KEY POINTS:
Oil companies are relieved at a watering-down of a proposed biofuel sales obligation, but the Government has yet to be assured of enough political support for legislation reported back to Parliament yesterday.
Although the Green Party has pledged keen support for new "sustainability" clauses of the Biofuel Bill
recommended by the local government and environment select committee, National says it contains serious flaws and is promising strong opposition.
It said the obligation could impose $240 million of costs on consumers for small, if any, environmental benefits.
New Zealand First and the Maori Party have yet to consider their positions, raising uncertainty over whether the Government will be able to pass the legislation, which National environmental spokesman Nick Smith said last night would open the door to unsustainable biofuel imports.
Energy Minister David Parker said biofuels were likely to reduce costs while starting to "free New Zealand from the tyranny of the international oil market".
Despite fear expressed by Dr Smith that imported bioethanol from Brazilian sugarcane would indirectly displace Amazon rainforest, Green Party co-leader Jeanette Fitzsimons said sustainability clauses proposed as additions to the bill would be "the strictest in the world".
These included stipulating no biofuels could be included in the proposed mandate unless they produced at least 35 per cent less carbon dioxide than petroleum fuels.
A majority report of the select committee has proposed that a biofuel obligation of 0.5 per cent of transport fuel sales by energy content be imposed on October 1, to be ramped up by 0.5 per cent a year until reaching 2.5 per cent in 2012.
The bill's original draft proposed a regime starting at 0.53 per cent on July 1, and rising to 3.4 per cent.
BP Oil said that would have meant adding ethanol to 90 per cent of its petrol, and tallow or some similar biofuel feedstock to 30 per cent of diesel, at a potential extra cost of 7c a litre across its business.
The select committee report acknowledged one industry estimate that biodiesel could be 6c more expensive, but said it had also been told that a 10 per cent bioethanol blend could make petrol 4c cheaper on the basis of rising oil costs.
Although that would not include infrastructure costs, it put these at between 0.2c and 0.4c a litre.
A minority report from National has picked a "mid-range" cost figure of 4c a litre as its assessment, which it says would amount to an annual cost of $240 million to the economy.
BP spokeswoman Diana Stretch, while welcoming the reduced target as being more practicable to achieve, said her company would have to recalculate its cost projections before commenting on these.
Sharon Buckland of Chevron (Caltex) said her company strongly supported moves to biofuels, but was concerned that the start of the proposed sales mandate in October would precede regulations setting sustainability standards by at least nine months.
That would make it difficult to enter into long-term supply agreements.
The Biofuel Manufacturers' Association fears the oil industry may lock itself into supply chains of imports before a local industry has a proper chance of establishing itself.
Spokesman Dickon Posnett said the select committee had done "some good work" on ensuring any biofuels would be sustainable and reduce greenhouse gas emissions.
But he said a 42c a litre tax exemption on bioethanol, by not covering biodiesel made from domestic sources such as tallow, would encourage oil companies to bypass local producers and rely on imported fuel pending an excise review recommended by the committee for 2010.
Dr Smith said that meant importing Brazilian sugarcane, which he understood was displacing canola and pastoral farming, driving those land uses further into Amazonian rainforest.
He accused the Government and the Green Party of ignoring a plea by Parliamentary Commissioner for the Environment Jan Wright to scrap the law before New Zealand's clean and green image was tarnished.
Dr Wright was unavailable for comment but Ms Fitzsimons said an Energy Efficiency and Conservation Authority-commissioned report had found that Brazilian sugarcane had no adverse effects on rainforest.
BIOFUEL TARGET
* Was 3.4 per cent by 2012
* Now 2.5 per cent by 2012