The Government will forge ahead with a plan to force petrol retailers to green their fuels with biofuels next year, which will likely put up petrol and diesel prices by 5 to 10 cents a litre, according to officials.
National said the plan makes little sense at a time of high volatility in fuel prices, which recently forced the Government to cut petrol taxes by 25 cents a litre.
But the Government says the plan is necessary to wean motorists off volatile and polluting fossil fuels.
The plan, called a "biofuels mandate", will eventually force petrol retailers to blend biofuels into conventional fuel. Because biofuels are made from organic material that is grown, harvested, and regrown, their use reduces the overall CO2 emissions of motoring. This mandate would require any biofuels to be grown from sustainable sources.
National and Labour have feuded for 15 years over whether or not fuel companies should be forced to reduce emissions from their products by blending biofuels into ordinary fuel. The Helen Clark Labour Government planned a mandate, but John Key's National scrapped it before it took effect.
Now, the mandate is back courtesy of Energy Minister Megan Woods and Transport Minister Michael Wood.
National's transport spokesman Simeon Brown said now was not the time to be adding costs to fuel.
"There is already the Emissions Trading Scheme (ETS), which is already in place to deal with the effects of fuel on the climate.
"Motorists are already paying 9c a litre through the ETS. This is going to increase the costs of motoring during a cost of living crisis."
Brown said the Government recognised there was a fuel price crisis when it decided to temporarily cut fuel taxes by 25 cents a litre. But he said implementing the biofuels mandate on top of the cut would be giving with one hand and taking with the other.
The mandate would require fuel companies to blend a certain portion of biofuels in with regular petrol to reduce their emissions. Motorists would not likely notice any difference in fuel performance, but they might notice a difference in price.
A paper from MBIE warns that by 2025, the blends would probably add 5 cents a litre to the cost of petrol, and 10 cents to the cost of diesel.
Having finished consultation on the shape of the mandate last year, Woods said the Government would "shortly" begin consulting on the detailed regulations that will give effect to the mandate. The most recent date given for the implementation of the mandate is April 2023.
Some submissions on the scheme warned this start date was unrealistic. Mobil said the timing was "problematic", and suggested pushing the start date back to 2026.
"Development of commercial arrangements and logistics for introduction of biofuels at scale into New Zealand fuels is complex, and would require significant investment across the whole biofuels value chain," Mobil said.
Z Energy was more optimistic, saying the dates as proposed were "challenging but achievable".
Woods defended the mandate, saying it was "necessary for the transition to a low-emissions economy".
She added that in the long-term, a low-emissions economy would "give New Zealand more independence from relying on fossil fuels and corresponding volatility in prices".
Woods said the Government had taken steps to "help mitigate the impact of higher fuel prices", like slashing public transport fares over the next three months, and subsidising the cost of hybrid and electric vehicles through a feebate scheme.
The Government also cut fuel excise duty by 25 cents a litre and adjusted road user charges by a similar amount.
She said that "any cost impact on households" would depend on the fuel companies themselves and how fuel suppliers choose to use biofuels.
This is because fuel suppliers have an overall percentage of their fuel they would need to turn into biofuels. They could choose to give consumers a choice to use biofuel blends, or choose to roll our biofuels in fuels less likely to be used by households.
Woods has previously said the mandate will prevent about "one million tonnes of emissions from cars, trucks, trains and ships over the next three years and up to 10 million tonnes by 2035 to help us meet our climate commitments".
The Government will this year begin work on second biofuels mandate, this time for aviation fuel. Last year Wood announced MBIE and Air New Zealand would work on a feasibility study on the potential for domestic production of sustainable aviation fuel.
Some submitters on the mandate doubted whether it was achievable, with MBIE saying that some fuel wholesalers said implementing the mandate next year "does not give
enough time to set up supply chains and develop infrastructure". Other wholesalers said the mandate was "challenging but achievable".
The Climate Change Commission was supportive, however, saying transitioning to low emissions fuels would be "central to reducing emissions from heavy vehicles."
Biofuels have some supporters in the automotive world, the AA, submitting on the Government's draft emissions reduction plan last year, supported mandating biofuels to reduce the emissions of cars.
But the AA said the Government should use revenues generated from the ETS on fuel (about $1 billion a year) to "incentivise, leverage, or partner" in large-scale biofuel production in New Zealand.
Impact at the pump still unclear - PM
Prime Minister Jacinda Ardern said it is still unclear what impact the introduction of the bio-fuels mandate will have on the pump.
Speaking to AM, Ardern said it is important to implement the mandate.
"If the assumption is that by not doing this that fuel in the long term remains cheaper and that we have more security and stability, the point I am making here is that is simply not the case."
She said we are currently experiencing the impact of reliance on fossil fuels and overseas market and that made New Zealand vulnerable.
The mandate would require fuel companies to have a percentage of bio-fuels included in their mix.
The price of fuel at the pump would depend on how companies chose to implement the mandate requirements, it also would depend on whether they're in a position to produce themselves and whether or not they are importing, said Ardern.