Cost of environmental rules for oil refining ‘matched by their benefits’

EU environmental laws on petroleum refining have delivered on their objectives and their costs are in proportion to the societal benefits achieved, a European Commission study has found. The legislation, which includes rules on the sulphur content of fuels and pollution limits from refinery operations, contained “no regulatory gaps, overlaps, inconsistencies or obsolete measures leading to excessive administrative burdens”.

The ‘refining fitness check’, based on analysis by the EU’s Joint Research Centre, is the first study to calculate the impact of EU environmental, climate, taxation and energy regulation on this particular sector, looking at the period 2000-2012. It found that the EU laws were 'broadly on track to reach its objectives'.

The EU laws examined were: the Renewables Energy Directive; Energy Taxation Directive; Emissions Trading System; Fuels Quality Directive; Directive on Clean and Energy Efficient Vehicles; Industrial Emissions Directive; Strategic Oil Stocks Directive; Marine Fuels Directive; Energy Efficiency Directive; and Ambient Air Quality Directive.

According to the Commission study, at least 75% of the European oil refining sector’s loss of competitiveness between 2000 and 2012 was due to various factors including size, location, input costs and energy costs while, at most, 25% was accounted for by the cost of EU regulation. Higher energy prices have hit EU refineries’ profitability, compared to, for example, the US where energy is cheaper.

The study’s calculations assumed that companies would not pass the costs of regulation to consumers, while T&E argues that in reality this may not be the case. Overall, the study concludes that costs are proportionate compared to the benefits achieved and it did not find excessive regulatory burden.

Laura Buffet, oil and biofuels officer at T&E, said: ‘It is important that the study recognises the merit of the different pieces of EU regulation on climate, environment and energy. But the Refining Fitness Check did not assess extensively all the benefits to society of the different pieces of EU regulation.

‘If we could monetise all benefits of EU climate and environmental legislation, it is clear that these would even exceed the costs of the EU regulation. For example, looking only at sulphur standards for fuel quality, the benefits are estimated to be around €16.2 billion in total between 2001 and 2011 in terms of preventing damage to human health and our environment.’

There are around 100 refineries operating in the EU, with 15.5% of the world’s refining capacity. They accounted for 12% of sulphur (SOx) emissions from installations in the European Pollutant Release and Transfer Register in 2012, making the sector a major polluter. According to a study by the European Environmental Agency, 11 refineries are among the 100 most polluting industrial installations in the EU27. The aggregated costs attributed to their emissions in the period 2008-2012 is estimated to be between €10.5 billion and €27 billion.

The Commission’s ‘fitness check’ of the refinery industry started in 2013 as part of the EU’s Regulatory Fitness and Performance (REFIT) programme to reduce regulatory costs of existing laws and assess if their regulatory burden are is proportionate to the outcomes delivered. Currently many EU laws being reviewed under REFIT.