By Stian Overdahl*
The biodiesel industry in New Zealand finds itself in a perilous position today, due to its reliance on subsidies and the Government’s reluctance to give a clear indication whether it intends to extend the subsidies.
The industry was largely created when the Labour Government made it a requirement that biofuels make up part of New Zealand’s fuel use.
While National disestablished the obligation, they continued on with a type of government encouragement, namely subsidising biodiesel production and removing the excise tax on bioethanol.
Three years on, and every sign is that the biodiesel subsidy will not be extended, which will potentially wipe the biodiesel industry out.
And as some in the biodiesel industry have noted, even if it is extended, the lack of certainty provided by the Government, in the past and currently, means that for most operators it will already be too late.
It is clear from a survey of the biodiesel industry that it includes a fair amount of local ingenuity, and it creates jobs for the local economy, including skilled ones.
But taking the longer term view, it seems likely that biofuels will become a larger part of our energy mix.
The world’s oil is not running out, but is getting more expensive, which will eventually make the use of biofuels popular through market mechanisms.
It also seems logical that New Zealand, one of the most under-populated and agriculturally fertile countries in the world, could play a part in the growth of biofuels.
Nevertheless, whatever the aspirations of the industry, it seems that a three-year scheme with no clarity about whether it will continue is of little use to an industry reliant on private investment.
For a ‘pro-business’ Government, National have seemed to display a fairly high degree of ignorance of the manner in which businesses function.
The other option that has been suggested is that the biodiesel subsidy scheme was a sop, a politically expedient measure put in place to water down Labour’s requirements without attracting public scrutiny or criticism.
Either way, the rule of thumb is that there is no biofuel industry in the world that exists without subsidy, given the time and money it takes for a plant to grow and benefit from economy of scale.
Biofuels are also competing with a product whose cost fluctuates almost without reason.
Nevertheless the Government has said it will review the success of the biodiesel scheme and consider whether to continue it.
If there is no extension it is tantamount to saying the current Government doesn’t believe New Zealand should have a biodiesel industry. If nothing else, those in the industry and elsewhere should receive a good explanation as to why.
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A version of this article first appeared in Autofile Magazine, a publication servicing the motor vehicle industry. Stian Overdahl is the editor of Autofile Magazine. This magazine published a full review here » (Warning: a large .pdf download.)
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