Biomass could be the answer to a bulk of New Zealand's future energy needs, according to a report from a government research group.

Scion, a crown research institute, said purpose-grown energy forests, if planted today, could meet all of the country's future transport fuel and heat energy needs, without threatening the country's important agricultural industry.

The report states that even the most conservative estimates show New Zealand has at least 830,000 hectares of steep, erodable, low producing grass and shrub lands that could be cost effectively used for forestry.

Scion said the results come in the same month as another feasibility study it took part in that showed that bioethanol produced from wood and wood residues is a feasible option for transport biofuels, despite previous concerns that it was too expensive and too difficult to use.

"The Government seeks carbon neutrality in the electricity sector by 2025, in the stationary energy sector by 2030, and in the transport sector by 2040," said Tom Richardson, CEO of Scion.

"The Bioenergy Options for New Zealand report provides a viable plan of action and timeline for achieving these goals, particularly in the challenging areas of heat and transportation fuels which currently rely on coal, oil and gas."

Richardson said the purpose-grown energy forests of short-, medium- and long-rotation could be established using only 37 percent of the potentially available 8.7 million hectares of medium- and low-quality grazing land in New Zealand.

But establishing the required forest resource will take around 25 years, at an estimated cost of around $2 billion to $3 billion a year, according to the study.

Richardson said some of the establishment costs and early cash flows could be off-set by the country's proposed Emissions Trading Scheme.