By Maggie Tait of NZPA

Wellington, Dec 12 NZPA - A local biofuel producer says his New Zealand operation will fold and the local industry will die because of the Government's decision to scrap biofuel obligations.

However, Energy Minister Gerry Brownlee disagreed and said he believed the industry had a strong future under National.

The Government is dropping requirements for oil companies to sell a proportion of their petrol and diesel blended with biofuel.

The obligation, applying to 2.5 percent of annual sales by 2012, was expected to be repealed next week, he said.

Biodiesel Oils New Zealand managing director Tom McNicholl said the decision was "devastating". The company invested $10 million over the last eight years in research and equipment.

"It would be the death knell of biodiesel and possibly ethanol sales in this country," he told NZPA.

"We're actually devastated."

The company would stop work on a new plant in Waharoa in the Waikato, meaning 22-plus jobs would not be created. It had already built a plant in East Tamaki which employed 24 staff.

Biodiesel Oils was to rely on oil companies to blend the fuels, but now there would not be a market for biofuels.

Mr McNicholl said the company would continue to sell its technology overseas but the New Zealand operations would fold.

"Personally I am disappointed because I've spent 8-1/2 years of my life doing nothing else but develop and invest in the manufacture of biodiesel for New Zealand and elsewhere."

He doubted anyone would be interested in investing as much as he had.

Biodiesel Oils moved from recycling cooking oil to converting tallow to biofuel in 1999, stepping up efforts in 2005 when the government said it would be setting obligations.

He said claims the obligations would be expensive were "rubbish" and he estimated the price increase on fuel at 1 to 2 cents.

Mr Brownlee said costs were 2 to 8 cents.

He did not want to comment on an individual company's position but questioned what arrangements it had.

"If they entered a contractual arrangement with the oil companies then they have a contractual arrangement. Remember this obligation has applied since the first of October."

Labour MP David Parker said the Government's decision ruined a chance to make New Zealand less dependent on foreign oil while also improving the environment.

Under the changes unsustainable biofuels would be imported into New Zealand, he said.

"The National Government has been so busy ramming through legislation they haven't bothered to do their homework on the economic, environmental or social impacts of what they are doing."

Greens co-leader Jeanette Fitzsimons said local industry would be undercut by subsidised ethanol from the United States "where it is made from corn that could feed people, and by biodiesel made from palm oil, grown by clearing tropical rainforests that are the last refuge of the orang-utan and many other species".

Mr Parker said the changes needed to be considered by a select committee or have a regulatory review instead of being passed under urgency next week.

United Future MP Peter Dunne, who is a minister outside Cabinet as part of his support arrangement with National, was disappointed by the move and was concerned by the impact on local producers.

Mr Brownlee said the Government would equalise the tax treatment of ethanol and biodiesel which favours the former.

"That will be a big incentive to the biofuels industry in New Zealand."

He disagreed the industry would be negatively impacted.

"We think that the growth of the biofuel industry will continue. A large number of the biofuel companies in New Zealand, who are currently producing ... very small volumes, have been quite positive about where we are heading because they know their industry is going to be producing a product that's in future high demand."

Mr Brownlee said arguments about problems with imports did not stack up.

"If there's no obligation what's all the cheap fuel coming in for and secondly if there's a huge supply ... of locally produced stuff why would anyone need to import it?"

Mr Brownlee said there were no environmental standards for biofuels in place and work on that was continuing.

"The last thing that we were going to do was to obligate oil companies and therefore motorists to potentially incur higher output of CO2 emissions because of government policy."

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