There are significant opportunities for expansion of a forest bioenergy industry in Australia based on distributed electricity generation and production of liquid fuels (ethanol and bio-oil). If the large amounts of forest residues already available annually could be utilized, this would deliver useful greenhouse benefits, assist regeneration of new forests that have increased environmental values, and benefit silvicultural management. Creation of new forests in low rainfall environments for both environmental and commercial reasons will also provide residues in the future that could be used for energy production, thus enhancing overall viability of such ventures. Currently, there are several serious impediments to realising the potential. These include: center dot Large reserves of accessible coal, and low cost of electricity generated in coal-fired power plants. center dot Uncertain greenhouse and renewable energy policy (specifically that relating to implementation of the Mandated Renewable Energy Target (MRET)). center dot Lack of proven efficient small-scale technology to enable distributed electricity generation that would reduce transportation costs for delivery of biofuels. center dot Controversy over the sustainable use of native forest residues for renewable energy generation. center dot Lack of markets for environmental credits (carbon, salinity, biodiversity). center dot Lack of efficient processes for producing ethanol from wood, inadequate commercial products from lignin, and the need for further development before diesel engines can be run on bio-oil for stationary power generation and transport. In Australia, apart from the use of firewood for domestic heating, forest bioenergy has developed only to a very limited extent, despite the existence of significant opportunities. A major impediment to expansion is lack of public acceptance and support, especially for the use of native forest residues which are the main available biomass source. A concerted effort at several levels is needed to address this issue. (c) 2006 Published by Elsevier Ltd.