National’s intention to scrap the Government’s plan to use biofuels to reduce emissions puts fuel companies in a bind that could jeopardise the industry’s ability to meet climate change targets.
It comes amid questions from the industry and Opposition politicians over the necessity and value of new powers given to the Commerce Commission to regulate fuel prices, one of three new measures designed to promote a more competitive sector and develop a more resilient fuel supply.
Wednesday’s announcements, revealed by Energy and Resources Minister Dr Megan Woods, were partly in response to the closure of New Zealand’s fuel refinery in Northland and also the potential for consumers to face higher fuel prices that would further exacerbate the current high cost of living.
The first change meant fuel importers and wholesalers with bulk storage facilities would be required to hold minimum levels of onshore stocks of petrol, jet fuel, and diesel.
The minimum levels they must hold equated to approximately 28 days’ worth of petrol, 24 days’ worth of jet fuel and 21 days’ worth of diesel.
The Government would also procure at least 70 million litres of additional onshore storage of reserve diesel stocks, providing approximately seven days’ cover.
The second change involved the delaying of the Sustainable Biofuels Obligation by one year from its intended start date of April, 2023.
Biofuels are renewable, low-emissions fuels derived from biological matter such as plants, animal wastes, forest residues and other organic material.
Under the obligation, fuel wholesalers must cut the total greenhouse gas emissions from the transport fuels they sell by a set percentage each year, by deploying biofuels as part of their fuel supply.
The wholesalers had been unable to build the necessary infrastructure in time, and extra costs of up to 6-10 cents per litre of diesel could have been passed on to consumers had the original start date been kept.
The final change allowed the Commerce Commission to act as a “regulatory backstop” to prevent wholesalers from taking advantage of a new, more transparent, fuel pricing regime.
The biofuels mandate had divided Labour and National, with the latter’s energy spokesman Stuart Smith confirming it would not support such a measure if it won next year’s general election.
Smith’s comments had thrown a spanner in the works for fuel companies, that required as long as two years to develop the necessary infrastructure to handle biofuels.
That timeline indicated any work not already underway would need to commence presently if companies were to meet the new 2024 deadline.
With recent polls indicating growing momentum for National, it meant fuel companies were left with the tough question of whether to invest millions of dollars to fulfil a mandate that would be scrapped under a National government.
“I’m not saying there’s going to be a change of government, but we will be investing tens of millions of dollars on this, so certainty is key going forward,” Gull New Zealand chief executive Dave Bodger said.
Z Energy chief executive Mike Bennetts described it as a “tricky situation”.
“We will be connecting with the Opposition parties to understand their perspective on this and sharing our thoughts so that they are fully informed,” Bennetts told the Herald.
“We can’t just dial up additional infrastructure, you’ve got to go through the consenting process, the design process, then the build process so it obviously takes time and you wouldn’t want to spend money on something that was no longer required.”
Bodger was critical of the Government’s move to introduce minimum fuel levels, considering it “potentially anti-competitive” as the previous system had worked sufficiently.
“This is a solution looking for a problem, it is legislation that’s not needed.”
He also felt the Commerce Commission’s new power was unnecessary, claiming the new terminal gate pricing scheme was not being used to price-gouge.
“We’ve never looked at [the competition’s] terminal gate pricing so therefore we’re not colluding.”
Bennetts understood the Government’s reasoning in strengthening the Commerce Commission but he felt the regular data received by the commission meant the risk of price-gouging was very unlikely.
“If we did try to price gouge, you’d have to say, irrespective of the reputation risk, we’d have to be idiots to try that because the data is going to the regulator.”
If the commission did suspect the industry of colluding, it could trigger an inquiry to establish what a fair price would be, however, it was expected an inquiry wouldn’t change prices at the pump until 6-12 months after the inquiry took place.
Automobile Association principal policy adviser Terry Collins did question the commission’s ability to determine improper conduct, given the volatility of the fuel market that had fluxed earlier this year, particularly due to Russia’s invasion of Ukraine.
“Some official might look at it and go, ‘Hey, the price of crude [oil] is that today and [a company] is charging a fortune’. Well, it might be recovering some of the losses they made the week before when they had to take a haircut.”
Smith, while articulating National’s opposition to a biofuels mandate, acknowledged there was a place for biofuels, particularly in heavy transport like air travel, and he would not object to companies pursuing those options.
“If companies want to bring biofuels in then good on them, but we wouldn’t mandate it,” he said.
“We have other options for people to get lower emission vehicles and I think that’s a far better option.”
While National leader Christopher Luxon affirmed Smith’s position on biofuel mandates, he was more favourable to biofuels generally, saying he was a “big fan”.
Luxon rejected the need for a more powerful Commerce Commission in the fuel industry and said good mechanisms to keep an eye on the sector existed through the information that was currently supplied by companies.
Luxon wouldn’t specify what measures he would introduce in place of a biofuel mandate to meet emission targets but he noted his desire to explore other options.
Woods, speaking after her announcement this morning, called on Luxon and the National Party to “come clean” and explain their plan to address climate change.
“National is all over the place on climate change ... I want to see some detail from them,” she said.