Australia can’t outbid a blockade

Instead of relying principally on grant programs, Australia should progressively redirect government expenditure on overseas fuel toward large, long-duration contracts for Australian-produced strategic fuels.

The Commonwealth could specify the outcome: a defined volume of specification-compliant fuel, produced in Australia through a sufficiently resilient supply chain, under contracts lasting perhaps ten to fifteen years.

Then let the market compete. The Australian Defence Force has already certified most Army, Navy and Air Force assets to use Sustainable Aviation Fuel or Renewable Diesel. If they were to commit to domestic purchases, starting at what the industry is capable of delivering now and ramping at an aggressive but achievable pace, with price caps to protect budgets, this would be an excellent first step and improve resilience in the most critical sector – Defence.

Government should not need to decide what technology is the eventual winner. Producers compete on cost, reliability and their ability to answer the needs of the market.

The government provided contract itself becomes the support mechanism.

A company seeking finance for a demonstration plant is speculative. A company holding a long-term Commonwealth-backed offtake contract for tens of millions of litres per year is a very different investment proposition.

Over time, domestic production should replace an increasing share of fuel that government would otherwise purchase or secure internationally.

And the comparison should not be made solely on price per litre, since domestic technology development and fuel production has positive externalities.

Billions spent securing imported fuel is largely an expenditure on fuel and insurance. The same spent supporting Australian production can also create factories, skilled jobs, intellectual property, engineering capability, local supply chains, private investment and potentially export industries. If the results warrant it, additional government capital could be allocated.

There must still be cost discipline. "Australian made" is not a licence for unlimited subsidy. Competitive tendering should force technologies to compete for whatever strategic premium government decides domestic resilience is worth.

Nor can demand policy operate in isolation.

Regulation also needs to catch up with technology. Regulation should also be reviewed to ensure that frameworks written around incumbent technologies do not inadvertently prevent newer fuel pathways from competing.