Our German Desk
The energy transition from combustion fuels to low carbon alternatives is viewed as critical in the race to cut global CO2 emissions and reach climate targets. We look at some of the opportunities presented by bioenergy and recent legislative responses of the New Zealand Government.
Bioenergy and its opportunities
The term ‘bioenergy’ encapsulates a wide range of energy sources from organic matter, including biomass (crops, wood pellets and waste matter), biogases and biofuels. Biomass can be used to create energy through incineration to produce heat or steam for making electricity, or to produce biogas or biofuels through alternative conversion processes. A key benefit of biomass over other renewable sources of energy such as wind and solar is that it is not intermittent and can be stored more easily.
Liquid biofuels have been signalled as a renewable, low-emissions fuel alternative that can be blended with petrol and diesel to reduce greenhouse gas emissions from transport. They are also less dependent on new technology vehicles (for example, electric vehicles or hydrogen fuel cell vehicles) because they can be used in existing internal combustion engine vehicles.
Examples of biomass (in the New Zealand context) might include:
- ‘Woody biomass’, which is biomass derived from trees. It includes wood offcuts, sawmill residues and forest residues (such as branches and leaves).
- Dedicated crops such as maize and sugar beet.
- Tallow – rendered from beef and mutton, tallow can provide a feedstock for biodiesel as well as other products, such as soap and fabric softeners.
Challenges to the development of the bioenergy industry
The use of biofuels in New Zealand is very low and there is limited domestic production. Some of the challenges which arise for the use of biofuels in the New Zealand context include:
- The cost of residual woody biomass – this has been estimated to be 20% more expensive in New Zealand than in key competitor countries, due to difficult terrain and transportation.
- The availability of woody biomass due to existing usage commitments and the high proportion of trees that are exported as logs.
- Concern around the associated emissions resulting from the production of biofuels – including the need to account for the emissions associated with the transport collecting the feedstock and delivering it to the processing plant, and the fertiliser used in growing dedicated crops.
- Scalable production – global competition for opportunities which attract specialist, large scale international investors is high, and scalability of operations (compared with larger countries) remains a challenge in New Zealand, although this does not preclude the opportunity for export potential to overcome the small domestic market concerns.
- The low cost of New Zealand Units is currently around $70 (while EU carbon trading prices are closer to an equivalent of NZ$150 per tonne of CO2) – therefore the incentive may not be high enough to drive a change in behaviour.
Government intervention and policy approach
Leading bioeconomy nations (including the US and certain European nations) have recognised that driving investment in carbon projects requires government support and intervention. Implementation of low carbon fuel standards (LCFS) are one such approach used in various economies to drive increased production and use of biofuels. The regulator sets a carbon reduction target for the fuels which must be met by the refiners and fuel distributors in the region and the market determines the best way of meeting those targets. This approach also has the benefit of not directly depleting treasury resources in the same ways that tax subsidies might.
The Sustainable Biofuels Obligation Bill
The (former) Government’s Sustainable Biofuels Obligation Bill was introduced in November 2022. This bill sought to assist with the transition from liquid fossil fuels to low-emissions fuels and reduce the greenhouse gas emissions from transport. Proposed reform included requiring persons or companies that were importing or refining more than 50,000 litres of liquid fossil fuels for transport (excluding aviation fuels) in New Zealand to reduce the greenhouse gas emissions intensity of those fuels by also supplying sustainable biofuels.
Under the bill, the responsible Minister would be required to recommend regulations to set out how biofuels would be determined to be sustainable. The regulation-making powers in the bill would also allow the Minister to recommend regulations relating to certification schemes regarding the sustainability and emissions intensity of biofuels.
By February 2023, the proposed changes (which were widely understood to have increased the price of fuel) were abandoned as the Government refocussed its priorities to tackle the cost of living crisis facing New Zealanders and this position appears likely to remain (at least for the foreseeable future) under the new Government. Our Forestry Team will be monitoring any developments in this area with interest.
Disclaimer: The information contained in this article is current at the date of publishing and is of a general nature. It should be used as a guide only and not as a substitute for obtaining legal advice. Specific legal advice should be sought where required.
