Prime Minister Helen Clark announced the biofuels plan yesterday, saying reductions in New Zealand’s carbon emissions was a top priority for her government.

From April 2008, biofuels will be required to make up 0.53% of fuel sales, rising to 3.4% by 2012.

However, New Zealand oil companies were yesterday reported as saying the government's plan posed significant challenges and that they would have to work out how biofuels could be sold at the pump.

BP New Zealand managing director Peter Griffiths agreed biofuels had benefits, including reducing carbon emissions and a reliance on oil imports.

However, he said the age and state of New Zealand’s vehicle fleet and the lack of incentives or subsidies posed significant challenges. It was also probable there would be flow-on increases to pump prices, Griffiths added.

Chevron, which owns Caltex service stations, said it supported the government's moves and would try to meet the biofuels targets.

Last year Shell New Zealand indicated pump price increases of up to 5c a litre with a biofuel content of just 2.25%. Yesterday a spokesperson said that was still accurate.

Shell NZ general manager Jim Collings said Shell generally supported the moves.

“As the world’s largest distributor of biofuels, Shell can see real benefit for future energy supply and carbon mitigation by increasing the use of quality biofuels in the New Zealand market.”

However, he said Shell was continuing to work through what infrastructure requirements were needed to meet the government’s sales obligations. “We are actively trying to minimise what cost impact the delivery of biofuels will mean to consumers.”

Collings said the government might need to consider cost incentives, such as cutting excise tax, to encourage motorists to use biofuels.

He added that Shell NZ would need to deliver both biodiesel and bioethanol products if it was to meet the government’s 2012 sales obligation and that some importation would be required.

Shell New Zealand also announced it had signed a letter of intent with Argent Energy New Zealand in preparation for meeting the new biofuels sales targets.

Climate Change Minister David Parker, who is also Energy Minister, said the biofuel sales obligation was expected to have little impact on pump prices. He estimated the addition of biofuels to supplement petrol and diesel would reduce greenhouse gas emissions by more than one million tonnes during the first Kyoto Protocol commitment period, from 2008 to 2012.