Downstream Oil & EU Climate Policy. How do we balance environmental and competitiveness objectives for the longer term? John Cooper, Director General

Transcription

1 Downstream Oil & EU Climate Policy How do we balance environmental and competitiveness objectives for the longer term? John Cooper, Director General

2 Introduction to FuelsEurope Our Policy Position on Energy & Climate Change Competitiveness Fitness Check & EU Refining Competitiveness in a Global Context Addressing Climate Change Energy & Policy Costs The Future role of Petroleum in Transport Transport Decarbonisation as part of the global climate challenge Observations & Conclusions Page 2

3 FuelsEurope represents 41 Member Companies 100% of EU Refining Crude exploration Crude production Upstream Transport Refining Transport Marketing Downstream Page 3

4 The competitiveness of European refining: facing the challenges FuelsEurope Policy Position on Energy & Climate Change FuelsEurope Recognises Climate Change as a Global Challenge requiring Global Action We have supported the COP21 Paris agreement We support global pricing of carbon We also believe that the climate objective needs to be balanced with EU objectives to maintain industrial competitiveness, investment, jobs and growth Page 4

5 Introduction to FuelsEurope Our Policy Position Competitiveness Fitness Check & EU Refining Competitiveness in a Global Context Addressing Climate Change Energy & Policy Costs The Future role of Petroleum in Transport Transport Decarbonisation as part of the global climate challenge Observations & Conclusions Page 5

6 The competitiveness of European refining: facing the challenges Significance of a competitive domestic Refining in Europe 1. EU ECONOMY 2. ENVIRONMENT 3. SECURITY OF SUPPLY Every 100 units of CO₂ emissions reduced in the EU are replaced by 135 units outside the EU* Source: Vivid Economics for UK DECC Case study on Refining - Carbon leakage prospects under Phase III of the EU ETS and beyond Page 6

7 The competitiveness of European refining: facing the challenges The challenges faced by EU refineries 15 European Refineries closed in (1) source: Commission Refining Fitness Check, 2015 Page 7

8 Refining Fitness Check: main outcomes (1) Prepared by the EU Commission, recognizes and quantifies cost of legislation on EU refining sector. 0,47 /bbl Gross margin estimated by WoodMacKenzie for a NWE Brent treating refinery = 0 to 4 /bbl between 2008 and 2014 First time that COM admits that cost of legislation reduced by up to 25% the competitiveness of EU refining sector. Page 8

9 Refining Fitness Check: main outcomes (2) A section dedicated to the importance of EU refinery for economy & security of supply, among whose conclusions: 0.9% of EU GDP 1.3 million jobs Recognition that significant additional regulatory costs are coming post 2012 (ETS, REF BREF, ), albeit with no quantification Source of the chart: Concawe Page 9

10 The competitiveness of European refining: facing the challenges EU s import trend Gasoil/diesel import to EU 28 - [th tons/y] TOT import of which Russia USA India Middle East Jamnagar refinery, India Expansion - for Export - underway from 1.3 Mbpd to 1.8 Mbpd (=13% of EU refining capacity) Page 10

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12 Cost build-up for EU refineries vs non-eu export oriented refineries NOTE: *Indicative numbers for product freight to EU from an average refinery - $/bbl of product delivered to the EU **Energy costs for purchased energy only - Assumed identical crude cost Source: Solomon Associates, Concawe 2014 Page 12

13 Introduction to FuelsEurope Our Policy Position Competitiveness Fitness Check & EU Refining Competitiveness in a Global Context Addressing Climate Change Energy & Policy Costs The Future role of Petroleum in Transport Transport Decarbonisation as part of the global climate challenge Observations & Conclusions Page 13

14 GLOBAL AND EU ENERGY CHALLENGES & TRANSPORT ISSUES Current vehicle regulation can drive solutions that have extreme societal cost GHG emissions (gco 2 eq/km) SOCIETAL COSTS ARE: g CO₂/km saving 101 Manufacturing cross subsidy 4k Government purchase grant 5k Loss of fuel excise duties 5k Less fuel savings - 4k TOTAL 10k > 10k* subsidies CO₂ savings 44g x 200k Km = 8800 Kg 0 BEV (EU-mix) B7 Source: JEC 8800 Kg savings for 10k = 1136 / tonne CO₂ Decarbonisation by electrification is expensive * Manufacturer cross-subsidy, government purchase grant, loss of fuel excise taxes adjusted for fuel savings

15 Cost in $/Tonne Carbon mitigated or reduced GLOBAL AND EU ENERGY CHALLENGES & TRANSPORT ISSUES Indicative Carbon Costs in Transport & Power Sector $500+ Transport Power Carbon sequestration range Focus of transport energy GHG policies range $80 $20 Bar width indicates scope of decarbonisation available Focus of Power Generation GHG policies * Economy-wide carbon price A true market in GHG reduction would instead support the next lowest cost technologies Focus of Vehicle efficiency policies Efficiency Fuel switching in power Renewables in power Reforestation* CCS* 1 st Gen Advanced Biofuels * Carbon sequestration will increase the available carbon budget Transport Electrification Page 15

16 Policy Costs in Energy in the EU passed to Consumers EU Regulation & Policy increases Energy and Fuel costs Power Sector: Annual Renewables incentives costs 60B (at 100/tonne CO₂) Fuels Sector: Annual Biofuels Renewables incentives 7B¹ (at 200/tonne CO₂) Transport Sector: Annual Electrification incentives 1.5B ² (at 1000/tonne CO₂) Not Transparent Not Technology Neutral Supports some expensive solutions We call for transparency in costs of carbon imposed by policy We call for value for citizens & business from adopting the most costeffective measures Source: 1) FuelsEurope calculation, 25MM tones 300 per ton (pre-tax) increment over petroleum diesel 2) FuelsEurope calculation based on vehicle purchase grants, fuel tax exemption and manufacturer cross-subsidies Page 16

17 Introduction to FuelsEurope Our Policy Positions Competitiveness Fitness Check & EU Refining Competitiveness in a Global Context Addressing Climate Change Energy & Policy Costs The Future role of Petroleum in Transport Transport Decarbonisation as part of the global climate challenge Observations & Conclusions Page 17

18 GLOBAL AND EU ENERGY CHALLENGES & TRANSPORT ISSUES Observations Europe s climate & energy policies are deeply confused about carbon prices and costs, with Europe s average carbon cost far higher than current ETS cost There would be many benefits from greater transparency and consistency of carbon costs, and of price signals in policy Many large-scale carbon abatement opportunities are available often at lower cost in diverse sectors of the economy and in other regions of the world Current flagship policy ETS has a major flaw domestic producers compete in the EU with imported goods made outside of the ETS, i.e. without ETS or other forms of carbon costs. Carbon Leakage Protection will be less and less effective in future (beyond Phase III), with higher emission allowance prices and fewer free allowances. Europe s political leaders should reconsider how its ambition to have global leadership in climate action can be reflected in its positions on International Trade. Page 18

19 GLOBAL AND EU ENERGY CHALLENGES & TRANSPORT ISSUES Conclusions The EU Commission have a helpful dialogue with industry through the Refining Forum, and also the Refining Fitness Check. As requested by several Member States (including Spain) the Refining Fitness Check should be regularly updated and used to assess the cumulative impact of new legislation on the competitiveness of the EU refineries Strong competitiveness challenges remain for the sector Energy costs are expected to continue to be the biggest element of international competitive disadvantage ETS costs will rise as a result of Phase IV adding to the competitive disadvantage, and necessitating full carbon leakage protection. European energy strategy should recognise the longer term role of refineries, petroleum fuels and petchem products We should keep Europe s fuels and other strategic oil products refined in the EU Climate & energy strategies, including those for transport, should take consideration of cost of carbon abatement and aim to keep a level playing field Page 19

20 THANK YOU FOR YOUR ATTENTION This document was presented by FuelsEurope Contact: FuelsEurope 165, Boulevard du Souverain 1160 Brussels - Belgium T: