Gerry’s biofuel subsidy blunders

I was aghast when Minister Brownlee stormed into office in 2008, declaring that a cost free, modest biofuel sales obligation was poor economics and bad for the market, and that it must be repealed and replaced with a subsidy.

Surely for the National Party, setting a standard and letting the market decide how to achieve it is the simplest, lowest cost way to encourage a biofuel market, but Gerry doesn’t live in the same universe as the rest of his colleagues.

This is now abundantly clear, given his mis-handling of the mining debate, his ill-timed oil drilling permit and his meaningless and expensive re-shuffle of the electricity market.

The Minister is now changing the criteria for the biofuel subsidy because of the poor response.

How he got $36 million out of his Cabinet colleagues for a subsidy while every other Minister was being forced to cut back is a mystery. Fortunately, there has been very little take up of this ill-conceived plan, and Cabinet could spend it on something useful, like restoring cuts to DoC’s funding.

Just how ill-conceived the plan is needs little explanation. The Minister is standing there with $36 million in lollies and no one is interested.

Meanwhile, having repealed sustainability standards along with the biofuel obligation in 2008, on Morning Report the Minister was hiding behind a lack of sustainability standards as his excuse for killing the obligation!

The Government should cut its losses with the subsidy and support Kennedy’s member’s bill to restore the biofuel sustainability standards. The Minister’s performance, while bad for the country, is just what the opposition needs going into the next election cycle. ;-)

12 thoughts on “Gerry’s biofuel subsidy blunders

  1. On what planet was this cost free? There was going to be significant cost and uncertainty over supply. The cost might have been hidden, but that is not cost free.

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  2. “cost free” in the sense of no cost to the government? With a standard rather than a subsidy any cost would be carried by the people who use the fuel, I guess. As a non car driver, that seems fairer to me. Why should my taxes subsidise your car usage?

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  3. And I was a-gassed at some of this, too!

    Biofuel = biodiesel.. yes?

    Further. would someone care to explain what incompatibilites there are in bio-mixing(blending).. as well as their post-ignition breakdown products… exhaust if you prefer the term.. though technically I’d respect likely residual wastes left in exhaust systems.. [ diesel turbos can be susceptible to exhaust piping buildup and back-pressures ]

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  4. fair critique, insider. What I meant, but said poorly, was that an obligation would not cost the Crown in the same way that the subsidy now costs the Crown $36 million. All the admin overheads, and of course the costs to purchasers of the biofuel being roughly the same under either regime. Rimu was correct, that the user would pay under an obligation rather than the taxpayer, via Gerry’s subsidy.

    Sorry, I could have said it better!

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  5. No worries and thanks. While I’m not a great fan of subsidies, with such a high level of uncertainty over raw material supply, consumer confidence, and distribution ability, it was the better option to get an industry going IMO.

    The obligation was trying to force everyone to run way too fast too soon, and would have fallen over either through inability to deliver or product quality issues. This way the industry has the ability to build its knowledge base without using all consumers as an experiment. Getting it wrong would have meant a huge backlash which could have been counterproductive in the extreme.

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  6. Actually no, the level of obligation was set very conservatively just for that reason and in consultation with industry who had secure investment just waiting.

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  7. Insider @ July 6, 2010 at 2:40 PM

    You make an interesting point and I wonder whether “hidden” was the perceived cost by powers-that-be of what others referred to as “externality” (or plural form). My point in asking is whether in likelihood folks were talking past each other on the topic of say environmental obligation/s

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  8. Sorry valis but I don’t think you can call a mandate that would have required procuring nearly every tonne of tallow produced in NZ to meet it, in any way conservative. It was cloud cuckoo land thinking based on some heroic assumptions. I suspect there are few if any competitive commodity markets that dedicate 100% of output to a single use. Even if it could be done it seems to me like a recipe for a massive wealth transfer to a few small suppliers who dominate the market.

    If it was done “in consultation” with industry why did they universally oppose it, most aggressively by BP which had been pushing it early on and spent some money on production and testing?

    Because they knew the targets were unrealistic and penalties obscene. I note that the biggest cheerleaders of pushing the mandate failed to follow through with any actual money on the table.

    @tomfarmer I don’t think that cost was ever fully examined or quantified. It is very hard to quantify even with the best will in the world

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  9. @tomfarmer

    Biodiesel is a form of biofuel. As is ethanol. It can be blended in a range of % with petroleum fuels pretty much up to 100%.

    Biodiesel is meant to be good for lubricity compared to low sulphur fuels. PM emissions are said to be lower but those are less an issue with lower sulphur anyway. Biodiesel does tend to have stability issues, particularly the stuff from tallow which is what is most likely in NZ. So it doesn’t last as long and has poor cold weather performance – think what lamb fat does on your plate when it gets cold. I think it’s a wee bit less dense than mineral diesel which means slightly lower fuel efficiency.

    Ethanol is a lot less dense so has a much bigger efficiency gap – 20-30%. It can be quite aggressive on parts and absorbs water, which is a problem for wear and tear on cars and fuel handling. Cars need modifications to run high % blends. It’s quite volatile so gives off vapours and can be hard to start in warmer climates, but you can argue that balances against other emission reductions. Nothing’s perfect eh?

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  10. insider, you are exaggerating all the issues regarding the obligation to their extreme. There was plenty of investment money on the table to produce far more than the law required, and most of it has dried up because of the repeal. The total obligation could have been met using just the low quality tallow available in NZ, and that is why the level was set to that amount, in the full knowledge that Gull’s domestic ethanol from whey and Solid Energy’s rapeseed biofules meant that the industry would never have to tap the entire tallow resource, and we would still be exporting tallow for other high value uses.

    The rate was also set with the full knowledge of the qualitiy of biodisel that could be expected from the tallow resource, which initially would be a large percentage of the small obligation. All the producers are meeting the quality standards even today, and that includes the cold weather issues you have raised. To argue that the Minister and Ministry did not take all this into account when they lowered the original obligation level and softened the ramp up of the requirement is disingenuous at best.

    Because of Brownlee’s repeal, two companies that had already put money on the table packed up and left town. We could have hit the obligation a year or two early.

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  11. insider,

    I had a fellow today – auto engine expert – tell me how on the same fuel (no, not biodiesel, simply gasoline 96 from the roadside gasoline station) winter (cold) fuel efficiency in kms per liter was 14; whereas the same motor through summer runs very well at 18 kpl.

    Point being that perhaps tis not entirely the fuel responsible for “cold weather performance”, as you put it.

    My own concern earlier was in respect of exhaust – read overburned animal fat – product that may condense or settle in the exhaust system. Accumulation of such would likely – and fairly quickly – lead to impaired turbo diesel performance on the road.

    I don’t know but taking an earlier commenter’s pov in respect of relatively low biofuel mixes(blends) may well explain why such blending vols are low.. fuels comptibilities being such an important issue..

    BTW: there are remedial chemical solutions to the probs I mentioned tho if one can avoid them one should..

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