Explainer: Biofuels in Australia – and should you care?

Biofuels are in the news as the local refining industry pushes to nationally mandate their use in petrol and diesel. 

But what are biofuels and why should you care?

Here’s our step-by-step explainer of the basics.

Unlike petrol and diesel fuels that are refined from crude oil extracted from underground by drilling, biofuels are renewable energy sources derived from organic matter such as plants and food waste.

The two forms of renewable fuel we are examining here are ethanol that is blended with petrol and biodiesel that is blended with diesel.

A lot of us drink ethanol without necessarily knowing it. That’s because it’s the active intoxicating ingredient in vodka, gin and other spirits.

Ethanol fuel is made by fermenting the sugars and starches found in plant materials. Sugarcane pulp left over after sugar extraction is a common source of ethanol.

The Australian Manildra Group, one of the primary proponents of this mandate, makes it from wheat starch.

Like its name suggests, biodiesel operates in compression ignition engines just like fossil diesel.

Produced via a process called transesterification, it can be refined from a variety of organics including cooking oil from your local fish and chip shop.

Perhaps confusingly, renewable diesel is something else. Also known as HVO (Hydrotreated Vegetable Oil), this is chemically similar to fossil diesel while being refined from biomass such as cooking oil, tallow, canola oil and other wastes.

In this explainer we’re focussed on biodiesel because that’s the one made in Australia.

Benefits of an ethanol/petrol like E10 (10 per cent ethanol/90 per cent petrol) include reduced greenhouse gas emissions and a higher fuel octane rating (or RON, Research Octane Number) for more stable engine combustion in higher compression engines.

More power, if your car has the smarts to capitalise on this!

E10 has a 94 to 95 RON rating. There is also E100 fuel but it is 108RON, hence its use in drag racing.

Yet the price per litre of E10 is also often lower than straight 91 RON unleaded fuel, making it a good buy if your car requires 95 RON unleaded – also called premium or premium 95 fuel.

And note, while we reported recently the biofuels industry would like 91 RON unleaded removed from the market, it’s not a goal. It would simply be an outcome of a shift to E10.

Broader arguments in favour of ethanol relate to fuel security – a hot topic currently – and the economic benefits of backing an Australian-owned industry.

The arguments in favour of biodiesel compared to straight fossil diesel include lower lower particulate and soot emissions, improved fuel system lubrication and a higher cetane number. This supports more complete combustion and also aids Diesel Particulate filter (DPF) performance.

In the bigger picture, like ethanol, biodiesel also enhances fuel security because it is Australian-refined and therefore also delivers local economic benefit.

Ethanol has a lower energy density than petrol so it is not as fuel efficient. E10 is about three per cent thirstier than straight 91 RON petrol. Proponents argue that’s less impact than having your tyre pressure slightly out.

Because ethanol absorbs water it is corrosive and so it can degrade metal parts in drivelines, in fuel systems, including fuel pipes and steel fuel tanks. This is a problem for older cars rather than modern ones from 2000 onwards, which are almost universally set-up to cope with E10.

E85 (85 per cent ethanol/15 per cent petrol) required engine modifications to be useable (remember the E-Flex Holden Commodore?). It’s no longer sold in Australia.

There are wider environmental arguments. Why use food stuffs to refine ethanol rather than feed people? The ground-to-bowser CO2 emissions impact is also cited. Sure, it’s a renewable fuel, but there are still emissions generated in the process of getting it from the farm field to the car engine.

This debate has gained a particular focus in the US, where ethanol is used widely in petrol and is refined from corn.

Biodiesel has a 5-10 per cent lower calorific value than fossil or HVO diesel so fuel consumption will be higher.

Biodiesel also has a higher flash point than fossil diesel. If a vehicle is run solely on biodiesel or a high percentage biodiesel blend, this can lead to potential issues such as engine oil contamination, coking and lacquer formation at the fuel injector tip, affecting engine performance.

Biodiesel has a shorter shelf life than fossil diesel and because it is hygroscopic (attracts and absorbs water) and is more prone to growing bacteria and also more prone to waxing or gelling in cold weather. This can clog pipes, pumps, filters and injectors.

These issues are more relevant to B100 or high biodiesel blends and that helps explain the focus on B5 (five per cent biodiesel/95 per cent fossil diesel), which avoids those issues, especially for modern high-tech diesel engines.

NSW and Queensland both have volume-based E10 and B5 mandates, but there are plenty of loopholes and ways for the big four oil refiners to avoid purchasing renewable fuels from local producers and blending them in.

The local producers say their biofuels are price-competitive with imported fossil fuel, so the issue is the absence of a binding demand signal rather than cost or supply.

Hence the push for a federal government-backed mandate.

No doubt, the Australian biofuels industry has leapt on an opportunity to advance its case presented by the oil spike and fuel security concerns triggered by the 2026 Middle East war.

But right now, there is no way it could fully service Australia’s petrol and diesel consumption requirements if a blending mandate was introduced tomorrow.

So it wants a blending requirement for ethanol and biodiesel that would start at 80 per cent of existing domestic production capacity.

The federal government has recently enacted the $1.1 billion Cleaner Fuels Program to support the development of low carbon liquid fuels. But that does not include ethanol and/or biodiesel, instead applying to e-methanol, sustainable aviation fuel and renewable diesel.

The industry wants a national mandate written into the Fuel Quality Standards Act 2000 and suspension of fuel excise on domestically produced ethanol and biodiesel to allow quicker industry development.

It estimates it will take something like a decade for local ethanol and biodiesel production to rise to a level where E10 and B5 would be the national fuel offering on service station forecourts.

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