Parker David: Biofuel Bill — First Reading 
Parker David: Biofuel Bill — First Reading 
[Volume:642;Page:12403] 
Hon DAVID PARKER (Minister of Energy) 
: 
 I move  
That the Biofuel Bill be now read a first time. 
 At the appropriate time I intend to move that the bill be referred to the Local Government and Environment Committee. The bill introduces a biofuels sales obligation which will see the widespread introduction of biofuels into our transport fuel mix. The bill also makes a number of changes to existing legislation to provide for the consistent regulation of modern fuels used in engines including biofuels and biofuel blends. 
Sustainability and climate change are obviously important issues. As countries around the world grapple with the challenges of the Earth’s changing climate living and acting sustainably has been propelled to the front of the Government’s decision making and business planning. Sustainability is a key focus of this Government. We recognise that the goal of an environmentally sustainable New Zealand is central to future prosperity and international competitiveness. In particular global trends towards more environmentally conscious consumption have created an opportunity for New Zealand to build on and to present our clean green image and our reputation for business integrity. 
The Government’s sustainability work is under way in diverse fields including climate change energy transport biodiversity and science and technology—just to name a few. One of the major initiatives is the development of the New Zealand Energy Strategy which sets out the vision for a sustainable energy system for New Zealand within which renewable energy plays a critical role. As one of the suite of policy initiatives in the New Zealand Energy Strategy the Government is committed to encouraging the uptake of biofuels as an alternative transport fuel. 
Transport in New Zealand is responsible for more than 40 percent of New Zealand’s energy greenhouse gas emissions and is particularly dependent on imported oil and oil products which make up over a third of our total energy supply. The Government has set a target of halving domestic transport emissions per capita by 2040 relative to 2007 per capita emissions. That will require improved vehicle efficiency continued improvements to public transport and the substitution of renewable alternatives for some fossil fuels including in the electricity sector. Substituting carbon-neutral biofuels for fossil fuels will be part of the solution and will contribute to transport emission reductions. When biofuels replace petrol and diesel our net carbon dioxide emissions are reduced because biofuels absorb as much carbon dioxide when they grow as they emit when they are used. 
Biofuels are a renewable energy source derived from organic matter such as agricultural crops and residues forestry residues and forestry products and by-products from some agricultural and industrial processes in some waste streams. Domestic tallow a by-product of the meat industry for example can be used to produce bio-diesel and whey a by-product from the dairy industry is already being turned into ethanol for blending with petrol. Biofuels will also help to reduce our reliance on imported fossil fuels by diversifying the transport fuel mix some of which will be produced from local resources. That will increase the resilience of our transport system and economy to sudden disruptions in oil supply as well as address longer-term concerns about the security of global oil supplies and about price uncertainty. Biofuels can also reduce harmful vehicle emissions such as those of carbon monoxide and particulates creating positive impacts for air quality and human health. 
 For the purposes of the biofuels sales obligation the term “biofuels” refers to those fuels that are used as a direct replacement for petrol or diesel. Such biofuels can either be used neat or blended with petrol or diesel. An example of a biofuel blend is the blend of 10 percent bio-ethanol and 90 percent petrol recently introduced by Gull Petroleum in Auckland. It is important to ensure that the biofuels available to consumers are of an appropriate quality and form and I will come back to that. A range of likely developments will enable biofuels over time to make up an increasing proportion of transport fuels. The biofuels sales obligation should be viewed as being an initial step in the transition towards a greater uptake of biofuels in future years. It will trigger important changes in infrastructure that are needed to cater for these new fuels. 
The Biofuel Bill is in two parts. Part 1 provides for the introduction of the biofuels sales obligation and the regulation of fuel quality through amendments to the Energy (Fuels Levies and References) Act 1989. In 2005 the Government agreed in principle to the introduction of an obligation to facilitate the entry of biofuels to the New Zealand market. That was followed by a period of consultation with key stakeholders to determine the appropriate design for and level of the obligation and the final policy was announced in February this year. 
The biofuels sales obligation applies to firms that first purchase or obtain petrol or diesel from a New Zealand manufacturer such as the refinery at Marsden Point or that import petrol or diesel directly from overseas. The liable firms would currently be the oil companies BP Caltex Gull Petroleum Mobil and Shell. The obligation will require a percentage of the energy content of the combined petrol and diesel sold or used by each oil company to be biofuels. The requirement will begin from the passage of the legislation at 0.53 percent and will increase to 3.4 percent by 2012. Actually we may change the inception date to 1 July 2008 rather than have it start at the passage of the legislation because I think the oil companies would like a bit more certainty as to the date. That seems a pretty reasonable request so we will look at that at the select committee. 
Except for the first obligation period which is a part-year each subsequent obligation period is for a full calendar year. To ensure that firms meet the obligation there will be financial penalties for non-compliance with it. Those penalties can however be reduced for a firm that fails to meet its obligation because of events outside of its control. 
A point-of-excise collection is used as a proxy for measuring the sale and use of petrol diesel and biofuels. Aligning it with existing systems is intended to reduce compliance costs for fuel suppliers and reduce administrative costs for them and for the Government. 
The Ministry of Economic Development will be the administering agency for the obligation. Liable firms will be required to submit independently audited reports on their compliance with the obligation to report to the administering agency being within 4 months of the end of each obligation period. 
The Government is keen to see that only sustainably produced biofuels are supplied to the New Zealand market so as not to create a new environmental problem as we fix another. There are legitimate concerns that some biofuel production causes the destruction of rainforests causing greenhouse gas emissions and the loss of biodiversity or competes unduly with food production. From the commencement of the obligation firms will be required to report on the country of origin of imported biofuels and biofuel feedstocks. The bill also contains a clause that enables environmental sustainability standards to be introduced to ensure that only sustainable biofuels count towards the biofuels sales obligation. Those standards will be developed in consultation with the industry. The issues around deforestation are expected to be reasonably easy to define. The line is more difficult to draw around what constitutes undue competition with food production. Sugar conversion to ethanol for example is seen by most people to be acceptable but some grain and seed - based biofuels are less so. 
The obligation will allow flexibility to liable firms in a number of ways so as to facilitate firms in pursuing the least-cost option to supply biofuels. Firms can apply to have the obligation partially or fully deferred in years 1 or 2 of the obligation. That allows time for firms to put in place infrastructure and for local biofuel suppliers to build plants. However firms that defer the obligation will be required to supply an additional 5 percent of that year’s biofuels sales obligation at a later date. Liable firms can trade their biofuel sales in order to meet the obligation so biofuels supplied by one firm could count towards another firm’s obligation. Biofuels supplied by third parties can also potentially count which provides another incentive to biofuel producers. To provide for the normal irregularities in fuel supplies liable firms will be able to bank shortfalls and surpluses of up to 10 percent of their annual obligation into the next year. Those shortfalls or surpluses must be used or made up in the next year. 
In terms of quality it is important that the biofuels supplied to consumers meet appropriate quality standards so that consumers can buy them with the same confidence with which they currently purchase petrol and diesel. Where appropriate biofuels will also be required to be labelled so that consumers are suitably informed. The bill also provides for a requirement that no petrol or diesel blend containing 1 percent or less of biofuel may be promoted as containing biofuels or as a biofuel blend. 
Biofuels and biofuel blends are bought within the scope of the levy that funds monitoring activities. Responsibility for collecting that levy—to be known as the petroleum and engine fuel monitoring levy in future—is transferred from the Ministry of Economic Development to the Customs Service and is aligned with the collection of excise duty in the measurement of the biofuels sales obligation. 
Part 2 provides a number of amendments to other pieces of legislation that are associated with the introduction of biofuels and caters for future diversification of the fuel market. The Petroleum Demand Restraint Act 1981 and the International Energy Agreement Act 1976 were enacted with only petroleum-based fuels in mind. This bill amends those Acts to explicitly cover or provide for the modern fuels used in engines including biofuels and blends of fuels. In addition the bill makes biofuels and biofuel blends subject to the local authorities petroleum tax and renames it the local authorities fuel tax. The bill also makes a number of amendments to the Customs and Excise Act and the Tariff Act. Those amendments are made to facilitate the use of the excise point in the administration of the biofuels sales obligation and the collection of the petroleum and engine fuel monitoring levy and to ensure that the ethanol component of the petrol-ethanol blends is not subject to excise or excise-equivalent duties. Section 286 of the Customs and Excise Act is amended to provide more flexibility in the ability to make regulations to exempt facilities from being customs-controlled areas in appropriate circumstances. 
I look forward to the consideration of this bill by the select committee which I am sure will improve it further.