16th May 2008
Risks to the EU Refining Industry from EU Emissions Trading Scheme (‘EU ETS’) Proposed Changes in 2013
UKPIA, the trade association representing petroleum refining companies in the UK, and its sister organisation in Europe, EUROPIA, have voiced grave concerns about the possible introduction of auctioning of allowances under EU ETS in 2013, that could place European refineries at a competitive disadvantage to refineries outside the EU.
In January 2008, the EU Commission published a draft directive, on which the UK Government is currently consulting, to improve the EU ETS for the period after Phase II ends in 2012. Proposed changes included provisions to tighten up the amount of available allowances for carbon dioxide (CO2) emissions and requiring some industry sectors to pay for all or part of their CO2 allowances. The refining industry is one sector that may be affected by this proposed change on the basis that it is not exposed to full international competition.
Ian McPherson, UKPIA’s Director of Environment, Health and Safety, commented
“The assumption that UK and other EU refineries are not exposed to international competition is wrong. Refineries are highly exposed to international competition with low barriers to import of oil products from non-EU countries that don’t have significant carbon constraints. For example, the EU imports substantial amounts of jet fuel from Middle East refineries and increasing amounts of diesel from Russia. EU refineries also have a significant export trade in gasoline to the United States”
He continued “It is essential for the future of EU refining and our energy security of supply that we get this right. The industry faces major challenges in meeting changing demand patterns and ever tighter fuel and emission standards. This requires continued substantial investment in refineries. For industries that are exposed to international competition, auctioning of allowances would be premature until non-EU competitors face similar costs. It would discourage investment in EU refineries and result in increased emissions of CO2 in areas such as the Middle East and Russia, increased EU imports of diesel and jet fuel, reduced EU exports of petrol, and reduced energy supply security.”
An independent report has been commissioned by EUROPIA from NERA Economic Consulting to examine the implications of the proposed changes to the EU ETS. They concluded that EU refineries were open to international competition, that it was unlikely that the full additional costs of EU ETS allowances would be recovered from consumers and that this would impact ultimately upon the investment attractiveness of EU refineries. The full report can be read at www.ukpia.com/Publications
NERA Economic Consulting report
Click here to read the NERA report 'The Competitive Context of the European Refining Industry'
Nick Vandervell +44 (0)20 7269 7604
Ian McPherson +44 (0)20 7269 7603
Notes to editors:
- UKPIA represents nine oil refining and marketing companies operating in the UK. Our members own and operate all the 9 major crude oil refineries in the UK, supply 90% of the inland oil consumption in the UK, and export about a third of their production to Europe and the USA. They also own approximately 2,152 of the UK's 9,271 service stations.
- THE EU ETS is a Europe wide scheme that aims to reduce CO2 emissions from industry by placing a price upon carbon emissions and creating a market for carbon, the rationale being to use market mechanisms to ensure that emission reductions take place in those sectors where the cost is lowest. The scheme works on a "Cap and Trade" basis. EU Member State governments are required to set an emission cap for all installations covered by the Scheme. Each installation is allocated free allowances for the particular commitment period in question. The number of allowances allocated to each installation for any given period is set down in the National Allocation Plan. In the UK, Phase I of the scheme commenced in 2005 until the end of 2007; Phase II covers the period 2008 to 2012.