New Zealand's first industrial-scale biodiesel plant, using an animal fat byproduct, is now in its final stages of construction in Wiri, south Auckland.

Photo: Supplied

When the Z Energy plant is completed in June, it will produce 20 million litres of biodiesel each year, possibly doubling to 40 million at a later date.

The Wiri plant will use tallow (rendered fat) from the meat industry that would otherwise be used to make soap and candles, manufactured mainly in India and China.

While the planned 20 million litre production will be just a fraction of the company's total diesel sales of 860 million litres, Z Energy views it as a start in reducing greenhouse gas emissions from transport.

Even getting this far was a problem, according to Z Energy chief executive Mike Bennetts.

He said the globally low prices for crude oil make it harder for biofuels to compete.

The cost imposed under the Emissions Trading Scheme for burning fossil fuels was also low, which discouraged the use of clean alternatives such as biofuel and this affected the economics of the plant.

"They are marginal, and (as a listed company) we've always been very honest about that," Mr Bennetts said.

But Z was pressing on, aiming to add 5 percent biofuel to its conventional diesel by June, and signing up companies such as Fonterra to commit to its product.

"We've been well supported by Fonterra, Fulton Hogan, Downers and New Zealand Post, to pay us a small premium to actually take the product.

"And then we are looking for the rest of New Zealand to follow through on some of the statements they make to use around 'why don't you guys do something about a less carbon intensive future?'"

Photo: RNZ / Alexander Robertson

Z Energy began the project six years - and several government policy switches - ago.

Mr Bennetts said to make it work, start-up costs had to be cut to a minimum.

"One of the things that stops people from investing in biodiesel plants is not so much the running costs, it is the capital cost of getting it going in the first place," he said.

"We have been able to build this plant for half of what it would cost elsewhere in the world. So we have effectively got a 20 million litre plant for $20 million, but elsewhere in the world it would have cost $40 million."

Unlike mineral fuels, during combustion biofuels release the carbon dioxide that they earlier absorbed during growth, leaving net emissions neutral.

At first this carbon-neutral aspect led to a rush of enthusiasm worldwide, until people began to worry about using land for fuel when it could be used to grow crops for food.

Transport produces about 20 percent of New Zealand's greenhouse gas emissions, less than agriculture, but it is widely believed to be more fixable.