Energy (Fuels, Levies, and References) Biofuel Obligation Repeal Bill

I move, That the Energy (Fuels, Levies, and References) Biofuel Obligation Repeal Bill be now read a first time. The biofuel legislation passed by the previous Government in September of 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 percent by 2012. The obligation came into force on 1 October this year. This bill repeals the obligation.

I emphasise at the outset of my speech that the Government is supportive of the use of biofuel in New Zealand. A number of exciting biofuel developments are taking place around the country that the National Party has watched with interest for some time now. There is no doubt that biofuels will 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, and they will continue to do so. So-called second-generation biofuels produced from things like wood waste and algae are available 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 that 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 from the previous Government. It also reflects the considerable evidence that the mandatory approach will load uncertain costs on to consumers, and, further, will lead to the importation of biofuels from overseas, with no guarantees that they had been sustainably produced. This is a Government that believes in choice, not in compulsion. We think that biofuels should be introduced through companies responding to commercial, environmental, and market considerations, not because the Government simply tells companies to introduce them.

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 that may be produced from unsustainable sources. Many first-generation biofuels like soy, corn, and rapeseed compete directly with the use of those crops in the food market and as 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, some biofuels have increased the deforestation of rainforests in places like Brazil and Indonesia. Moreover, as researchers have analysed the full lifecycle of greenhouse gas emissions from biofuels, it has become increasingly clear that when the emissions from agricultural cultivation, processing, and distribution are included, it raises the question whether biofuels actually reduce carbon dioxide emissions.

There is not a large enough amount of biofuel produced in New Zealand at this time for the industry here to supply oil companies with all that they would require to meet the obligation. The previous Minister of Energy, the Hon David Parker, admitted that this was the case, and the previous Government, mainly at the insistence of the Green Party, asked officials to draft a sustainability standard that would apply to imported biofuels, to ensure that those fuels came from sustainably produced 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 many years. Yet the obligation for companies to sell biofuels in New Zealand has been in place since 1 October. Indeed, by 31 October, under the current law, companies subject to the obligation will have to issue their first report proving they have complied with the obligation.

The new Government believes that biofuels the production of which contributes to deforestation and destruction of arable land should not be sold in New Zealand, yet that is a 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 earlier this year because, she said, doing so would damage New Zealand’s clean, green image. The commissioner’s report stated: “Importing biofuel while avoiding contributing to the highly damaging environmental and social impacts occurring in countries like”—

💬 Hon Trevor Mallard: No, no, not in the bill as reported back, not in the bill as passed. Come on, get your facts right, Gerry!

—“Indonesia and Malaysia would be difficult and very expensive.” For the benefit of the member opposite who wishes to yell his way through this offering to the House, I state again what the Parliamentary Commissioner for the Environment told Parliament. She said: “Importing biofuel while avoiding contributing to the highly damaging environmental and social impacts occurring in countries like Indonesia and Malaysia would be difficult and very expensive.”

I want to make it clear that the repeal bill that I have introduced today does not abolish present sustainability standards for biofuels being promulgated by the Government. Indeed, we have asked the Ministry of Economic Development and the Ministry for the Environment to continue their work to develop those standards for use in New Zealand. Some companies in the future may wish to import biofuel from overseas, and when they do so it is important that it comes from sustainable sources and is measured against standards that have been developed in New Zealand. The Government therefore regards the officials’ work on sustainability standards as very important, and the Ministry of Economic Development will continue that effort. But in the absence of those sustainability standards it is important there is no biofuel obligation, and, therefore, no immediate likelihood of imported biofuels produced from unsustainable sources coming into this country.

The second problem with the mandatory obligation is that it will load uncertain costs on to consumers. The evidence from the oil companies to the select committee was that meeting the obligation, when fully implemented, would add anywhere from 2c to 8c 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 biofuels should be introduced gradually, and when biofuels offer the transport fleet cost advantages rather than cost increases, that will be the time the market itself will start demanding their greater use inside our economy.

With regard to that, I want to signal now that the Government is concerned about the imbalance in the tax treatment between bio-ethanol and bio-diesel. Bio-ethanol sales incur associated excise tax, like the petrol it substitutes, whereas bio-diesel and mineral diesel incur road-user charges equally. There is no meaningful public policy justification for that distortion. I am particularly concerned that it disadvantages New Zealand biofuel producers, whose current focus is bio-diesel, in favour of imported bio-ethanol. The Government is undertaking further work in this area, and will look at applying a consistent tax incentive for sustainable biofuels that exempts bio-ethanol and bio-diesel from excise charges and road-user charges, in proportion to the blend. So, in future, a 10 percent bio-diesel or bio-ethanol blend will get a 10 percent exemption in excise taxes.

In conclusion, let me reiterate that the National-led Government supports the introduction of biofuel as a part of New Zealand’s energy mix. However, we are opposed to the previous Government’s mandatory obligation. In the absence of sustainability standards, nobody can claim that there would be a positive environmental outcome, and, further, the obligation would load uncertain costs on to consumers. Neither of these is desirable, yet they are real risks if the mandatory obligation stays in place. I ask that the Energy (Fuels, Levies, and References) Biofuel Obligation Repeal Bill be considered properly and reasonably by this House in order that New Zealanders can be comfortable that the fuel mix they are using each day does not add unduly to our carbon dioxide emissions profile.

Debate interrupted.