarbonisation of the heavy vehicle sector. In the short term, production support can accelerate domestic supply of advanced biofuels and renewable diesel, enabling immediate emissions reductions across the existing fleet.²⁷
Over the medium term, the Program can attract in private investment to support the scaling of production which will result in increased price competitiveness and reduction of unit production costs. Scaling of production will also increase Australia’s fuel security.²⁸
To enable and encourage adoption in the short to medium term, it is critical LCLF pricing is set in line with equivalent fossil fuels or imported LCLFs. This is necessary due to higher production costs, limited domestic supply, immature supply chains. Without policy and pricing support, it is unlikely freight operators, especially SMEs, would be able to absorb increased costs. Over the longer term, as domestic production scales and technologies mature, pricing is expected to transition toward a carbon-abatement basis, with fuels competing on cost per tonne of CO₂-e reduced rather than fuel price alone. This transition will depend on policy stability, production support, and nationally consistent lifecycle carbon accounting frameworks aligned with international standards.^{29 30}
To maximise value for taxpayers, projects should be prioritised based on cost-effectiveness measured on a lifecycle abatement basis, rather than a simple dollars-per-litre metric. Assessing projects on cost per tonne of CO₂-e abated better aligns with the Program’s decarbonisation objectives, supports technology neutrality, and ensures public funding is directed toward fuels delivering genuine emissions outcomes. This approach should be underpinned by clear, nationally consistent lifecycle accounting and verification requirements to allow like-for-like comparison between projects.

Consistent with this approach, production credits should be linked primarily to lifecycle emissions-reduction performance, with production volume used as the delivery mechanism. In practice, this can be implemented through tiered scalable per-litre credits with verified carbon intensity, balancing simplicity and revenue certainty, with integrity and value for money. A purely volumetric credit risks paying equivalent support for fuels with materially different abatement outcomes.
In the short to medium term, the cost of deploying LCLFs domestically is likely to exceed the costs of equivalent fuels in international markets. This is due to smaller scale, first-of-a-kind risk, higher construction and financing costs. While Australia has strong long-term comparative advantages, including abundant renewable energy resources and proximity to hard-to-abate domestic demand, a local cost premium is likely to persist until scale and learning effects are realised. Production support should therefore focus on building reliable domestic supply while allowing exports to support project revenue certainty and efficient scale. Levels of domestic supply should be included in any reporting requirements to ensure transparency and support growth of local demand.
NatRoad strongly supports combining production credits with targeted capital grants and concessional finance for first-of-a-kind facilities. Capital grants address upfront construction and technology risk, while production credits provide revenue certainty during early operations. In addition, Clean Energy Finance Corporation (CEFC) concessional debt, blended finance, potential National Reconstruction Fund (NRF) co-investment or guarantees can materially reduce the cost of capital. This can support the attraction of private investment and accelerate project delivery while limiting fiscal exposure.
Finally, international experience demonstrates simple and durable support mechanisms are most effective in early market phases. The United States and Canada show the value of pairing production incentives with capital de-risking. European frameworks highlight the importance of clear lifecycle definitions, certification and sustainability safeguards. What we’ve seen across international jurisdictions is mechanisms that provide support for upfront capital and revenue certainty in early days and avoid excessive complexity, are proven to be most effective in accelerating deployment while protecting public value.

Fuel Production
To meet the Program’s objective of delivering meaningful volumes of LCLFs in the near term, prioritisation should be given to commercially proven, low risk technology capable of rapid scale-up. This will support hard-to-electrify sectors such as long-haul road freight without requiring vehicle replacement or new refuelling infrastructure.^{31 32} This will encourage early support from industry and deliver near-term emissions reductions whilst ensuring public funding delivers timely, measurable abatement this decade.
While priority should be given to established pathways in the early phases of the Program, it is important to support innovation over the longer term. Emerging production pathways, including synthetic e-fuels and hydrogen-derived liquids, can be accommodated through differentiated support mechanisms, such as separate allocation streams, targeted capital grants, higher abatement-weighted credits, or pilot-scale volume caps. ^{33 34} This will limit competition in accessing public funding and enable a technology agnostic approach that supports longer term transition needs.
To ensure supported projects are investment-ready and capable of timely delivery, eligibility should require Program participants to demonstrate advanced project development status. Further consultation should be undertaken to ascertain minimum development and eligibility criteria, potential requirements could include feedstock supply chains, engineering plans and studies as well as financial and risk management plans. Clear minimum development thresholds reduce delivery risk and support efficient allocation of public funds.
NatRoad supports applying a minimum facility size threshold to ensure supported projects deliver material market impact and administrative efficiency. However, thresholds should remain pragmatic and flexible, recognising regional or feedstock-constrained projects may be smaller in scale yet still strategically valuable for domestic supply and emissions reduction. Rigid size thresholds risk excluding viable projects that deliver strong abatement outcomes and regional benefits.³⁵
To maintain program integrity and ensure genuine emissions outcomes, NatRoad supports requiring LCLFs to meet a minimum lifecycle carbon-intensity threshold. A 50 per cent reduction compared to a fossil equivalent is reasonable and broadly aligned with international practice and provide transitional flexibility. ³⁶ Thresholds should be calculated on a well-to-wheel basis, using nationally consistent methodologies aligned with international standards and verified through accredited schemes, including Australia’s expanded Guarantee of Origin framework.³⁷ Even where incentives are weighted toward carbon abatement rather than volume, a minimum threshold remains important to exclude low-performing fuels and preserve value for taxpayers.³⁸
Indirect Land Use Change (ILUC) should be included in carbon-intensity calculations where methodologies are robust, transparent and internationally consistent, but applied cautiously to avoid disadvantaging domestic feedstocks through highly variable or uncertain assumptions.³⁹ Priority should be given to waste-derived, residue-based and non-food feedstocks, while purpose-grown feedstocks should not be excluded outright but assessed against sustainability and carbon criteria to manage impacts on food production, water use and land stewardship.
Beyond carbon intensity, sustainability criteria should address feedstock sourcing, water use, biodiversity impacts, waste management, and compliance with labour and environmental laws. These criteria should align with existing Australian regulatory frameworks to avoid duplication and unnecessary compliance burden. It is critical to ensure LCLF production delivers positive environmental and social outcomes and does not undermine food security or community interests.⁴⁰
Verification of sustainability and emissions claims should rely on recognised international and domestic certification schemes, including those aligned with the EU Renewable Energy Directive, ISCC, RSB and Australia’s expanded Guarantee of Origin Scheme for LCLFs. Mutual recognition of credible international schemes will be essential to reduce compliance costs, support trade, and enhance project bankability while maintaining high integrity standards.

Other Policy Considerations
It is important for projects delivered under the Program deliver material, near-term emissions abatement in hard-to-electrify sectors, particularly road freight, aviation and shipping, where liquid fuels will remain essential for decades.^{41 42} Economic and regional benefits, fuel security and sustainability should be assessed holistically rather than in isolation. Acknowledgement should be given to projects that generate employment, regional development and supply-chain resilience.⁴³
The Community Benefit Principles under the Future Made in Australia Act are relevant to LCLF projects, particularly those relating to regional economic development, workforce participation, skills development and engagement with First Nations communities.⁴⁴ These principles align well with feedstock production, processing and distribution activities which are often regionally based. It is important the application of the Principles do not add unnecessary complexity, cost or delay, particularly for early-stage or first-of-a-kind projects where investment certainty and timely delivery are critical.
Overseas policy developments will play a critical role in shaping domestic investment decisions. International demand-side signals, such as aviation fuel mandates, lifecycle emissions frameworks and long-term decarbonisation targets. Alignment with these developments will support Australian-produced LCLFs to access global markets and attract capital.⁶
Unlocking a domestic LCLF production industry will also require coordination across multiple intersecting policy areas, including fuel quality standards, carbon accounting and Guarantee of Origin frameworks, land-use and water policy, biosecurity and feedstock regulation, transport decarbonisation strategies and energy-market settings.⁴⁵ Consistency across these policies is critical to avoid fragmentation, reduce compliance costs and provide a clear, durable investment signal to producers and fuel users.
Finally, NatRoad emphasises the importance of policy stability, simplicity and sequencing. The Program should focus on deployable solutions but retain flexibility to enable adoption of new and emerging technologies. There is a need for clear transition pathways with proportionate compliance requirements and regular, transparent review processes, will ensure investor confidence and accelerate the development and uptake of domestic low-carbon liquid fuels.

Conclusion and Next Steps
NatRoad supports the establishment of a Low Carbon Liquid Fuels Program as a critical enabler of near-term decarbonisation for hard-to-electrify sectors. A well-designed program, grounded in technology neutrality, lifecycle emissions integrity, and investment certainty, can deliver meaningful emissions reductions now while supporting domestic fuel security, regional development and long-term economic resilience.
To achieve these outcomes, the Program should prioritise commercially proven technologies capable of delivering material volumes in the near term. The Program should include fixed production credits targeted at overcoming first-mover disadvantage. The Program should be aligned with international policies and frameworks. Complementary measures such as capital de-risking and concessional finance will be essential in unlocking private investment and accelerating final investment decisions.
Next steps should include early publication of final eligibility criteria, reporting requirements, lifecycle carbon accounting methodologies and credit settings to provide certainty. This should be in undertaken in parallel with engagement with industry, financiers and fuel users to support uptake. NatRoad looks forward to working with the Department to ensure the Program delivers practical, scalable and equitable decarbonisation outcomes for Australia’s freight sector and the broader economy.

1 Bureau of Infrastructure and Transport Research Economics (BITRE), Motor Vehicle Census, https://www.bitre.gov.au/publications/ongoing/motor-vehicle-census
2 BITRE, Truck Industry Fleet Report, https://www.bitre.gov.au/publications/2023/truck-industry-report

3 BITRE, Road Freight Estimates and Costs, https://www.bitre.gov.au/publications/2022/road-freight-estimates
4 RACV, Fuel Price Reports, https://www.racv.com.au/on-the-road/driving-maintenance/fuel-prices.html
5 Australian Automobile Association, Fuel Price Monitoring, https://www.aaa.asn.au/issues/fuel-prices
6 BITRE, Weekly Fuel Statistics, https://www.bitre.gov.au/statistics/weekly-fuel-prices
7 National Transport Commission (NTC), Heavy Vehicle Charges Consultation, https://www.ntc.gov.au/projects/heavy-vehicle-charges
8 Department of Infrastructure, Transport, Regional Development, Communications and the Arts (DITRDC), Renewable and Alternative Fuels Information, https://www.infrastructure.gov.au/infrastructure-transport-vehicles/energy
9 International Energy Agency (IEA), Renewables – Biofuels, https://www.iea.org/reports/renewables
10 Standards Australia, Fuel Standards, https://www.standards.org.au
11 OEM biodiesel technical guidance (Volvo Trucks, Scania, Daimler)
12 Austroads, Decarbonisation of Heavy Vehicles, https://austroads.com.au/publications/freight/ap-r678-22
13 CSIRO, HyResource – HyRoad Hydrogen for Transport Analysis, https://research.csiro.au/hyresource/hyroad/
14 Australian Bureau of Statistics (ABS), Counts of Australian Businesses, confirming the dominance of small businesses in the road freight sector.
15 National Road Transport Association (NatRoad), Pathway to Heavy Vehicle Decarbonisation, 2025.

16 International Energy Agency (IEA), Renewables 2023; Net Zero Roadmap – Transport.
17 European Commission, Renewable Energy Directive (RED II / RED III) lifecycle emissions benchmarks for renewable fuels.
18 Australian Trucking Association / Industry fleet data on heavy vehicle asset life.
19 International Energy Agency (IEA), World Energy Outlook – hard-to-electrify transport sectors.
20 Department of Climate Change, Energy, the Environment and Water (DCCEEW), National Greenhouse Gas Inventory – Transport.
21 CSIRO, Bioenergy Roadmap for Australia.
22 International Transport Forum (ITF), Decarbonising Road Freight.
23 OECD, Overcoming First-Mover Disadvantage in Clean Energy and Industrial Transitions.
24 International Energy Agency (IEA), World Energy Outlook; Net Zero Roadmap.

25 United States Government, Inflation Reduction Act 2022 – Clean Fuel Production Credit.
26 International Road Union (IRU), Green Compact Survey Report 2025.
27 National Road Transport Association (NatRoad), Pathway to Heavy Vehicle Decarbonisation, 2025.
28 Government of Canada, Clean Fuels Fund.
29 European Commission, Renewable Energy Directive (RED II / RED III).
30 Department of Climate Change, Energy, the Environment and Water (DCCEEW), Guarantee of Origin Scheme – Expansion to Low-Carbon Liquid Fuels.

31 International Energy Agency (IEA), Renewables 2023; Net Zero Roadmap – Transport.
32 National Road Transport Association (NatRoad), Pathway to Heavy Vehicle Decarbonisation, 2025.

33 OECD, Overcoming First-Mover Disadvantage in Clean Energy and Industrial Transitions.
34 Government of Canada, Clean Fuels Fund – support for first-of-a-kind and pilot facilities.
35 Infrastructure Australia, Market Capacity and Freight Infrastructure Assessments.
36 European Commission, Renewable Energy Directive (RED II / RED III).
37 Department of Climate Change, Energy, the Environment and Water (DCCEEW), Guarantee of Origin Scheme – Expansion to Low-Carbon Liquid Fuels.
38 OECD, Effective Carbon Pricing and Industrial Policy.
39 CSIRO, Bioenergy Roadmap for Australia.

40 Australian Government, National Sustainability and Environmental Regulatory Frameworks (various).
41 International Energy Agency (IEA), Net Zero Roadmap – Transport Sector.
42 International Energy Agency (IEA), World Energy Outlook.
43 Infrastructure Australia, Freight and Supply Chain Resilience Studies.
44 Australian Government, Future Made in Australia Act 2024 – Community Benefit Principles.
45 Australian Government, National Fuel Security Strategy.