NatRoad welcomes the opportunity to respond to the consultation paper on a demand mechanism for low carbon liquid fuels (LCLF) released by the Department of Climate Change, Energy, the Environment and Water and the Department of Infrastructure, Transport, Regional Development, Communications, Sport and the Arts (the
Departments).
As Australia’s largest road transport association, NatRoad represents thousands of members across the industry,
from owner-drivers to large national fleets. Our board is made up of individuals who run transport businesses,
giving NatRoad a direct line of sight into the practical realities facing operators of every size as the sector
navigates the transition to net zero.
This submission builds on NatRoad’s existing policy positions on liquid fuels and carbon costs for road freight, as
set out in our July 2024 policy paper Stronger Economy, Lower Emissions, our submission to the Productivity
Commission’s inquiry into Investing in Cheaper, Cleaner Energy and the Net Zero Transformation (15 September
2025), our submission to the Land and Sea Transport Method 2015 sunsetting review (1 August 2025), and our
concurrent submission to the Safeguard Mechanism Review (September 2026). Copies can be made available
upon request.
Given the breadth of the consultation paper, this submission focuses on the matters of most direct relevance to
the road freight transport industry:
- Section 3.2.5 and 4.5 Impacts on freight and interaction with fuel taxation and road-user charging
- Section 3.3.1 Targets and the pace of the volumetric phase
- Section 3.3.2 Obligation fuels and blending into the general diesel supply
- Section 3.3.3 Obligated entities and the proposed opt-in for large fuel users
We also comment on buy-out price and interaction with the Safeguard Mechanism (Section 3.3.4 and 3.3.6) and
support for domestic production and a book-and-claim arrangement (Section 3.4.2 and 3.4.3).
Consistent with the Department’s guidance at the 31 August webinar, NatRoad notes the Department’s request
for evidence from fuel users on how fuel costs pass through their businesses is “very valuable” to the impact
analysis. NatRoad is in the position to provide this from members on a commercial-in-confidence basis if desired.
We have not commented on certification, feedstock or administrative design matters where other stakeholders are better placed to assist but recognise that the simplest approaches may be least cost to implement and most
credible to our members if easily understood.
Summary of NatRoad’s position
Whilst Australia exports feedstocks which are crucial to the production of renewable diesel, there is a clear and
pressing need to increase the supply and to lower the cost of this low carbon fuel in Australia. NatRoad supports
the development of a domestic low carbon liquid fuels industry as one part of a broader road freight
decarbonisation pathway and supports a demand mechanism that blends certified renewable diesel into the
national diesel supply at conservative initial rates – conditional on seven points:
- Final analysis is used to quantify impact of the expected cents-per-litre impact on diesel for each year
under the lower and upper bounds of the consultation range, and that this be published before targets are
legislated in 2027. - No reduction in Fuel Tax Credits (no increase in the net fuel tax burden) on operators because of the
mechanism through any interaction with road-user charging. - Safeguards against uncontrolled diesel cost increases, including starting at the lower bound of the
consultation range, transparent public reporting of the LCLF cost premium and its pass-through, and a buy
out price that operates as a genuine cost cap before targets are increased. - No new reporting, compliance or certificate-trading obligations for freight operators. The obligation
should sit with fuel suppliers and importers. An opt-in for large fuel users may create a competitive
distortion and if they wish to increase ambition a book-and-claim arrangement should allow customers to
pay without requiring fleets to physically access more LCLF. - Renewable diesel should be blended into the general diesel supply, not sold as a segregated product
that requires operators to build parallel fuel supply arrangements. LCLF should complement, not replace,
efficiency, freight productivity and electrification measures that deliver savings to fleets first and can achieve a payback, not an increase in vehicle total cost of ownership. - LCLF used as a bridge, not a barrier, towards electrification: the relative cost of electrification may
preference LCLF in the short term with lower carbon abatement cost and ease of implementation, but EVs
bring additional benefits (no tailpipe emissions, reduced noise and health cost burden) which LCLF cannot
match. LCLF should therefore be framed as a general measure to reduce road freight greenhouse gas
emissions across the sector. - Domestic production should not come at any cost. Imported certified LCLF should remain eligible, and the cost of establishing a domestic industry should be carried by the Cleaner Fuels Program.
These positions are consistent with NatRoad’s response to the Productivity Commission’s interim report, where
we opposed additional carbon-cost burdens on road freight operators, and with our long-standing opposition to
road-user charge burdens on heavy vehicle operators. NatRoad is committed to supporting our members and
industry to remain commercially viable and sustainable, including:
- IRU Green Compact Survey to gather responses from Australian operators and build the evidence needed
to support the industry’s progress towards carbon neutrality in the longer term. - Get Fleet Fit: a five-step plan to guide truck operators towards improved fuel efficiency and reduced
emissions. - Industry White Paper: Australian road freight transport decarbonisation: NatRoad has identified issues
to overcome and solutions to pursue through government collaboration.
Sections 3.2.5 and 4.5 — Impacts on freight and policy interactions
Sectors which could be impacted by implementation of an LCLF demand policy, and potential impacts on key sectors or communities
NatRoad agrees with the paper’s identification of road freight as a sector likely to be affected by LCLF mandates.
Section 2.8.1 also concedes that the analysis to date does not provide a reliable basis for estimating fuel price
impacts or how much of the cost will be absorbed rather than passed to users.
The LCLF mechanism would add a permanent and rising cost premium to diesel rather than the spike in prices
experienced over the past six months, but 2026 has also exposed structural issues with fuel price pass-through.
Consequently, the Government had to legislate pass-through via the Road Transport Contractual Chain Order
(Fair Work Amendment (Fairer Fuel) Bill 2026, effective 21 April 2026) which forced parties to review rates
fortnightly against the external diesel price benchmarks because voluntary levies weren’t flowing to
subcontractors and owner-drivers.
For some fleets fuel price pass through may also be too slow or incomplete unless they have indexed contracts.
NatRoad’s April 2026 survey of nearly 200 fleet operators found 75% did not expect to survive six months if
conditions continued, and by May 40% had turned down or cancelled work because of fuel costs. This lack of
resilience to external factors was also demonstrated in 12 months to November 2025 when one in twelve
trucking businesses closed due to ‘high operating costs’ and a ‘fiercely competitive pricing environment’.
Anecdotes suggest that renewable diesel prices (100% blend) are in the vicinity of $2 per litre more expensive
than diesel. Renewable diesel may however increase more slowly in response to global oil prices as they are
mainly impacted by the higher cost of transport. Industry sources suggest that a doubling of the diesel price only
leads to a 20% increase in renewable diesel prices.
Volume is also a factor in renewable diesel prices and supports the case for renewable diesel blended into the
diesel supply rather than specific shipments. If renewable diesel requirements were met by individual fleets this
would disadvantage smaller or regional operators who would access renewable diesel in smaller volumes. One
source has cited a $1 per litre saving if delivered at higher (full tank load) volumes (23,000L) compared to
smaller (partial tank load) volumes (5,000L).
So, whilst price impact is currently unknown it may also not be evenly distributed. Three groups warrant specific
consideration in the final impact analysis:
- Sub-contractors and owner-drivers, who may not be able to pass on cost completely or quickly.
- Regional and remote operators, who already pay more for diesel.
- Ancillary fleets that haul their own freight, where fuel cost is not passed through at all.
NatRoad asks that the final impact analysis quantify the expected cents-per-litre impact on diesel for each year of
Phase 1 under the lower and upper bounds of the consultation range, and that this be published before targets
are legislated. The migration to Phase 2 (carbon intensity requirement) will further reduce transparency and
widen the range of compliance costs and potential advantages for larger fleets if they are permitted to opt-in. This difference may require greater scrutiny in terms of potential costs.
Whether there are significant implementation challenges, risks or policy interactions that have not been
identified
Section 4.5.1 notes that an LCLF demand policy may interact with road-user charging arrangements. Despite
temporary relief and some delay in escalation this year, the heavy vehicle road-user charge has risen by 6% p.a.
over the three years to 2025-26. Any use of the fuel taxation or road-user charging system to encourage LCLF
uptake, whether by reducing Fuel Tax Credits on fossil diesel, applying a differential credit to LCLF, or treating the
LCLF cost premium as a base for charging, would be an increase in the fuel tax burden on the sector.
NatRoad opposes any change that reduces Fuel Tax Credits or otherwise increases the net fuel tax burden on operators.
Renewable diesel blended into the diesel supply should attract exactly the same excise and Fuel Tax Credit
treatment as the diesel it replaces, so that the mechanism is neutral to operators at the point of purchase and its
cost is visible in the fuel price rather than hidden in the tax system. NatRoad also notes the paper’s objective of
avoiding compliance behaviours that maintain reliance on fossil fuels. That objective should be pursued through
the design of the obligation on suppliers, not by penalising fuel users who have no choice about what is in the
bowser.
Section 3.3.1 — Targets
The proposed target consultation range, including whether it appropriately reflects the potential scale and
pace of LCLF deployment, and whether alternative trajectories should be considered
With reference to the figures proposed in Table 13 (2030-2035 target consultation range), NatRoad supports
commencing near the lower bound of the consultation range in 2030 at 2% by share of covered fuel demand
escalating a further 2% every year to 10% in 2035. A scheduled review of actual LCLF supply, the observed cost
premium, and its pass-through to diesel users can then determine any further escalation from 2035. Further
ambition should also be assessed given the paper’s own finding that imported LCLF may be more cost-competitive than many Australian production pathways and stronger mandates are unlikely to support the fuel security objectives if it only encourages imports.
NatRoad believes a mandate up to 10% in 2035 distributes the emissions reductions across the existing fleet
without requiring operators to replace trucks or install infrastructure. Assuming a $2 per litre premium for 100%
renewable diesel and $2 per litre net cost of diesel, a 10% mandate would constrain the fuel price increase to
10% over five years or 2% in a single year at a comparable magnitude to increases in the road user charge each
year (i.e. 4 cents per litre).
NatRoad recommends that annual increases in the volumetric requirement post 2035 be conditional on
transparent price reporting: the regulator should publish, at least annually, the average cost of eligible LCLF
supplied, the implied compliance cost per litre of obligation fuel, and the observed change in wholesale diesel
prices attributable to the mechanism. Section 4.5 already contemplates mechanisms for monitoring prices and
managing cost impacts; these should be legislated rather than left to administrative discretion.
Options for providing long-term certainty beyond 2035, and the timing of commencement and transition
between phases
NatRoad supports continuation of a volumetric requirement under Phase 2 beyond 2035 as long as the average
carbon-intensity of obligation fuels remains below the applicable benchmark. This benchmark itself could be
lowered over time with a carbon-intensity of approximately 60% below the relevant fossil fuel baseline in 2030
increasing to 80% by 2035 (on a lifecycle basis).
Phase 2 would add additional complexity and may impact credibility or transparency if it uses non-fuel credits to
count towards compliance, such as electrification, which are already supported through other government
policies. NatRoad supports a scheduled review in 2032 to assess the transition to Phase 2 but proposes a default
mechanism where volumetric compliance is maintained at 10% from 2035.
Section 3.3.2 — Obligation fuels
The proposed coverage of diesel, jet fuel and petrol as obligation fuels when supplied into the Australian
market from commencement
NatRoad supports broad coverage of diesel, jet fuel and petrol. The paper notes that including petrol lifts market
coverage from around 70% to 95% and could reduce the concentration of compliance impacts on some sectors.
That is the right outcome for freight. A diesel-only or diesel-and-jet obligation would place the whole cost of the
mechanism on the sectors with the fewest alternatives. NatRoad does not support a separate diesel requirement
or any allocation of the overall volumetric requirement that loads diesel more heavily than its share of supply.
Vehicles operating on petrol are most likely to electrify, but it is also an alternative fuel choice for some light
trucks and vans so should be treated similar diesel to avoid perverse impacts such as fleets switching purchases
to petrol vehicles to avoid compliance costs.
The factors that should inform future reviews of fuel coverage
NatRoad’s principal request on fuel coverage is that renewable diesel be blended into the general diesel supply rather than segregated as a premium product. Renewable diesel is a drop-in fuel, and the Phase 1 design already allocates each supplier an obligation proportional to its share of fuel supply, which points naturally to blended supply. If suppliers instead meet their obligations in part by selling segregated 100% renewable diesel to a small number of large customers, the balance of the market will continue to receive fossil diesel while paying the embedded compliance cost, and any operator wanting the low-carbon product will have to establish a parallel supply chain with dedicated storage and supply contracts that will increase the total cost of meeting the volumetric requirement.
NatRoad therefore asks that the mechanism be designed so that the default diesel sold at terminals and retail
sites carries the blended LCLF content, with operators able to run on either the blended standard grade or
conventional diesel without any change to vehicles, warranties or fuel infrastructure. Biodiesel (FAME) at high
blend ratios (e.g. >B20) raise separate engine warranty and cold-weather issues for the heavy vehicle fleet,
therefore NatRoad’s support for blending is directed at renewable diesel.
If certain fleets or customers wish to capture the environmental benefit of 100% renewable diesel it is suggested
that the voluntary compliance purchase is contributed on top of the mandated compliance and the fleet or customer pays for the additional cost and claims the associated benefit similar to how the Mandatory Renewable
Energy Target has operated (see book-and-claim arrangements).
Section 3.3.3 — Obligated entities
Whether obligated entities should be those that supply obligation fuels into the Australian market, and
whether a minimum fuel supply threshold should apply
NatRoad supports the Government’s starting position that fuel refiners, LCLF producers and importers should hold the obligation. This is consistent with NatRoad’s existing position that any obligation should sit with fuel suppliers rather than transport operators, and with the international experience summarised in the paper. It allows compliance to be managed by fewer entities that already report fuel volumes, and it spreads the cost across the whole fuel market rather than concentrating it on whichever operators happen to be large enough to be captured.
A minimum supply threshold is appropriate to keep small independent suppliers and regional distributors outside the scheme, provided it is set at a level that captures the entities responsible for the substantial majority of diesel supplied and provided the definitions prevent restructuring to avoid obligations.
Whether an opt-in arrangement should be available, which fuel users should be eligible to participate, and
how such an arrangement should operate
NatRoad objects to a voluntary opt-in for several reasons.
- Large freight operators may create a competitive distortion. In practice only the largest fleets would opt in, and only where doing so is cheaper than the embedded cost in supplied fuel. If opted-in fleets can procure LCLF or credits at scale more cheaply than the price suppliers pass through to the rest of the market, the mechanism will have created a structural cost advantage for large fleets over the small and medium operators who make up most of the industry. It may also target the lowest cost sources of LCLF and prevent access to other fuel suppliers.
- Opt-in would require verification and audit, and it is likely that cost burden may increase the total cost of compliance for the scheme.
- Book-and-claim arrangements (discussed further in this submission) can allows all operators, if they wish to increase their purchase of LCLF, to meet internal or external abatement targets
Related matters: Buy-out price, policy interactions, domestic production and book and claim measures
NatRoad raises four further points that affect the cost and value derived from the demand mechanism.
Buy-out (capped) prices
NatRoad supports a buy-out or capped price as the primary safeguard against uncontrolled cost increases. From
the perspective of the sector that will pay, the buy-out price should place a ceiling on what the mechanism can
add to a litre of diesel in every year based on a reference premium for LCLF. For instance, this may be set at $3 per litre additional cost for 100% renewable diesel in 2030, escalated at CPI. This could be published in advance for each compliance year, and the volume of buy-out payments be reported so that stakeholders can see when
targets are running ahead of supply and ensure that payments are applied to future volumes that exceed
compliance in future years to make up for a shortfall. This could also be achieved with a borrowing capacity of up
to 10% of prior year obligations made up for in the subsequent year.
Potential interactions with existing policies and risk of overlap, duplication or unintended outcomes
A supplier-side LCLF obligation on diesel will reduce the emissions intensity of fuel used by every truck in the country, without any road freight operator being a Safeguard facility. It reduces the need for expanding Safeguard coverage to road freight, whether through a mandatory national facility definition or a lower coverage threshold. Doing so may also impose a second carbon cost on the same litre of diesel, with the operator bearing both the embedded LCLF premium and an ACCU liability on its combustion emissions. As a minimum, decisions on the LCLF mechanism should therefore be sequenced after decision are made in relation to Safeguard coverage of road freight.
NatRoad also notes the interaction with the NSW and Queensland biofuel mandates, which are intended to
achieve (broadly) the same objectives. Therefore, existing state obligations should be replaced by, or netted off against, the national requirement if the fuels meet the benchmark carbon-intensity reduction.
Opportunities associated with implementing a book-and-claim mechanism for Scope 3 emissions
NatRoad supports further consideration of a book-and-claim arrangement and considers it the most practical way to align the cost of LCLF with the parties who value it. Under such an arrangement the environmental attributes of LCLF supplied into the fuel pool above the mandated volumetric requirements could be registered and transferred through the value chain to end customers, such as retailers, manufacturers and resource companies who wish to count them against their voluntary Scope 3 emissions reduction claims. This has three advantages for freight:
- It puts the cost where the voluntary demand for additional abatement is. Customers who are seeking Scope 3 reductions from their transport providers could purchase the attributes directly.
- It avoids parallel supply chains. With renewable diesel blended into the general supply, the physical fuel need not be tracked to a particular truck; the claim follows the certificate.
- It gives operators a commercial product. A transport operator able to offer a customer verified net zero freight has a means of recovering the cost of decarbonisation in the contract.
For all other operators they can claim the emissions reduction in the same way as electricity users benefit from
lower overall scope 2 emissions as renewables penetrate the electricity grid. In the same way, the Scope 1
emissions factor for all diesel in Australia can be reduced each year in line with the volume and emissions
intensity of LCLF and updated in the National Greenhouse Accounts Factors.
The principal risks are double counting between the fleet and the customer’s voluntary claim, but this is
manageable if a registry is administered by the scheme regulator. NatRoad would welcome involvement in the
design of such an arrangement and further inclusion of fleets or freight to be recognised as net zero through
inclusion of electric vehicles. A similar scheme is being explored in New Zealand in the Low Emissions Freight
Certificate (LEFC).
Conclusion
NatRoad supports the Government’s objective of building a domestic low carbon liquid fuels industry and
recognises that renewable diesel is the only practical way to reduce emissions from most of the existing on-road
heavy vehicle fleet over the next decade. A supplier-side mechanism that blends certified renewable diesel into
the national diesel supply at conservative initial rates, with the obligation held by fuel suppliers and no new
compliance burden on operators, is a policy NatRoad can support.
That support depends on the mechanism not becoming another carbon cost carried by road freight operators. Fuel Tax Credits must be preserved, diesel cost increases must be transparent and capped, imports must remain
eligible, and the Safeguard Mechanism must not be extended to the same operators in parallel. Low carbon liquid fuels should complement, not replace, the efficiency, freight productivity and electrification measures that deliver savings to fleets first, and should be used to address residual emissions once those measures have been taken.
NatRoad’s preferred pathway remains the dedicated, industry-appropriate framework set out in Stronger
Economy, Lower Emissions, including a $3 billion Clean Transport Fund, a low and zero emission heavy vehicle
charging and refuelling strategy and an Australian low carbon fuel standard, alongside efficiency and information
programs such as NatRoad’s Get Fleet Fit initiative. We would welcome the opportunity to discuss this
submission with the Departments and to contribute member data on fuel cost pass-through, on a commercial-in -confidence basis if required, to inform the final impact analysis.
