Officials have been warned that existing ethanol-blended biofuels can’t be used in most storage tanks and pipelines – so the new Sustainable Biofuel Mandate will come at a cost.
The clock is ticking at Marsden Point oil refinery. Chief executive Naomi James says they have mere months to reach agreement on converting the refinery to a biofuels production facility, for local forestry waste, before they are forced to begin laying off staff and decommissioning plant.
Energy Minister Megan Woods has expressed interest in the potential to convert the refinery to biofuel production, and James confirms they are in talks with government. But they need quick decisions because once they lose skilled engineers, they won’t be coming back; once they decommission big plant like the hydro-treater unit, there is no turning back.
James confirmed that in its submission on the planned Sustainable Biofuel Mandate, Refining NZ is arguing for government incentives for domestic biofuel production, like grants or Emissions Trading Scheme exemptions.
And it’s not alone. Biodiesel pioneer Fulton Hogan says it too wants to produce more and better plant-based fuel, but it needs locally grown feedstock. Z Energy wants to reopen its biofuel plant at Wiri and build more of them.
Officials at the Ministry of Business and Innovation have just finished consulting on a Sustainable Biofuels Mandate to gradually blend more biofuel into our petroleum. These three were among those to make submissions, and they agreed to provide copies of their submissions to Newsroom Pro. The message from producers is clear: If the Government is serious about decarbonising planes, trains, boats and heavy transport, it must support local production.
When Prime Minister Jacinda Ardern and Transport Minister Michael Wood announced plans to make it mandatory for fuel firms to blend in biofuels, at Z Energy’s mothballed Wiri biodiesel plant in January, they were at best equivocal about incentives.
But they didn’t rule them out entirely and this week, Wood still isn’t ruling them out. He’s just not commenting on them.
He does, however, offer some encouragement to the push to manufacture advanced “Generation 2” biofuels from Forestry waste – a solution being driven by Scion Research, Z Energy, Refining NZ, Z Energy and others.
“There seems to be a good opportunity with woody biomass and the Ministry of Primary Industries’ Te Uru Rākau is currently looking into the commercial viability of using woody biomass to produce liquid transport biofuels,” he says.
In its submission, Refining NZ obligingly lays out six incentive options. Naomi James tells Newsroom that the first priority would be to support capital investment, but operational support would come close behind.
One of the options would be to fund the capital or operational support through a levy on individual passenger carbon emissions – for example, through the International Visitor Levy.
The options are all modelled on overseas initiatives. To kick things off, the government could provide capital grants to help establish production capacity and supply chain infrastructure, or it could provide ring-fenced funds for use for CAPEX, relating to establishing production.
Operational support could take the form of a production incentive paid per litre of biofuel, Emissions Trading Scheme exemptions for renewable fuels use, financial incentives for feedstocks sold for mandated production, or an operating expenditure support mechanism.
If Refining NZ is to line up as a biofuel manufacturer alongside Z Energy, Fulton Hogan and a few small New Zealand firms, then time is tight.
Refining NZ shareholders voted this month to shut down the Marsden Point refinery and repurpose the site as an import terminal. The final decision is to be made by the company’s board next month, condition on support from lenders to fund the transition, and the outcome of negotiations with the three fuel companies on terms to supply them imported petroleum for the next 10 years.
That’s not the cut-off for a decision on creating a biofuel plant alongside the import terminal – but that deadline will follow fast behind, as Refining NZ intends to shut down the refinery at the middle of 2022. That’s when the last of the redundant staff will leave, and the technology will be finally decommissioned – or just mothballed to be repurposed for biofuel production.
James says there are several big pieces of refinery plant that can be repurposed, like the hydrotreater unit. In a refinery, a hydrotreater unit removes sulphur and other contaminants from intermediate streams before blending into a finished refined product or before being fed into another refinery process unit.
But some of its equipment is particularly suitable for re-purposing to biofuels processing. For instance, parts of the hydrotreater units could be used for converting and separating the liquid bio-feedstock into biofuel. The exact processes used would depend greatly on the type of bio-feedstock, and the sort of fuel being produced.
Until now, there’s been very little biofuel produced in New Zealand, and what there is has been on a small scale. Ministers acknowledged the challenges in their introduction to the consultation, in June. “Our use of biofuels is extremely low by international standards, and last year saw Z Energy hibernate its Wiri biodiesel plant and Gull stop its biodiesel imports.”
The Government’s hope has been that a Biofuels Mandate, combined with moves to EVs and cleaner burning cars, will ensure the market delivers cost-effective biofuel solutions.
Unsurprisingly, the petroleum industry and biofuel producers are casting doubt on that.
Changing up a gear
Fulton Hogan’s sustainability engineer Dave Aston has devoted his career to making transport and logistics work better for the environment, but there’s a note of frustration creeping into his voice.
Ten years after the company pioneered making biodiesel for its trucks and heavy machinery, they are looking to change up a gear to the next energy solution – but they need help.
His concern is that there’s just not enough biomass (that’s the usable residues from plant matters) to make the biofuel New Zealand needs.
In Christchurch, Fulton Hogan’s subsidiary GreenFuels manufactures biodiesel from used cooking oil. Aston laughs drily: “The trouble is, we need people to eat more fish and chips!”
Each year GreenFuels makes 900,000 litres of biodiesel from 1 million litres of cooking oil, the waste from the country’s deep-friers. The plant has capacity to handle 3 million litres a year, but can’t source any more cooking oil.
Overseas, crops like corn and soybeans (US), flaxseed and rapeseed (Europe), sugarcane (Brazil) and palm oil (Southeast Asia) are grown primarily for biofuel production – but this comes with a whole new range of adverse environmental and community impacts. In New Zealand the talk is mostly around using forestry waste as biomass feedstock.
“The question we have is that if incentives or subsidies are not introduced, what legislative powers can be introduced to significantly reduce the flow of biofuel feedstocks heading offshore from New Zealand?”
– Dave Aston, Fulton Hogan
Aston says we need to speed up the discussion between government and business about what biomass we have available, and how we use it. If we don’t make use of our own limited supply, then other countries will buy it off us, manufacture the biofuel themselves, and sell it back to us at great economic and environmental cost.
That’s echoed in his company’s submission, which he prepared. “Some form of incentive is required to increase the onshore production of biofuels,” it says.
“Accordingly, the government should consider the merits of reintroducing a wider-ranging grants scheme or taxation relief for onshore producers, through to exploring legislative models like the California Low Carbon Fuel Standard with a set of programmes that integrate health, transportation and mobility outcomes.
“The question we have is that if incentives or subsidies are not introduced, what legislative powers can be introduced to significantly reduce the flow of biofuel feedstocks heading offshore from New Zealand?”
The push for Government incentives for the domestic production of biofuels, to replace imported petroleum and biofuels, shows the tensions for a trading economy in trying to substitute local product.
Import substitution is not something we talk about in New Zealand, except with concern at any attempts by India, the US or China to replace our meat and produce. Substitution wasn’t mentioned in the 115-page Trade for All report; indeed, it was somewhat scathing of ‘buy local’ campaigns. That report provides a foundation for new policy work, beginning this week.
Trade Minister Damien O’Connor has announced his Trade for All ministerial advisory group to help chart the course for trade that supports sustainable and inclusive economic development. “Trade has been fundamental to NZ’s story,” O’Connor says. “We want both for its value to be understood and its potential benefits to reach across society. Our recovery from Covid-19 is a trade led one.”
Nobody wants to begin reinstating the tariffs and trade barriers that New Zealand has worked so hard to dismantle. As a small economy, that would be an invitation to our big trading partners to smash us. But at the same time, sourcing local produce and product is a core tenet in reducing carbon emissions.
What Michael Wood and his ministerial colleagues must consider is whether the country has a framework to support the local manufacture of products like biofuel when that is intended to replace petroleum or biofuel imports from some of our valued trading partners.
In his response to the Trade for All report last year, former trade minister David Parker said there was urgent need for the world to phase out fossil fuel subsidies, and that he was sympathetic to border adjustments for high carbon goods. “The inextricable links between climate change, the global economy and trade policy are becoming ever more apparent.”
As the Ministers noted in June, small fuel retailer Gull NZ has stopped importing and selling biodiesel; it couldn’t make the numbers work. But for light vehicle drivers, it does still sell a petrol blended with bioethanol.
In its submissions, Gull supports a sustainable biofuels mandate that would immediately reduce greenhouse gas emissions in the country’s transport sector.
The company’s general manager Dave Bodger said they were the first to sell biofuels, 14 years ago. The widespread use of biofuels across New Zealand’s service station network would mean an immediate decrease in greenhouse gases using Kiwis’ existing vehicles, without motorists having to save up for an electric vehicle.
“Hooray,” he says, “a bloody sensible approach to reduce carbon emissions from everyone’s everyday life without everybody waiting years to buy a new car or waiting for light rail or bus lane to be built.”
Bodger does accept that the Climate Change Commission’s proposal to switch the light transport fleet to EVs has “significant merit in the long term” but like the Ministers and others in the fuel industry, he maintains biofuels are an important transitional technology.
“New Zealand needs a government mandate because biofuels are significantly more expensive than any imported mineral fuel therefore no consumers will use them without subsidy or an effective mandate or both,” he says. “This will encourage other fuel companies to invest in the technology to produce biofuels and provide them to the existing fleet right now.”
