The Government has been accused of acting prematurely in ending its financial support for biodiesel production.
The Bioenergy Association says the Government has confirmed it is ending the grant scheme which has paid biodiesel producers 42 cents per litre for the fuel they have been making from rape or canola seed, used cooking oils and tallow from meat plants.
Executive officer Brian Cox says the grant was due to end but nevertheless it has come too soon.
He says stopping it now undoes three years of development work, as the fledgling industry was starting to make some headway in alternative fuel production and was lining up new users.
"The small plants that could have started have not started and those ones that were keeping on in the hope that the grants would continue, probably only for another two years; that's probably all it was needed for, then they have also had to close."
Mr Cox says he hopes the Government will continue its support for another biofuel being produced on a small scale in New Zealand.
Bioethanol, made from dairy whey supplied by Fonterra, is sold through Gull service stations and receives an excise exemption.