Ethanol fuel given two-year tax break

By CHRIS DANIELS energy writer

Ethanol, blended with petrol, will be free from any excise taxes for at least two years.

The Government yesterday said it would hold off taxing the more environmentally friendly fuel blend, which has just been approved for use in New Zealand.

The oil companies had said they wanted some assurances that ethanol would not attract any excise charge before they would consider blending it into their fuels.

No oil company has yet said it will blend the chemical, which is made from organic products such as sugar, corn and wheat.

In New Zealand, the biggest ethanol maker is dairy giant Fonterra, which has an operation fermenting and distilling it from whey.

Oil companies will be allowed to blend up to 10 per cent of ethanol with petrol. Ethanol is higher priced than petrol, but without tax on the ethanol the blend should sell for around the same amount as a standard litre of petrol.

Transport Minister Paul Swain said it was hard to work out just how much ethanol would be used in petrol blends, but estimates of the potential loss of tax revenue to the Crown ranged from $1.7 million to $3.1 million a year.

At the end of the two years, the Ministry of Transport would review how much ethanol-blended fuel was being used. It would also look at whether synthetic ethanol was being imported.

Energy Efficiency and Conservation Authority chief executive Heather Staley said she hoped yesterday's Cabinet decision would mean ethanol blends would go on sale before the end of the year.

If they were the same price as ordinary fuel, New Zealanders could "make an environmental choice with no impact on their wallet".