Regulatory Impact Statement
Within this section…
Executive summary
Biodiesel and ethanol quality standards are not currently regulated in New Zealand. Biofuels as a proportion of the retail national fuel mix will increase in the coming years, as a consequence of the Biofuel Sales Obligation.
It is proposed to regulate specifications based on internationally recognised ethanol and biodiesel standards, but with some amendments to reflect New Zealand's circumstances. The proposed biodiesel regulations will enable good quality biodiesel made from all common feedstocks to be supplied in New Zealand.
In addition, retail fuel pumps dispensing petrol/ethanol blends will be subject to specific labelling requirements as petrol engines have varying degrees of compatibility with petrol/ethanol blends.
Adequacy statement
The Ministry of Economic Development has reviewed the RIS and considers that the RIS is adequate according to the adequacy criteria.
Status quo and Problem
The Petroleum Products Specifications Regulations 2002 (PPSR) set out quality and labelling requirements for petrol and diesel. Biodiesel, ethanol and biodiesel blend specifications are not currently regulated in New Zealand. Biofuel as a proportion of the retail national fuel mix will increase in the coming years as a consequence of the Biofuel Sales Obligation, largely in the form of blends with petrol and diesel. It is considered necessary that biofuel specifications are provided for in regulations to ensure fuel quality that is suitable for New Zealand's vehicle fleet and other fuel users. This will help to build and maintain consumer confidence in the use of biofuels, and is consistent with the approach for petrol and diesel.
For biodiesel, there is a voluntary standard in place – 'Automotive Biodiesel: Specifications for manufacture and blending (NZS 7500:2005)'. This covers neat biodiesel (B100), retail diesel/biodiesel blends (up to 5% biodiesel), and non-retail blends that may contain any proportion of biodiesel. For ethanol, the Energy Efficiency and Conservation Authority (EECA) has developed voluntary specifications based on the American standard (ASTM D4806). The PPSR requires that pumps dispensing retail ethanol/petrol blends (of up to 10% by volume ethanol) display the words "contains ethanol".
Cabinet agreed in February 2007 (Biofuels Sales Obligation Cabinet paper – CAB Min (07) 4/2 refers) that the current regulatory regime for fuel specifications, quality, fuel dispensing equipment, testing, consumer information, and advertising be amended or replaced, as appropriate, to provide for the suitable regulation of fuels used in engines, including biofuels, biofuel blends and synthetic fuels, including its suitable enforcement and provision for standards to be incorporated by reference where appropriate.
Objectives
The objectives are to:
1. ensure appropriate protection for consumers purchasing biofuels and biofuel blends;
2. ensure biofuels and biofuel blends are suitable for New Zealand's vehicle fleet and other fuel users; and
3. maximise the affordability of biofuels.
Alternative options
Do nothing (Status Quo)
If the status quo is maintained, biodiesel, ethanol and biodiesel blends of any quality may be sold in New Zealand as long as the supplier complies with general consumer protection laws. This is inconsistent with the approach for petrol and diesel, and may lead to poor quality biofuel being sold which would negatively impact on consumer confidence.
Regulate the existing voluntary standards in their entirety
One option would be to mandate the existing voluntary standards for biodiesel (NZS 7500) and ethanol. This option is however not preferred for the following reasons:
- For biodiesel, NZS 7500 would limit the number of feedstocks able to be used. Some of the key players in the motor vehicle industry are also of the view that the oxidation stability parameter is not stringent enough in NZS 7500 to protect fuel system components from corrosion. NZS 7500 would also benefit in being amended to reflect recent international developments with biodiesel specifications.
- For ethanol, the EECA voluntary ethanol standard (based on ASTM D4806) is not considered stringent enough.
Regulate international standards by reference
There are no harmonised international specifications for either biodiesel or ethanol, and there are significant differences between country-specific fuel quality requirements. The most internationally recognised standards are the European Standard for biodiesel (EN14214), and ASTM D4806 for ethanol. An option would be for these to be referred to in the New Zealand regulations. This option is not preferred for the following reasons:
- For biodiesel, EN14214 was developed based on rapeseed oil as the feedstock and good quality biodiesel made from other feedstocks (e.g. soybean oil, sunflower oil, coconut oil) are unable to meet EN14214 due to limits placed on several of the feedstock-related parameters. In addition EN14214 has requirements for oxidation stability that are not considered stringent enough by some in the motor vehicle industry. Finally, where the same parameter is specified in diesel and biodiesel specifications, it is logical to align the test methods, and some of the test methods in EN14214 differ to those in the PPSR.
- For ethanol – as above.
Preferred option
It is preferred that biofuel specifications are regulated to minimise the risk of poor quality biofuels being sold in New Zealand. This will help to protect consumers as well as the integrity of the biofuels industry.
The preferred option is for the regulated biofuel specifications to be largely consistent with EN14214 for biodiesel and ASTM D4806 for ethanol, but to modify some of the parameter limits. For biodiesel, these modifications will allow for a larger number of feedstocks and take into consideration the motor vehicle industries concerns around oxidation stability. For ethanol, the modifications are in-line with the draft Australian Ethanol Standard, which aim to reduce the possibility of undesirable components being present and ensure consistency with denaturing requirements.
The preferred option provides an appropriate level of protection for consumers while ensuring that the costs of compliance with quality standards for biofuel manufacturers and suppliers are reasonable. The costs being considered here relate only to biofuels meeting the quality standards, and not costs associated with wider biofuels policy, including the Biofuel Sales Obligation.
The biodiesel regulations are performance-based specifications and feedstock-independent. Feedstock independent specifications allow for the importation of good quality biodiesel made from feedstocks such as soybean oil and coconut oil.
Potential costs associated with the preferred specifications, include:
- More stringent oxidation stability properties for the B100 component of retail biodiesel blends will have cost implications for biodiesel manufacturers. These costs vary depending on the feedstock, as each feedstock has a different level of natural antioxidants. For example, rapeseed oil has a low level of natural antioxidants and may require up to 1100 mg/kg of antioxidant. This is estimated to cost up to $0.014 per litre of biodiesel (or $0.0007 per litre for B5 blends) and so is considered minor.
- Any existing small scale biodiesel manufacturers that do not meet the existing voluntary NZS 7500 will have difficulty in meeting the regulated specifications. In many cases it would be costly to change the technology used or the production process to meet the specifications.
The preferred option includes amending the diesel specifications to allow the blending of up to 5% by volume biodiesel for retail sale. Several other amendments to the diesel specifications are also necessary to reflect new information and ensure test methods are applicable to biodiesel blends. This includes an amendment to the cold flow requirements for diesel in Auckland/Northland as the current requirements are considered unnecessarily stringent. The relaxation will also facilitate the blending of biodiesel into existing diesel stock in the Auckland area.
The preferred option includes labelling requirements for retail petrol/ethanol blends that will allow consumers to identify the maximum amount of ethanol that the fuel contains, and hence whether it is suitable for their engine. This is similar to the requirement in the PPSR to label petrol with the minimum research octane number (RON). It is also recommended that petrol/ethanol blends be labelled as "may not be suitable for all vehicles/engines. Check with the manufacturer before use". This is a cautious approach considered appropriate to reduce the risk of operability problems, particularly given the low level of biofuel compatibility awareness consumers have at this time. The proposed labelling requirements will impact on current suppliers of retail petrol/ethanol blends (i.e. Gull) as they will need to re-label dispensing pumps.
Under the Trans-Tasman Mutual Recognition Arrangement (TTMRA), goods produced in or imported into Australia may be sold in New Zealand and vice versa. The biodiesel specifications proposed in this paper are more stringent that those in Australia, particularly for oxidation stability. It is considered unlikely that product that meets the Australian standard would be unsuitable for general use in New Zealand. However, the motor vehicle industry may not support product that meets the Australian standard as it deviates from EN14214 and the recommendations of the Japanese Automobile Manufacturers Association.
Implementation and review
It is intended that the new regulations come into force before the Biofuel Sales Obligation commences (anticipated as 1 July 2008). This will ensure that biofuels supplied to meet the Obligation are of an appropriate standard. Once approved, this paper will be posted on the MED website. A targeted group of stakeholders (e.g. biofuel manufacturers, oil companies, motor vehicle manufacturer representatives) will be informed of the approved specifications and labelling requirements. It is important that, in particular, the oil companies and biofuel manufacturers know the intended specifications as far in advance of the commencement of the Obligation as possible.
Petrol and diesel supplied in New Zealand is currently monitored for compliance with the PPSR by the Fuels Quality Monitoring Programme, run by the Measurement and Product Safety Service within the Ministry of Economic Development. The quality of biodiesel and ethanol, and their blends, will be monitored under the same programme.
The process of standardising engine fuels (both petroleum and biofuel) is a dynamic process. The specifications will continually be updated in line with domestic and international developments. It is intended that a review of the biofuel specifications be undertaken in 2010.
Consultation
The discussion document 'Regulating Biofuel Quality – A discussion document outlining the proposed biodiesel and ethanol specifications' was publicly released in early October 2007. Twenty seven submissions were received from stakeholders, including biofuel manufacturers, the oil industry and the motor vehicle industry. Submitters were re-consulted on the final proposals in January 2008 to provide an opportunity for additional comments. Eighteen further submissions were received. All submitters agree that biodiesel and ethanol specifications should be regulated.
Key issues on the biodiesel (and diesel) specifications raised in submissions are as follows:
- Two domestic biodiesel manufacturers and representatives of the European vehicle manufacturers do not support divergences from the EN14214. Adopting EN14214 in its entirety would restrict the available feedstocks, i.e. good quality soybean, sunflower and coconut oil biodiesel would not be able to meet the specifications. This is not consistent with the approach of having performance based specifications.
- Several submitters do not support a limit of 5% by volume biodiesel being placed on biodiesel blends for retail sale. These submitters want the flexibility to sell higher blends via retail sale, which would give consumers greater choice and support the uptake of biofuels. The preferred option is to impose a 5% limit as there are few vehicle manufacturers who support biodiesel blends above 5% by volume for general use. Internationally it is widely considered that biodiesel blends containing up to 5% by volume may be used in any diesel engine without modification. For those vehicle fleets that are compatible with higher biodiesel blends, the preferred option provides the flexibility to supply these vehicles with blends above 5%, as long as there is a written arrangement between the supplier and the end user (i.e. non-retail sale).
- Having geographically different cold flow requirements for diesel is not supported by one oil company (Gull) as they believe that it may place them at a disadvantage against their competitors due to their different supply arrangements. It is considered unlikely that the relaxation would significantly benefit the four major oil companies at the expense of Gull.
Key issues on the ethanol specifications raised in submissions are as follows:
- Several submitters did not support the proposal in the discussion document that the denaturant be limited to New Zealand specification petrol as this would make it difficult for denaturing to occur overseas for imported ethanol. Accordingly the preferred option is that the petrol used to denature must meet certain key parameters (unleaded, low sulphur etc) to ensure appropriate quality, but does not need to meet the full New Zealand petrol specifications.
Key issues on the labelling requirements raised in submissions are as follows:
- The discussion document proposed that labelling identifies whether ethanol is from a renewable or non-renewable source. This was not supported by several submitters, and has subsequently been removed from the preferred option as it is not necessary from a fuel performance and vehicle compatibility point of view.
- Two submitters support the labelling being required to show as close to the absolute percentage of ethanol as possible (rather than ‘up to'). This is to address the differing compatibility levels of vehicles (e.g. E3, E5, E10), but this approach is not considered practical given that ethanol levels will vary. From a vehicle compatibility point of view, the maximum percentage of ethanol is of most importance for consumer information.
- One oil company is particularly against the proposed wording (i.e. "may not be suitable…") as they consider that this will undermine consumer confidence in the fuel and that it should only be required if it is proven that a significant proportion of the vehicle fleet is unsuitable for ethanol/petrol blends. However, it is considered necessary to take a cautious approach with labelling to reduce the risk of unsuitable use of petrol/ethanol blends leading to vehicle operability problems, which could significantly affect public confidence in biofuels.
The Ministry of Transport, Ministry for the Environment, Energy Efficiency and Conservation Authority, Ministry of Foreign Affairs and Trade, the Treasury, New Zealand Customs Service and the Environmental Risk Management Authority were consulted on this Cabinet paper and agree with the recommended specifications and labelling requirements.
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