The Government's biofuels legislation has been dealt a major blow, with the Parliamentary Commissioner for the Environment calling for it to be scrapped.
The Biofuel Bill, which is being considered by Parliament's environment select committee, requires oil companies to sell a minimum percentage of biofuels from July 1.
The mandatory requirement will start at 0.53 per cent of energy rising to 3.4 per cent in 2012.
But Parliamentary Commissioner for the Environment Jan Wright today told the committee the bill had major problems and would possibly do more harm than good.
While biofuels had a big advantage over fossil fuels in that they absorbed carbon dioxide while they were growing - potentially lowering their emissions - some had a carbon footprint equal to or higher than fossil fuels due to high emissions from infrastructure and cultivation.
She produced a graph to the committee showing that some biofuels made from corn, soy, rapeseed, rye and potatoes in some countries had a very poor lifecycle carbon footprint.
Ms Wright said that was problematic for New Zealand as rapeseed was shaping as the main likely form of locally produced biofuel.
New Zealand produced reasonable quantities of the waste products whey and tallow, which produced biofuels up to 80 per cent more carbon efficient than fossil fuels, but most of these were already sold into markets.
Fonterra produced about 20 million litres of whey-derived ethanol a year and sold about 10 per cent to Gull for fuel. The rest was sold overseas meaning there was little available for additional biofuel production.
About 85 per cent of New Zealand's annual 150,000 tonnes of tallow production was also exported.
To meet the mandatory requirements New Zealand would have to import biofuels, which in some cases were worse than fossil fuels.
Ms Wright said the growth of biofuel crops overseas could also result in the felling of forests to free up land and shortages in land for food production that would push up prices disadvantaging the world's poor.
Importing such biofuels ran the risk of damaging New Zealand's clean green reputation.
She said the bill needed to contain a life-cycle sustainability standard, but it would be difficult to ensure overseas-grown crops complied and locally produced biofuels were unlikely to meet the standard before 2012.
Ms Wright said so-called "second-generation" biofuels, which used more of a plant's biomass, made from products such as wood would be much more sustainable but were unlikely to be commercially viable before 2012.
By then plug-in electric vehicles might represent a better option for reducing emissions.
Enforcing mandatory standards ahead of that date risked promoting investment in low quality biofuels that would quickly become obsolete.
In light of those problems Ms Wright recommended that the bill not proceed.
However, if it did proceed its start date should be delayed so life-cycle sustainability standards could be put in place.
Internationally several countries were now voicing caution over biofuels, she said.
If the Government wanted to cut transport emissions it should do so initially by ramping up emissions standards on vehicles through a fiscally neutral tax on larger vehicles.
European countries had had such policies for years and New Zealand was now an international "outlyer" in that area, she said.
Ms Wright's call for the bill to be scrapped follows fuel industry executives last month calling for extensive changes.
BP managing director Peter Griffiths said the bill's target was one of the highest in the world and could not be "physically delivered at the moment".
BP was concerned there would be price rises for both petrol and diesel of about 7c/litre to meet the cost of new infrastructure.
"We want to see biofuels in New Zealand but not when the cost to customers is so high and the environmental benefits are negligible."
Another big company, Mobil, said it would like to see 3.4 per cent biofuel sales obligation (BSO) cut back to 2.5 per cent.
National's environment spokesman Nick Smith said the damning submission confirmed the Government's bill was poorly conceived.
He said the Government was rushing to push the bill through for political reasons in an election year, rather than helping the environment.
National would not support the bill without environmental standards, but these appeared years away.
"Yesterday's statement by the (Energy) Minister that unsustainable biofuels are likely to be imported to meet the Government's biofuels obligation is a damning admission.
"New Zealanders don't want to pay another five to seven cents a litre for petrol and diesel for a flawed policy that will do more environmental harm than good."
The Green Party and United Future said they agreement with the Parliamentary Commissioner for the Environment.
"Supply is only ever half the equation," said the Greens' co-leader Jeanette Fitzsimons.
"The Green Party strongly supports the commissioner's emphasis on the need to curb the rising demand for transport fuels."
United Future leader Peter Dunne said he welcomed the commissioner's "honest and frank" appraisal of the legislation.
"While biofuel is an easy argument to sell to the public and sounds undeniable `green', there are many problems with its uptake in New Zealand," Mr Dunne said.