Australia's potential $36 billion investment in clean fuels: Will financial backers in the nation embrace this prospect?
In a recent report, the Clean Energy Finance Corporation (CEFC) and Deloitte suggest that Australia has a significant opportunity to capture the demand for low-carbon liquid fuels (LCLF), which could be worth $36 billion by 2050.
The production of LCLF relies on various feedstocks, including waste, agricultural residue, biomass, sorghum, used cooking oils, and even tallow and canola, which are currently being exported for LCLF production. This industry could revitalize manufacturing hubs and create skilled careers in regions affected by the decline of fossil fuels.
Over a third of liquid fuel demand in Australia comes from road transport, where electrification is underway. However, sectors that can't electrify, such as mining and aviation, are identified as key contributors to the demand for LCLF. Ian Learmonth, CEFC's chief executive, states that LCLFs are the next best hope for these sectors and that policy accelerators like mandates, certification schemes, and offsets are key to assisting the industry reach scale.
The report identifies seven 'market accelerators' that could pave the way for a LCLF boom in Australia, one of which is the use of concessional finance to de-risk private investments. However, investment in LCLF remains risky due to the maturity of the market, complicated supply chains, and the need for steady feedstock suppliers and offtake partners.
Australia's largest airline, Qantas, imported 2 million litres of sustainable aviation fuel in May 2023, marking the largest ever commercial import of sustainable aviation fuel in Australia. This move underscores the growing demand for LCLF, with over 50% expected to come from aviation under all modelled scenarios between 2030 and 2050.
Scaling up Australia's LCLF industry would require cautious, optimistic navigation of waters that are simultaneously risky and rewarding. The report makes a convincing case for LCLF to be amongst the candidates for funding, but its caveats are noteworthy. Rupert Maloney, CEFC's executive director, emphasizes that exporting the raw materials for LCLF production misses the opportunity to build the industry domestically, highlighting the potential for regional development, national resilience, and emissions reduction.
Key stakeholders in Australia's LCLF industry include GrainCorp with partners Ampol and IFM Investors, the Australian federal government via grants to tech developers like Licella, and the Queensland state government through policy support. These efforts focus on leveraging local agricultural resources and infrastructure enhancements to build a domestic LCLF industry.
However, the report does not provide information on who is currently funding sustainable aviation fuels, and other forms of capital might need to take a seat at the table before institutional capital considers investing in LCLF. As Australia's financiers look for the next big thing as its legacy industries decarbonize, LCLF could be a potential candidate due to a first mover advantage.
References: 1. CEFC and Deloitte Report 2. Microsoft's Climate Innovation Fund 3. AUD 8 million grant to Licella 4. Queensland State Government support for biofuel projects 5. GrainCorp, Ampol, and IFM Investors' SAF project
The use of concessional finance could de-risk private investments in the growth of Australia's low-carbon liquid fuels (LCLF) industry, as advocated in the CEFC and Deloitte Report. As Australia's financiers seek the next big investment opportunity with a first mover advantage, the LCLF industry, particularly in sectors like mining and aviation, could be a promising candidate due to the increasing demand for LCLF and the potential for regional development and emissions reduction, as emphasized by Rupert Maloney, CEFC's executive director.
