A requirement for oil companies to mix petrol and diesel with biofuel has been dropped from law.
The Energy (Fuels, Levies and References) Biofuel Obligation Repeal Bill passed during urgency in Parliament this afternoon by a vote of 62 to 59.
National and ACT supported the legislation, which was opposed by all other parties.
It repeals obligations placed on oil companies to put biofuels into petrol and diesel, starting with 0.5 per cent and reaching a 2.5 per cent in 2012.
The obligation was introduced by the previous government to reduce New Zealand's greenhouse gas emissions.
Biodiesel Oils New Zealand managing director Tom McNicholl has described the move as "devastating". The company invested $10 million over the last eight years in research and equipment.
The company would stop work on a new plant in Waharoa in the Waikato, meaning 22-plus jobs would not be created. It had already built a plant in East Tamaki which employed 24 staff and that would be mothballed.
Energy Minister Gerry Brownlee sat through hours of criticism from the Opposition for not having read Mr McNicholl's letter when first sent to him or as part of the file on the bill.
Mr Brownlee said he did not get the letter but had read it now. However, Labour's Trevor Mallard said when bills were rushed through under urgency processes were more important.
"This minister (came) into the house with a piece of legislation that wrecks a family and wrecks an industry and tell us he hasn't even read their letter."
Mr Brownlee said an offer to discuss the matter with Mr McNicholl was rejected.
He said reaction to the decision and legislation to drop the requirement was hysterical and did agree dropping the obligations would hurt the industry. The Government was working on a tax incentive regime to encourage the production of sustainable biofuels in New Zealand.
"I think the biofuels industry in New Zealand has a very bright future indeed. What my party doesn't accept ... is that the only way New Zealanders will embrace biofuels is if the government insists that they must become the compulsory customers of certain companies inside New Zealand."
Green co-leader Jeanette Fitzsimons said Mr McNicholl's company would have had to compete with other providers.
Labour MP David Parker said the market did not work for things like biofuels as there was no advantage for petrol companies to buy fuel from an outside source.
"If biofuels were to happen by themselves they would have happened by now," he said.
"It's easier for oil companies not to incorporate biofuels in their fuel stream and that's why they don't."
National criticised the Government's measures as they had not set standards for sustainability of biofuels - which can be made from plants.
Mr Brownlee said if there were no obligations there would be no motivation for people to flood the country with unsustainable biofuels.
Also he said there was already legislation, passed in 1999, requiring standards be put in place, but Labour said that was incorrect and the law allowed for standards to be developed but did not require them.
Mr Brownlee said work on standards would continue.
Mr Parker said unsustainable imports would not have occurred under the obligations because petrol companies would not have put their reputation at risk for the short period before regulations kicked in.
Opponents argued biofuels would have reduced New Zealand's dependence on foreign oil but Mr Brownlee said the country was in no position to meet demand required.
He said 300 million litres was needed to meet the full obligation and only 20m was produced locally now.
"We cannot do it from inside this country."
Biodiesel Oils NZ's existing factory was capable of producing 10m litres and the new plant 60m, Mr Parker said. An added positive was it was made from tallow, "the most economically prudent" source.