Unlike Australia, which relies on coal for about 83% of its electricity generation, New Zealand is already regarded as “clean and green” because it sources most of its electricity from renewable energy.

But that’s not good enough, according to New Zealand Prime Minister Helen Clark, who upped the ante this week by announcing that her country would attempt to reach carbon neutrality by 2012.

The goal appears more achievable in New Zealand than many other countries because about 70% of the nation’s power generation is already derived from renewable sources.

With abundant rainfall and a mountainous terrain, New Zealand derives much of its electricity from the raging rivers that power its hydro-electric schemes.

Geothermal and wind power make up the other renewable power sources.

New Zealand is also unusual because its biggest contributor to greenhouse gas emissions is not industry but agriculture, caused by methane from farm animals and nitrous oxide from soils and fertilisers.

The Government says its Projects to Reduce Emissions Program, involving internationally tradable emissions units, has helped bring forward more than 800MW of renewable power projects that might not otherwise have gone ahead.

And now the New Zealand Government is about to apply the same approach to fuel.

In her first statement to parliament this year, Clark said the development of biofuels would be central to the plan to achieve carbon neutrality.

The Government announced a Biofuel Sales Obligation that would be set at 3.4% of the energy content of petrol and diesel sales by 2012.

Clark told parliament that New Zealand had the potential to lead the world in renewable energy, and locally produced biofuels could help the economy, while reducing greenhouse gas emissions.

“With domestic production, they can also be positive for the current account,” she said.

“This initial target is considered sufficient to encourage the uptake of biodiesel and the development of infrastructure for ethanol distribution.”

The new Government requirements for fuel to contain a component of biofuel may kick-start a new energy sector, according to sustainable business advocates.

“It provides a signal for the people working on biofuels that in 2012 there will be sufficient demand to get serious about it,” said Business Council for Sustainable Development chief executive Peter Neilson.

The scaling-up of biofuel additives to petrol and diesel from April 1 next year would let would-be manufacturers work out whether they could produce enough fuel at the right price.

“If the price of oil stays at $US50-60 a barrel over the next three or four years, and some of the experimental technologies for biofuel come through, I think there will be people who will take a commercial punt that they can make biofuels pay,” Neilson said.

“Creating a biofuels industry that has benefits and is competitive: that’s the challenge.”

Climate Change and Energy Minister David Parker said biodiesel manufacturers were initially expected to use tallow from the meat industry as feedstock.

“Quite a few contracts have already been signed to tie-up tallow sources so that they can turn that into biodiesel,” he said.

New Zealand slaughterhouses produce sufficient tallow to produce around 5% of its diesel fuel needs.

Parker said ethanol for adding to petrol was expected to initially come from milk sugars in whey, a dairy industry “waste” product.

Dairying already produces sufficient whey ethanol to meet around 0.3% of the nation’s petrol needs.

Fonterra dairy factory in the Bay of Plenty successfully tested petrol mixed with 10% ethanol in a 1.8-litre car, in a blend approved by the Environmental Risk Management Authority (Erma).

The plant produces 30,000 litres of ethanol a day and 5 million litres in a dairy season.

New Zealand researchers are also working on second generation biofuels: the conversion of plant lignin and cellulose into fuels by enzymes, and the gasification of biomass material followed by a “gas-to-liquids” process that can be used on trees, grasses, agricultural plant wastes, straw and algae.

A deal between two Crown Research Institutes (CRIs) and a US company may open up the possibility of the entire vehicle fleet ultimately running on New Zealand biofuels.

The three parties are CRIs Scion and AgResearch, and San Diego-based Diversa, which has pioneered the development of high-performance speciality enzymes.

They have agreed to co-ordinate technology development to investigate the feasibility of a transportation biofuel industry using bio-based feedstock, such as trees and grasses.

But New Zealand’s bold new carbon neutral future may offer little benefit to its closest trading partner.

Parker told the newspaper that his country could be reluctant to engage in trans-Tasman emission trading until Australia had signed the Kyoto Protocol.

“There may be better places for us to trade with. If we’ve got Kyoto-compliant units, it might be in our interests to trade with other Kyoto-compliant countries,” he said.

“We could trade with Europe, for example, where they might be more likely to want to trade with Kyoto-compliant units that are more readily made to fit with their scheme.”