Following the package issued by the Commission in January, the European Council in October 2014 adopted ambitious targets for the EU’s Climate and Energy Policy. Elements that are relevant for the refining industry include the following targets for 2030:
- A binding target to reduce GHG emissions by at least 40%, compared to 1990 levels.
- A binding target for at least 27% of energy used at EU level to come from renewable sources.
- An indicative target of a 27% increase in energy efficiency. This will be reviewed in 2020, with a view to increasing it to a binding 30%.
EU climate regulations not followed by other regions would not lead to a lower carbon world but result in job losses in Europe and of relocation of production activities in countries with less stringent GHG emission limits.
FuelsEurope welcomed the European Council’s decision in October 2014 to maintain free allocation of emissions allowances after 2020, as long as no comparable efforts are undertaken in other major economies. However, we believe that the EU climate framework should safeguard the competitiveness of industry and allow 100% free allocation for the best performing installations based on technically and economically achievable benchmarks. Also we believe that the EU refining sector is still fully exposed to the risk of carbon leakage as most of it main competitors do not face any carbon cost at the moment.
Without a competitive level playing field among world economies, and/or such protection measures otherwise Europe will lose competitiveness in vital industrial sectors. This could contribute to the shift in industrial production out of Europe to locations with weaker environmental regulation, undermining the climate objectives of the package while at the same time reducing European jobs. Relocation of production outside Europe would indeed have negative consequences on global GHG emissions as currently the average emission intensity of EU-refineries is lower than the average emission intensity of non-EU refineries.
In particular, the 40% by 2030 (vs 1990) target implies that energy intensive industries, such as refining, will have to cut GHG emissions by 43% by 2030 (vs. 2005). For the refining industry, even considering its world class energy and carbon efficiency, this is technologically and economically unachievable. To meet its obligation, the refining industry would therefore be left only with the choice to reduce capacity or to buy allowances.
On the issue of the multiple targets for 2030, FuelsEurope believes that it would have been more effective if the Council had simply set a technology neutral GHG emissions goal rather than setting a target for renewables.
Indeed, learnings from the past show that in the implementation of the 2020 package the overlapping targets on energy mix (renewables) and energy efficiency distort the carbon price signal within the EU Emissions Trading System (ETS). This prevents the optimal adoption of technology that will abate carbon dioxide emissions, leading to a relative rise in energy costs in the EU compared to its competitors – just when the EU needs affordable energy to fuel an industrial revival.
FuelsEurope thus calls for a governance system that can achieve both the renewables and energy efficiency targets while avoiding such detrimental effects. An emissions goal and the ETS should set in motion both a greater use of renewables and work to improve energy efficiency in a cost-effective way.
On transport, FuelsEurope welcomes the support by Council for a technology-neutral approach to emission reduction and energy efficiency. The refining industry, which currently supplies around 94% of the fuel used for transport, recognises the importance of the transport policy debate and FuelsEurope wishes to contribute to it actively. This starts with the publication of the Commission’s Communication for a European Strategy for Low-Carbon Emission Mobility on the 20th of July, as a part of a three-part package of proposals on cutting greenhouse emissions from sectors not covered by the Emission Trading System. The European Commission presented at the same time elements of this strategy that includes a proposal on binding greenhouse gas emission reductions for Member States for the period 2021 – 2030 for the building, agriculture, waste, land-use, and forestry sectors (more information can be found here). FuelsEurope encourages the comprehensive approach and the recognition of the continued role of internal combustion engines and liquid fuels but care should be taken to ensure that development and implementation is cost-effective and technology neutral.
FuelsEurope also welcomes the Council’s declarations of the need to increase the robustness and resilience of the EU energy system. An economically sustainable refining industry based in Europe plays an important strategic role in securing energy supplies for EU consumers.
The 2030 policy framework is expected to translate into regulations through specific pieces of legislation by in 2017.