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Brownlee: Biofuel Obligation Repeal Bill

Published: Wed 17 Dec 2008 05:22 PM
Gerry Brownlee
16 December, 2008
Energy (Fuels, Levies, and References) Biofuel Obligation Repeal Bill
Hon Gerry Brownlee
Minister of Energy and Resources
Energy (Fuels, Levies, and References) Biofuel Obligation Repeal Bill
First Reading Speech
Mr Speaker, I move that the Energy (Fuels, Levies, and References) Biofuel Obligation Repeal Bill be now read for the first time.
The Biofuel Bill passed by the previous government in September this year established a Biofuel obligation, requiring a proportion of the petrol and diesel market to be sourced from biofuels, increasing to a level of 2.5% in 2012. The Obligation came into force on 1 October this year.
This Bill repeals the obligation.
I want to emphasise at the outset of my speech that the Government is supportive of the use of biofuel in New Zealand.
There are a number of exciting biofuel developments taking place around the country that the government has watched with interest for some time now.
There is no doubt that biofuels are going to play a big role in our energy mix in the future. Indeed, some companies like Gull were using sustainable biofuel, well before the obligation came into force.
So-called second generation biofuels, from things like wood waste and algae, are able to be produced sustainably and will increase the security of our fuel supply whilst reducing our greenhouse gas emissions.
There is general agreement that biofuels will be part of our energy future. The question that needs to be asked is, what is the best way to ensure biofuels are added gradually into the fuel mix in New Zealand?
The previous government, as I have said, regarded a mandatory approach as the best way to do that.
Companies supplying petrol and diesel were compelled by law to add increasing amounts of biofuel to their fuel blends.
The new government takes a different approach, which partly reflects our philosophical difference with the previous government, and also reflects the considerable evidence that the mandatory approach will load uncertain costs on consumers, and further, it would have lead to the importing of biofuels from overseas with no guarantee that they had been sustainably produced.
This is a Government that believes in choice, not compulsion.
We think that biofuels should be introduced through companies responding to commercial, environmental and marketing considerations, not because the Government tells them they have to.
Let me briefly explain the two problems with the mandatory biofuel obligation, and why the Government is repealing it.
The first problem is that the obligation will lead to oil companies importing biofuel from overseas, which may be produced from unsustainable sources.
Many first generation biofuels, like soy, corn, and rapeseed, compete directly with their uses for food and animal feed.
There have been protests all around the world against biofuel production from those sources, because it has caused, at least in part, increased food prices.
The United Nations Food Agency has, for that reason, called biofuels a "crime against humanity".
In addition to this, some biofuels have increased the deforestation of rainforest in places like Brazil and Indonesia.
Moreover, as researchers have analysed the full lifecycle greenhouse gas emissions from biofuels, it has become clear that when the emissions from the agricultural cultivation, processing and distribution are included, it raises the question of, do biofuels actually reduce emissions?
There is not a large enough biofuel industry in New Zealand yet for oil companies to meet their obligation from domestic sources, so biofuel would have to be imported.
The previous Minister of Energy, Hon David Parker, admitted this would be case. The previous government, mainly at the insistence of the Green Party, asked officials to draft "sustainability standards", which would apply to imported biofuel to ensure it came from sustainable sources.
Unfortunately, those sustainability standards are not yet in place, and are not likely to be for quite some time.
No country in the world has yet developed such standards. The European Union has been trying for years.
Yet the obligation to sell biofuel has been in place since 1 October and indeed by 31 December, companies subject to the obligation will have to issue their first report under the current law, proving they have complied with the obligation.
The new Government believes that biofuels, the production of which contributes to deforestation and the destruction of arable land should not be sold in New Zealand, yet that is the real risk of having the Biofuel Obligation in place.
The new Government agrees with the Parliamentary Commissioner for the Environment, who recommended against Parliament passing the Biofuel Bill, because doing so could damage New Zealand's clean and green image.
The Commissioner said in her report that "importing biofuel while avoiding contributing to the hugely damaging environmental and social impacts occurring in countries like Indonesia and Malaysia would be difficult and very expensive."
I want to make clear that the Amendment Bill I have introduced today does not abolish present sustainability standards for biofuels being promulgated by the Government.
Some companies in the future may wish to import biofuel from overseas and when they do so it is important it comes from sustainable sources. The Government therefore regards the officials' work on the sustainability standards as very important and the Ministry of Economic Development will continue its work programme in that regard.
But in the absence of those sustainability standards, it is important there is no biofuel obligation.
The second problem with the mandatory obligation is that it will load uncertain costs onto consumers
The evidence from the oil companies at the select committee was that meeting the obligation, when fully implemented, would add anywhere from two to eight cents a litre to the cost of fuel.
In these tough economic times the Government does not regard that as a desirable outcome, especially when the environmental benefits of doing so are so very unclear.
We believe that biofuel should be introduced gradually and when it offers cost advantages rather than cost increases to the price of transport fuel. That will only happen through a market-based approach rather than a mandatory approach.
With regard to that, I want to signal now that the Government is concerned at the imbalance in the tax treatment between bioethanol and biodiesel.
Bioethanol sales do not incur associated excise tax like the petrol it substitutes, whereas biodiesel and mineral diesel incur road user charges equally.
There is no meaningful public policy justification for this distortion.
I am particularly concerned that it disadvantages New Zealand biofuel producers whose current focus is biodiesel, in favour of imported ethanol.
The Government is undertaking further work in this area, and will look at applying a consistent tax incentive for sustainable biofuels, exempting ethanol and biodiesel from excise and road user charges in proportion to the blend - so a 10% blend will get a 10% exemption.
Mr Speaker, in conclusion, let me reiterate that the National-led Government supports the introduction of biofuel in New Zealand.
However, we are opposed to the previous government's mandatory obligation. In the absence of sustainability standards, no positive environmental outcome can be assured. Further, it will load uncertain costs onto consumers. Neither of these outcomes is desirable, yet are real risks of having the mandatory obligation.
Mr Speaker, I move that the Energy (Fuels, Levies, and References) Biofuel Obligation Repeal Bill be referred to the House for its second reading.
ENDS

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