On Tuesday, the Government proposed that oil companies sell a minimum percentage of biofuels in transport fuels, beginning with 0.25% of sales in 2008, rising to 2.25% by 2012.

But Shell New Zealand said this would require major infrastructure modifications costing hundreds of millions of dollars a year, which would push up the cost of conventional diesel and petrol.

Shell New Zealand general manager Jim Collings has now said the best way to introduce biofuels into New Zealand would be through developing “next-generation”, low-carbon biofuels made from plant waste rather than food crops.

“These biofuels have the potential to be much more effective at reducing carbon dioxide emissions than current technologies, cheaper to produce, and will provide a more renewable source of fuel,” he said.

This would help to achieve a sustainable, market-based mechanism, making biofuels competitive with conventional fuels, according to Collings.

Shell has said development of sustainable and commercially viable biofuels was an important focus of the company. Shell is already one of the world’s largest distributors of biofuels and it expected biofuels to make up more than 7% of its global road transport fuel volume over the next 20 years, said Collings.

Shell supported an approach based on creating incentives related to the degree of carbon dioxide mitigation achieved, rather than mandated sales targets.

“We do not support a biofuel mandate as we believe that mandates distort markets, and that a mandate will increase the cost of fuel in the short-to-medium term,” Collings said.

“Biofuels should be encouraged based on the proven performance of individual biofuels in the delivery of well-to-wheel carbon dioxide reduction. Biofuels that are the most effective at reducing carbon dioxide emissions should receive the most support.”