New Zealand's drive towards a domestic biofuels industry has been hit by a leading British producer's decision to shelve plans for a $100 million-plus plant in Tauranga.
Argent Energy says a tax break for bioethanol in petrol will make oil companies reluctant to buy biodiesel produced locally from animal tallow and cooking oils.
That would mean a heavy reliance on bioethanol imports from Brazilian sugarcane refineries, at least until research efforts to turn resources such as industrial gas wastes into fuel in New Zealand bear fruit.
The head of Argent's New Zealand subsidiary, Dickon Posnett, says the Government's refusal to review a 42c a litre tax break on bioethanol until at least 2010 makes the field too uneven for his company to press on with local biodiesel production.
Although Argent would keep looking out for any policy change, perhaps after the general election, he was returning with his family to Britain after working almost two years here on the feasibility of a plant which could have created 60 jobs.
Argent produces about 50 million litres of biodiesel a year in Scotland, and had hoped for an even larger yield of 80 million litres in Tauranga from high-grade tallow. Mr Posnett said the company was " a proven supplier".
"The Government is constantly banging on about tallow, but now they are completely bypassing tallow as a feedstock," he said.
Mr Posnett said that was a great shame, particularly as New Zealand had some of the best raw materials for biofuels in the world.
Energy Minister David Parker is playing down the impact of Argent's decision, saying others are persevering with biodiesel production, and it would be unfair to change the rules for one company.
Argent was one of six members of an association of would-be biofuel producers lining up to supply oil companies after the Biofuels Bill sets minimum sales obligations. The bill remains well back in the queue for its third reading in Parliament.
A farmer-owned company, Ecodiesel, remains hopeful of building a biodiesel plant from the end of this year, subject to the bill's passage into law.
Chairman Lindsay Fergusson acknowledged that the tax break for bioethanol posed challenges, but said his company's plant could be built in stages and at far less cost than Argent's traditional large-scale refinery model.
He said it could start producing 20 million litres of biodiesel a year from tallow by April, with potential to double that once demand grew.
Mr Fergusson, a former chief of Mobil New Zealand, said bioethanol was considerably more difficult for the oil companies to handle through importing and distribution networks.
Argent's decision has disappointed at least one oil company, Chevron (Caltex).
"We were very interested in the high-quality product they were expecting to produce," said Chevron spokeswoman Sharon Buckland.
"Chevron New Zealand is very disappointed Argent has pulled out."
Even so, Ms Buckland said Chevron continued to hold reservations about the properties of biodiesel, particular in cold weather. It therefore expected to meet its initial sales obligation with bioethanol from Brazil, which she said the Energy Efficiency and Conservation Authority deemed environmentally sustainable.
At the same time, Chevron was giving both financial and scientific support to research by Lincoln University into the most suitable crops for local bioethanol production in the longer term.