The Low Carbon Fuels Alliance of Australia and New Zealand issued the warning in a report at the Renewable Fuels Summit in Sydney on Thursday that found production and policy progress remained slow.
The research came amid concerns about Australia's fuel supplies following conflict in the Middle East and as Sydney Airport released research showing wide public support for local production of sustainable aviation fuel.
The Asia-Pacific Low Carbon Fuels Benchmark report analysed the efforts of 19 countries to create a green fuel industry, producing sustainable aviation fuel, renewable diesel or renewable gas.
Each nation was judged according to policy ambition, feedstock availability, carbon accounting and production capacity.
Three nearby countries scored highest to be named potential green fuel leaders, with Indonesia, Malaysia and Thailand recognised for their strong resources, clear policies and progress.
Australia ranked among second-tier countries, called constrained leaders, along with China, India, Japan, South Korea and Singapore.
The result was disappointing given the nation's potential to operate a $10 billion fuel industry, Bioenergy Australia chief executive Shahana McKenzie said.
"Australia has the ingredients to become a regional producer of renewable fuels," she said.
"The question now is whether we move quickly enough to convert those advantages into domestic production and investment."
Access to large amounts of the agricultural waste and oil needed to create biofuels should give Australia a significant global advantage, Ms McKenzie said, but a lack of committed investment and biofuel mandates was slowing progress.
"Australia imports the majority of its liquid fuels, which leaves our economy exposed to global supply disruptions and price volatility," Ms McKenzie said.
"Renewable fuels produced from Australian feedstocks provide a practical pathway to strengthen fuel security while reducing emissions."
Another report presented at the event showed public support for a sustainable aviation fuel industry in Australia, however, only after participants were educated about it.
A survey of more than 1000 Australians for Sydney Airport found one in five knew about the biofuel but most favoured its use once informed.
Almost three in four people supported a local sustainable aviation fuel industry (72 per cent) and almost as many (69 per cent) were willing to pay a modest contribution in their fares.
The results proved Australians were ready to support changes to make flying more environmentally friendly, Sydney Airport chief executive Scott Charlton said.
"Globally, SAF mandates are accelerating and Australia must implement measures to boost domestic SAF production," he said.
"The current conflict in the Middle East highlights the importance of mandates that attract global investment and secure a domestic fuel supply."
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