The Competitive Context of the European Petroleum Refining Industry in Light of the EU ETS
24 October 2007
By Daniel Radov et al.
The EU Emissions Trading Scheme (EU ETS) imposes a direct cost of carbon dioxide (CO2) emissions on industrial plants (installations) subject to the scheme, including installations in the petroleum refining sector. The European Commission is in the process of developing plans for the design of the EU ETS after the end of Phase II of the scheme i.e., from 2013 and beyond.
In this context, various industry representatives and Member State governments have raised concerns that the EU ETS could affect the competitive position of EU producers, because it imposes costs on them that are not faced by non-European producers. This asymmetry of cost could be exacerbated by proposals to reduce the level of free allocation of allowances to industries. Cost differences are a concern not only because they would have financial implications for affected industries, but also because a loss of market share to foreign competition could result in "emissions leakage," the displacement of emissions from the EU to other countries. Such leakage would compromise the environmental integrity of the EU ETS.
Existing studies of the EU ETS and competitiveness have not considered the refining sector in any detail. This review, undertaken by a NERA team on behalf of the European Petroleum Industry Association, provides background and an initial characterisation of the competitive position of the European petroleum refining industry in light of the EU ETS.
The report sets out important conceptual issues, identifies the economic factors relevant to an assessment of industrial competitiveness, compiles relevant, available information for the refining sector, and identifies areas that merit further investigation. The authors view this as an initial step in understanding the potential impacts of the EU ETS on the European refining industry. A comprehensive assessment of the likely impacts of the EU ETS on the competitiveness of the industry would require a much greater research effort.
