Dunedin City Council-owned Citibus Newton is working with a consortium that wants to build a biodiesel depot in the city, and has started investigating the fuel's use in its fleet.
General manager Tony Ross last week acknowledged a growing expectation that commuter companies did all they could to ensure their fleets were more environmentally friendly.
It was considering a switch but it needed to investigate the potential mechanical effects and whether even a 20% biodiesel-diesel mix would affect bus performance.
Biodiesel services were well-tested in Christchurch, but that city's flat topography meant Citibus would have to do its own tests to see whether the fuel performed well in hilly Dunedin.
The company was still some way from setting dates for the investigation.
One or two buses would be used in the trial, and it could take another three years to use the fuel across the fleet.
Mr Ross said other issues, including concerns that biofuel production took productive land from food production, would also have to be considered.
Dunedin Passenger Transport director Kayne Baas said his company had an open mind on biodiesel, but that it was still unsure of its benefits relative to investing in buses with high environmental ratings.
It was also unsure about the sustainability of supply, and the sustainability of the practices that produce the fuel overseas.
Having a guaranteed supply of locally produced biodiesel would help "tick the boxes", Mr Baas said.
The Dunedin biofuel consortium has retained Allied Petroleum to build and supply its proposed depot.
The fuel will be produced from used cooking oil and canola by Solid Energy subsidiary Biodiesel New Zealand.
The consortium, which includes some of the city's heaviest diesel users, has yet to decide on a site for the depot.
