For many Australians, biofuels still mean ethanol blends like E10. They are associated with fuel compatibility warnings, modest emissions gains, and a technology that never quite lived up to early expectations. That legacy has shaped how biofuels are perceived, and it explains why they quietly fell out of favour while solar and wind surged ahead.
What is now attracting serious attention from policymakers and investors is something different. The focus is now on drop-in fuels, such as renewable diesel and sustainable aviation fuel. They are designed to replace fossil fuels directly and can be used in existing engines, stored in existing tanks, and moved through existing fuel infrastructure without modification.
As the country looks to cut emissions in sectors where electrification is challenging or impractical, the conversation around biofuels is about fuels that can decarbonise aviation, freight, and heavy industry using the systems already in place.
What “drop-in fuel” actually means
A drop-in fuel is designed to behave chemically like a conventional fossil fuel. That means it can be used as a direct substitute without requiring changes to engines, vehicles, storage tanks, or distribution infrastructure.
In practical terms, drop-in fuels can flow through the same pipelines, sit in the same depots, and power the same equipment that currently relies on diesel or jet fuel. There is no need for fleet upgrades, new refuelling systems, or changes in how fuel is handled. For industries that operate at scale, this compatibility is critical.
This is where drop-in fuels differ fundamentally from earlier biofuels. Ethanol and biodiesel are blends, limited by engine tolerances and fuel standards.
On the other hand, drop-in fuels are replacements. They are designed to slot into the existing fuel system and reduce emissions without requiring a parallel energy network to be built from scratch.
That ability to work inside the system Australia already has is what makes drop-in fuels attractive to governments, airlines, freight operators, and heavy industry.
Why ethanol stalled and why that still shapes the debate
Ethanol was Australia’s first large-scale experiment with biofuels, and its limitations left a lasting impression. As a blended fuel, ethanol could only be used in low percentages without affecting engine performance or fuel economy. Many vehicles were not compatible beyond E10, and even then, drivers often reported higher consumption, which undercut the perceived benefits.
Since ethanol relied on blending rather than replacement, it never moved beyond the margins of the fuel market. It also became linked with concerns about land use and food crops, reinforcing scepticism about whether biofuels could scale sustainably.
That experience matters today because it still shapes public perception. For many people, “biofuel” is synonymous with compromise: reduced range, compatibility warnings, and modest emissions gains. The current generation of biofuels is working against that legacy.
Understanding why ethanol failed to gain traction helps explain why policymakers are now focusing on drop-in fuels. It’s about moving away from blends altogether and toward fuels that behave like the fossil fuels they are intended to replace.
Renewable diesel is NOT biodiesel
One of the biggest sources of confusion in biofuel discussions is the assumption that renewable diesel and biodiesel are the same thing. No, they are not.
The difference between the two explains why renewable diesel is now being treated as strategic infrastructure rather than a niche alternative fuel.
Biodiesel is produced through a chemical process called transesterification. The resulting file has different properties from fossil diesel, which limits how much can be blended without affecting engine performance. Cold-weather issues, storage stability, and material compatibility have all constrained its use, particularly in heavy-duty applications.
Renewable diesel is produced using a different process, typically hydro treatment, which removes oxygen from the feedstock and creates a fuel that is chemically very close to conventional diesel. The end product meets the same fuel specifications and can be used at 100% without blending limits or engine modifications.
For fleet operators, mining companies, and generators, that distinction is critical. Renewable diesel behaves like diesel because, at a molecular level, it largely is diesel. That is why it is being prioritised in policy settings and why it features prominently in Australia’s emerging low-carbon liquid fuels strategy.
Why aviation is driving the shift to drop-in fuels
Aviation has become the clearest test case for why drop-in fuels matter. Unlike road transport, long-haul aviation has no realistic pathway to electrification at scale. Battery weight, energy density, and range limitations make electric aircraft impractical beyond short regional routers, while hydrogen remains technically complex and commercially uncertain for mainstream use.
Sustainable aviation fuel addressed that gap. SAF can be blended with, and increasingly replace, conventional jet fuel while meeting strict safety and performance standards. It allows airlines to reduce emissions without redesigning aircraft, retraining crews, or rebuilding airport infrastructure.
This is why aviation policy has become a major driver of biofuel investment globally and in Australia. Airlines, airports, and governments all face pressure to cut emissions, but few alternatives exist that can deliver reductions in the near to medium term. Drop-in fuels offer a way to decarbonise aviation using the fleet and infrastructure already in operation, which makes them uniquely attractive in a sector with limited technological flexibility.
The growing focus on SAF also helps explain why biofuels are now being discussed as part of national fuel security and industrial strategy, rather than as a consumer fuel option.
Why Australia is backing drop-in fuels now
Australia’s renewed interest in biofuels is less about rediscovering an old technology and more about solving problems that other renewables cannot. As emissions targets tighten, gaps are becoming harder to ignore in sectors that depend on liquid fuels and cannot easily electrify.
This is the context behind the federal government’s decision to commit $1.1 billion to low-carbon liquid fuels through a new long-term Clean Fuels program. The focus on renewable diesel and sustainable aviation fuel reflects a preference for technologies that can reduce emissions without requiring a wholesale rebuild or transport and industrial systems.
Policy attention has also changed toward domestic production and supply chains. Australia imports the vast majority of its refined fuels, leaving aviation, freight, and critical industries exposed to global disruptions. Supporting onshore production of drop-in fuels is increasingly being framed as an issue of energy security as well as decarbonisation.
That framing is reinforced by estimates from the Clean Energy Finance Corporation, which suggests a domestic low-carbon fuels industry could be worth tens of billions of dollars by mid-century. While that figure reflects long-term potential rather than guaranteed outcomes, it indicates why governments are willing to support infrastructure and investment now.
These factors explain why Australia’s biofuel conversation has moved away from consumer blends and toward fuels that can integrate seamlessly into existing systems. The priority is scale, reliability, and strategic value.
What this means in practice
It is tempting to treat renewed interest in biofuels as a sign Aussies will soon be filling up with “green petrol.” That is unlikely to be the main story. Drop-in fuels are being prioritised because they can cut emissions in parts of the economy where electricity has limitations.
What this likely means in the near term is more change behind the scenes than at the bowser. The early demand for renewable diesel and sustainable aviation fuel is expected to come from sectors where fuel use is concentrated, and purchasing decisions are made at scale:
- Aviation: blending SAF into jet fuel supplies at major airports
- Freight and logistics: Decarbonising heavy vehicles where charging downtime and payload impacts are costly
- Mining and remote operations: reducing diesel reliance without rebuilding entire fleets
- Backup generation and industrial uses: Lowering emissions where electrification is technically difficult
For most households, the impact is more indirect. If domestic production expands, it could influence fuel supply resilience and, over time, reduce exposure to imported refined fuel volatility. But it is not a quick switch, and it does not replace the economics that have made solar and wind dominant in the electricity sector.
The key takeaway is that drop-in fuels are being treated as a complementary solution. Solar, wind, batteries, and electrification will continue to do the heavy lifting wherever electricity can replace combustion. Drop-in fuels are being positioned to cover what is left: the parts of the economy that still need liquid energy, delivered in a form of existing machines can use.
Why this change matters beyond biofuels
The renewed focus on drop-in fuels highlights a broader shift in how the country is approaching the energy transition. Early efforts prioritised sectors that were easiest to electrify, particularly electricity generation and passenger vehicles. As those pathways mature, attention is turning to the harder problems that remain.
Drop-in fuels sit in that space. They acknowledge that not every part of the economy can move to electricity quickly or cheaply, and that reducing emissions will require multiple technologies working together. This is now more about making the overall system workable.
For policymakers, that means designing energy policy around outcomes. For the industry, it means decarbonisation does not always require reinvention. And for the country, it indicates a move toward treating energy transition as an exercise in systems integration.
That context helps explain why biofuels are re-entering the conversation now, and why the emphasis is firmly on drop-in fuels that fit within the infrastructure the country relies on.
A different role to solar and wind
It is easy to frame biofuels as competitors to solar and wind, but that comparison misses the point. Drop-in fuels are being developed to solve a different problem. Solar and wind generate electricity. Drop-in fuels provide liquid energy where electricity cannot yet be substituted reliably.
This is why the two are advancing in parallel rather than in opposition. Rooftop solar, large-scale wind, and batteries will continue to dominate electricity supply and light transport. Drop-in fuels are being positioned to support aviation, heavy freight, industrial heat, and remote operations that still depend on high-energy-density liquids.
Seen this way, the renewed focus on renewable diesel and sustainable aviation fuel does not signal a shift away from electrification. It reflects a more complete approach to decarbonisation, one that accepts that different parts of the economy require different solutions.
Energy Matters has been in the solar industry since 2005 and has helped over 40,000 Australian households in their journey to energy independence.
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