Carbon emission rules could hit EU oil refineries hard

New carbon emission rules could hit EU oil refineries hard, as the EU discusses plans to make European oil refiners pay for their emissions.

The news from Europe comes as Coryton oil refinery in Essex has been forced to shut with loss of up to 850 jobs. Many other EU-operated refineries could face going the same way if extra charges are implemented by the government, with rising competition from cheap foreign imports being exacerbated by the additional operational costs.

Refiners believe the proposals could lead to a 'carbon leakage', with customers switching to imports of gasoline, diesel and jet from refineries in regions with no carbon emissions restraints, driving EU refiners out of business. There is also concern that foreign-owned refineries in the EU will be able to skirt by the rules by importing semi-finished products from their refineries overseas that they can then finish off locally.

David Wech, an analyst at JBC Energy in Vienna told Reuters: "US, Indian, Chinese and Russian companies have all acquired European refineries over the last few years and it will be difficult to distinguish between products that are locally produced and product that has just been imported via this refinery.

"They could say they have produced it locally, based on feedstock imports that are more or less finished products. This will make it difficult to control a scheme which is already politically very difficult to implement."

But foreign owners are denying that they will use this sort of practice, with Essar, which owns Stanlow refinery in the UK, saying it did not import semi-finished product from its Indian refineries at present.

It would seem that any new changes to legislation would come as a double blow for European refines, as they struggle with poor margins, shrinking demand and increasing competition. Coryton may be one of many that are unable to compete with cheap imports, which will not be subjected to carbon legislation.

Posted by Claire Manning