UKPIA, the trade association representing petroleum refining companies in the UK, and its sister organization 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.