Refining Products for our everyday life

Refining products for our everyday life

Annual Review 2015-2016

Editor: John Cooper Copyright © FuelsEurope Printed in Belgium – Designed by www.morris-chapman.com

Annual Review 2015-2016

TABLE OF CONTENT 1 - I NTRODUCTION 1.1 PRESIDENT’S INTRODUCTION 1.2 DIRECTOR GENERAL’S FOREWORD

2 - OUTLOOK FOR A DOMESTIC REFINING INDUSTRY IN EUROPE 2.1 FITNESS CHECK 2.2 REFINING FORUM

3 - P ETROLEUM PRODUCTS AND EU LEGISLATION

06 06 08

10 12 14

16

3.1 FUTURE OF TRANSPORT POST-2020 3.1.1 Industry Position on the Future of Transport 3.1.2 Biofuels & ILUC 3.1.3 Marine Fuels

18 18 22 23

3.2 CLIMATE AND ENERGY 3.2.1 Climate Change and COP21 3.2.2 EU ETS 3.2.3 Carbon Leakage

24 24 26 28

3.3 ENERGY EFFICIENCY

31

3.4 REACH

33

4 - REFINING OPERATIONS

36

4.1 NATIONAL EMISSIONS CEILING DIRECTIVE 4.2 MEDIUM COMBUSTION PLANTS DIRECTIVE

38 39

5 - O THER LEGISLATIVE DEVELOPMENTS

40

5.1 COMPULSORY STOCKS OBLIGATION (CSO) 5.2 DEGASSING BARGES 5.3 FUEL LOADING OPERATIONS AND HEALTH IMPACTS – ADN REGULATIONS 5.4 IMPORTS OF ATMOSPHERIC RESIDUES 5.5 ELECTRONIC PAYMENT

46

6 - ABOUT US 6.1 WHAT IS FUELSEUROPE 6.2 ASSOCIATION MEMBERS 6.3 ORGANISATION 6.3.1 Governance and Management Structure of FuelsEurope 6.3.2 Board of Directors 6.3.3 FuelsEurope Secretariat 6.3.4 Partner Organisations

7 - R EFERENCES

42 43 44 44 45

48 49 50 50 51 52 54

55

FuelsEurope Annual Review 2015-2016

I 05

1 - INTRODUCTION

1.1 PRESIDENT’S INTRODUCTION

“WHILST WE SUPPORT FULLY THE OBJECTIVES OF THE PARIS AGREEMENT, WE ARE ALSO CLEAR THAT THERE WILL BE A SIGNIFICANT ROLE FOR PETROLEUM PRODUCTS AND FUELS FOR MANY DECADES INTO THE FUTURE, AND THAT THERE IS A VERY CLEAR CASE FOR THESE TO BE MADE IN EUROPE.”

All of us in the world of energy would agree on the major events in 2015 that were important for our industry. In November we had the COP21 climate conference in Paris, and also through the second half of the year we saw a steep decline in global crude oil prices. As a result, climate and energy costs were in the news almost every day. We also saw an intense focus on air quality in cities, and the contribution from motor vehicles, including those not compliant with vehicle emission regulation.

With regard to climate change, in Paris we saw an unprecedented agreement across 195 nations to act. Europe has expressed the clear intention to be leaders in the future efforts, in political terms and also in actual GHG reductions. Europe’s policy pathway is already consistent with meeting the target to stabilise the temperature increase by 2°C or less, but there are already many voices calling for an increase in Europe’s ambition level.

FuelsEurope has made very clear communications in recognition of climate change as a global challenge requiring global action.

We issued statements to the press in support of the Paris conference, and also in support of the landmark agreement that was reached. The challenge of reducing GHG emissions is now

06 I F u e l s E u r o p e A n n u a l R e v i e w 2 0 1 5 - 2 0 1 6

Michel Bénézit President

the single biggest energy and climate policy theme in Europe, dominating the discussions over the regulation of industry through the ETS, and also the reduction of emissions from transport. The Refining industry finds itself between two very different carbon markets within Europe, with low prices and costs of CO2 abatement in the ETS, and very high prices and costs for abatement in transport. We believe this policy contradiction is unsustainable in the long term, and we intend to be constructive and progressive in proposals for the future policy framework.

Whilst we support fully the objectives of the Paris agreement, we are also clear that there will be a significant role for petroleum products and fuels for many decades into the future, and that there is a very clear case for these to be made in Europe. Europe’s refiners as a group are among the most energy efficient and lowest in terms of GHG emissions globally. If EU regulation creates a significant cost burden versus importers of fuel, EU Refiners will lose market share, but so will the footprint of EU regulation – and that would be a failure of EU climate policy as well as industrial policy. We continue to advocate for the need for Europe’s refiners to be treated fairly in all regulation so that our competitiveness does not get damaged further.

With the air quality concerns and the revelations about the diesel emissions scandal, we have seen many politicians and leaders making hasty statements about limiting the use of Internal Combustion Engine (ICE) vehicles, particularly diesel vehicles from cities. Of course, FuelsEurope wishes refined products to be used in a very responsible way; efficiently, to reduce GHG emissions and costs, and cleanly, in terms of air quality emissions. Europe already has a great deal in place with the introduction of Euro 6 vehicle standards, and we believe that the positive impact that this will have has not yet been fully understood.

With these low prices in the news we have been reminded once again the very high value that petroleum products and fuels offer to society. We now also understand much better the downsides, namely GHG emissions, and in older vehicles, air quality issues. However, we also know understand much better how to manage, mitigate or prevent these negative aspects, meaning we understand well how to achieve responsible use of petroleum in our society. Our dialogue with the EU institutions and stakeholders will continue to promote that as part of a fair and cost-effective approach to regulation.

With the fall in crude prices throughout 2015, our customers have seen falling prices at the pumps and of course this has been welcomed, being good for European businesses in terms of lower transport and supply chain costs and the cost of living for citizens. For our road transport customers however, the reduction in the price at the pump has been lower because of the high fixed levels of taxes, so once again we have reminded our customers how these taxes impact prices and how these translate into the changes in prices at the pumps.

FuelsEurope Annual Review 2015-2016

I 07

1.2 DIRECTOR GENERAL’S FOREWORD

“WHEN ARGUING FOR THE NEED TO SUPPORT AND MAINTAIN A COMPETITIVE EUROPEAN REFINING INDUSTRY IT IS IMPORTANT TO ESTABLISH A CLEAR VIEW AMONGST WIDER STAKEHOLDERS OF THE LONGER TERM NEED FOR SUPPLY OF PETROLEUM PRODUCTS IN THE EU, AND INDEED GLOBALLY.”

Writing this in early 2016 I look back on what has now been almost a year as Director General of FuelsEurope, and it has certainly been an intensive year. I have been struck by the outstanding teamwork across the Secretariat and Member Company staff, working to understand policies and proposals, the impacts on our industry, and to develop our own proposals and ways to share and explain them.

John Cooper Director General

recognition of the benefits of having the EU’s fuels made in Europe: many thousands of high skilled jobs, and lower global GHG emissions to name just two. The Commission’s Refining Fitness Check was finally published in December 2015, and we have welcomed the official recognition that it gives of the many regulations that affect our industry, and that these do have a significant cumulative cost impacting the competitiveness of EU industry versus imported products.

In this review you will see our main policy priorities, but there are two main themes for our work: ensuring competitiveness of our industry and fair treatment in regulation, and also seeking rational outcomes in terms of longer term demand for our products. This last point is a new development in our work in 2015 and links to many policy areas. Firstly, policies seeking to drive GHG reductions in transport will have a substantial impact on the quantity of fuels and energy used, and also the product mix, so it is vital that we are engaged in fuels, vehicle and also energy infrastructure policies and regulation. Secondly, when arguing for the need to support and maintain a competitive European refining industry it is important to establish a clear view amongst wider stakeholders of the longer term need for supply of petroleum products in the EU, and indeed globally.

There were three key events over the past 12 months, the June 2015 and the March 2016 Refining Forum and the publication of the Fitness Check. We believe that we have achieved recognition of the competitiveness challenge that refining in the EU faces, from high energy costs and also the added cost of EU regulation. We also welcome key MEPs and Commission officials

08 I F u e l s E u r o p e A n n u a l R e v i e w 2 0 1 5 - 2 0 1 6

The Climate agenda has been a major theme during 2015, and the opportunity for our industry to formalise its position on Climate Change, and our statements in support of the Paris conference and the conference agreement. I believe this position has already become a key reference point for us, and helped confirming our core principle of supporting a global, economy wide price on carbon as the primary policy measure to drive GHG emission reduction.

Air Quality has moved up the agenda for transport and cities during the year, due to realisation in many urban communities that air quality targets are not being met, and also the diesel emissions scandal. This has added to the calls for electrification of light transport in cities, and put the emissions performance of diesel vehicles in particular into the spotlight with some city mayors calling for a ban. We believe such ban is misplaced, and that petrol and diesel cars that fully meet the latest Euro 6 emission standards are fully consistent with meeting EU ambient air quality in urban areas.

ETS reform is also on the agenda with the proposals for Phase IV (2021-2030) to be discussed in 2016. This comes against the backdrop of the Paris climate summit and the ETS market reaction, where many had expected or hoped to see a rise in the ETS price after the summit, due to higher expectations of climate action. The price actually fell to below â‚Ź5 per tonne of CO2, leading to calls for this flagship policy to be scrapped, and replaced by mandates. Such radical proposal should not gain ground, however it may be opportune to stress to the policy community our fundamental support for a carbon pricing approach versus mandated performance, based on the economic arguments.

Meanwhile, the concerns of energy intensive industries are increasing with regard to carbon leakage protection, and the conclusions of the refining Fitness Check show that the competitive impact of regulations is significant with up to 25% of loss of competitiveness. Moreover, our own work also brings in energy costs to the competitive picture.

The decarbonisation of transport is a major policy development item on the EU calendar for 2016. This will also be an essential policy debate for the refining industry. With 65% of the barrel refined into 93% of the fuels for transport, our industry will aim at playing a a major role in the debate on the basis of costeffectiveness and technology neutrality. The issues to address are many: Vehicle efficiency standards are to be reviewed, heavy duty vehicles are also under pressure to be included in future regulation, mandates for crop based biofuels are at a crossroads,

advanced biofuels have been very slow to appear, and look to be very limited in supply, with relatively high costs, for the foreseeable future. Finally, electrification of light transport still relies on heavy subsidies and incentives, but remains firmly the long term vision of EU policymakers, with a clear connection also having been made to air quality benefits of electrification.

We believe that there is benefit in explaining the differences between fossil fuels, the roles that each have, the costs and possible scale of replacement of petroleum fuels and the resultant GHG emissions reductions. Transparency in cost and benefit of regulation will help us make better, more costeffective regulation, giving the best value for Europe’s citizens and the environment. The current patchwork of regulation across transport energy, fuels, vehicles and infrastructure make it very difficult to see such costs and benefits but we will continue our work to analyse current and proposed regulation in these terms.

For the many challenges on our agenda, I believe 2015 was a very effective year for FuelsEurope and the contribution of our industry to the legislative process, giving us a good basis for the work we need to do in 2016. The challenges ahead are substantial, but I believe the excellent teamwork across FuelsEurope, our Member Companies, and the national oil Industry associations can deliver strongly to represent our industry in 2016 in pursuit of fair and beneficial outcomes for our industry, and the citizens and businesses of Europe.

FuelsEurope Annual Review 2015-2016

I 09

2 - OUTLOOK FOR A DOMESTIC REFINING INDUSTRY IN EUROPE

10 I F u e l s E u r o p e A n n u a l R e v i e w 2 0 1 5 - 2 0 1 6

FuelsEurope Annual Review 2015-2016

I 11

2.1 FITNESS CHECK

Refiners suffered a net loss of 0.47€ per barrel due to EU regulation from 2000 to 2012, accounting for a quarter of the sector’s decline in competitiveness. That was the result of the Refining Fitness Check published in December 2015 after almost three years of analysis. It provided clear evidence of the severe challenges facing the European refining sector, which have put the industry at a competitive disadvantage.

The Fitness Check thus highlighted the urgent need for policy proposals to create an environment in which EU refining will not just be fit to survive – but also fit to invest in. Only then will the industry be able to cope successfully with changing markets and global competition.

BACKGROUND Fitness Checks form part of EU’s recent efforts to assess the effectiveness of regulations and their impact on European industry – in particular on competitiveness, jobs and growth.

The checks aim to “identify excessive burdens, overlaps, gaps, inconsistencies and/or obsolete measures which may have appeared over time”.

Refining was chosen for the first sectoral Fitness Check after the May 2012 Refining Round Table stressed the need to address the closure of a growing number of refineries in the EU. Since 2008, 17 refineries have been closed out of 100 that were in operation, causing job losses and putting security of supply at risk.

Refinery closures in Europe 600 500

Unit: Capacity (kb/d)

400 300 200 100 0 2008

2009

GERMANY

2010 UK

FRANCE

2011

2012 ITALY

2013

2014

CZECH REPUBLIC Source: Concawe / IEA

12 I F u e l s E u r o p e A n n u a l R e v i e w 2 0 1 5 - 2 0 1 6

The Commission’s mandate for the Refining Fitness Check acknowledged that refining is “critical for the EU’s industrial value chain, but urgently requires new investment to be made in the face of strong international competition”. FuelsEurope welcomes the comprehensive work done by the Commission, as well as the recognition of the important role of the EU refining industry and of the difficulties it faces.

The study was undertaken by the Joint Research Centre (JRC) under the lead of DG GROWTH. It lasted nearly three years, from the design of the study to its publication, and included several rounds of reviews from Commission services (DG ENERGY, DG ENVIRONMENT, DG CLIMATE ACTION, SECRETARIAT-GENERAL), FuelsEurope and Concawe. The first part consisted of a quantitative assessment, which used a comprehensive analytical and data–based framework to map the evolution of refining from 2000 to 2012. The second part was qualitative, and assessed post-2012 secondary legislation, either in the implementation phase or very recently adopted.

RESULTS The Fitness Check firstly recognised the social and economic value of the refining sector to the economy and industrial fabric.

It showed that oil refining contribute for 0,9% to the EU GDP and supports 1.3 million jobs in the EU.

The Fitness Check, secondly, established that the cost of EU regulations to the sector was quantifiable at 0.47 € per barrel.

This compares to average refining gross margins that have ranged between 0 and 4 € per barrel over the past five years.

Average estimated quantifiable impact of the legislation on EU refineries during 2000-2012 barrel of throughput 0.50 0.47 EUR/bbl 0.45 Industrial Emissions

Unit: EUR/bbl of throughput

0.40

Renewable Energy (biofuel CapEx)

0.35

Renewable Energy (modelled net foregone earnings)

0.30 0.25

Fuel Quality

0.20 0.15 0.10 0.05 0 Impact during 2000 - 2012

Source: European Commission, Sectoral fitness check for the petroleum refining sector

FuelsEurope Annual Review 2015-2016

I 13

The qualitative section on the impact of post-2012 legislation indicated that refining will face even higher costs in future, due to phase III of the Emissions Trading System and to comply with the Industrial Emissions Directive. The findings represent a serious threat to the future of the EU refining sector, as longterm investment decisions are based on future opportunities.

FuelsEurope believes that this Fitness Check should not be left as a one-off exercise to be archived in the near future.

Rather, it should form part of the Better Regulation toolbox and be used in any future impact assessments of legislative proposals affecting the refining sector. To help the Fitness Check serve this purpose, it should be regularly updated so that its findings stay relevant. In addition, FuelsEurope calls for clear policy recommendations to address the findings of the Fitness Check. We hope that the next Refining Forum will allow such a discussion with Member States and EU institutions.

2.2 REFINING FORUM

The 6th Refining Forum recognised the economic and social value of the European refining sector and called for a continued review of the Fitness Check and its use in assessing the cumulative impact of existing and upcoming legislation. It also called for a regulatory environment that takes account of the European industry’s high level of innovation, as well as a global level playing field to support climate policy.

The EU Refining Forum dates back to 2012, when stakeholders – Member States, MEPs, the EU refining industry and trade unions – gathered to discuss the difficulties faced by the sector, and called for coordinated action. The Forum provides an opportunity to talk about regulatory proposals that could have significant impacts on the industry and on the security of supply of petroleum products in the EU. The 6th Refining Forum organised by DG ENERGY, in March 2016, attracted a record 140 participants, including Climate Action and Energy Commissioner Arias Cañete; MEP Elisabetta Gardini; strong Member States representation and Yiannis Boutaris, the Mayor of Thessaloniki, where refining is an important part of the local economy.

14 I F u e l s E u r o p e A n n u a l R e v i e w 2 0 1 5 - 2 0 1 6

THE VALUE OF EU REFINING AND FITNESS CHECK During the meeting speakers and participants recognized the value or EU refining. They stated that the European refining industry also has great economic value, providing skilled jobs throughout the EU. However, EU refiners work under tougher regulations than their overseas competitors. In order to invest and plan for the future, they need a regulatory environment that is stable and not overly burdensome.

Delegates also valued the Fitness Check as an important instrument for assessing the viability of the Refining Industry and the impact of EU regulation. The Check should be a dynamic exercise, continuously updated to take upcoming legislation into account and used in future impact assessments of any regulatory proposal relevant to the refining industry.

In particular, it should examine Phase IV of the ETS, which is likely to add further to the regulatory burden on the sector.

“ REFINING SECTOR REMAINS CRUCIAL FOR EU SECURITY OF SUPPLY.”

CLIMATE POLICY The EU Refining industry supports the outcome of the COP21 meeting in Paris and believes that market-based solutions are the most effective way to achieve environmental targets in an economically sustainable way. But the industry wants action to ensure a global level playing field, as the best way to ensure the implementation of climate and environmental legislation is to have refining based in the EU. Given that the cost of carbon will likely rise under Phase IV of the EU Emissions Trading System (ETS), EU refineries need protection from carbon leakage.

Until the rest of the world adopts binding carbon commitments comparable to the EU’s, it is in the interest of the planet to keep industrial activity in Europe rather than regions that are less environmentally rigorous.

Source: Commissioner Miguel Arias Cañete Refining Forum, 1 March 2016

FuelsEurope Annual Review 2015-2016

I 15

3 - PETROLEUM PRODUCTS AND EU LEGISLATION

16 I F u e l s E u r o p e A n n u a l R e v i e w 2 0 1 5 - 2 0 1 6

FuelsEurope Annual Review 2015-2016

I 17

3.1 F UTURE OF TRANSPORT POST-2020 3.1.1 Industry Position on the Future of Transport

Affordable mobility is an essential contributor to economic growth and quality of life in the European Union. Despite the development of alternatives, refined petroleum products will for many years be the main source of transport energy. Though they contribute to greenhouse gas emissions – as do other types of transport fuel and energy over their lifecycle – these are declining thanks to vehicle efficiency and high-performance fuels and lubricants. To promote transport GHG reductions at a low cost, FuelsEurope therefore calls for a holistic EU transport policy. This should include factors such as traffic demand management and infrastructure, as well as the education, training and behaviour of drivers.

Compared with the proposed alternatives, refined fuels are energy-dense and easy to transport and store. They also benefit from an established infrastructure, and they are relatively cheap before taxes and carbon-related costs. These qualities explain the prosperity and convenience they have brought to Europeans over the decades, and their importance in daily life. Moreover, the taxation of petroleum products, in particular transport fuels, provides significant revenue flows to state budgets; alternative transport fuels are not currently subject to similar levels of taxation.

Fuel taxes make a significant contribution to member state national income LESS THAN 5% 5% - 10% HIGHER THAN 10% EUROPE NON EU

4% 4% 10% 8%

3% 6%

10%

4%

6% 4%

7%

8% 4% 9% 8% 4%

3%

12%

8% 11%

10%

5%

7%

13%

6%

8%

5%

9%

COUNTRY

SHARE

BG Bulgaria

13%

BE

Slovenia

12%

RO Romania

11%

EE

10%

Estonia

HR Croatia

10%

LT

Lithuania

10%

CZ

Czech Republic

9%

CY

Cyprus

8%

LV

Latvia

8%

PL

Poland

8%

SK

Slovakia

8%

HU Hungary

8%

EL

Greece

8%

PT

Portugal

7%

LU

Luxembourg

7%

IE

Ireland

6%

ES

Spain

6%

UK

United Kingdom

6%

MT Malta

5%

IT

Italy

5%

NL

Netherlands

4%

AT

Austria

4%

DE

Germany

4%

SE

Sweden

4%

BE

Belgium

4%

FI

Finland

4%

FR

France

3%

DK

Denmark

3%

Source: Eurostat and Wood Mackenzie

18 I F u e l s E u r o p e A n n u a l R e v i e w 2 0 1 5 - 2 0 1 6

In order to promote the GHG reduction of the transport sector at a comparatively low cost, the EU should adopt policies that are technology neutral. First, it is important to use a lifecycle analysis of GHG emissions entering the atmosphere in order to ensure a fair comparison between transport energy sources and vehicles. A strong record of innovation means that EU refineries lead the world in efficient use of energy, so production of petroleum fuels in the EU has a lower carbon footprint than most other parts of the world. Further reductions in GHG emissions will come from technological progress, vehicle fleet renewal and alternative fuels. Policy for fuels and vehicles should also take an integrated, long-term approach involving all actors in the transport sector: consumers, vehicle manufacturers, fuel providers and builders of infrastructure.

The EU should also change its wider approach to decarbonisation.

At present this is done sector by sector, and the implicit cost for decarbonisation in transport can be much higher than in other sectors because alternatives are still technologically immature.

Instead, the EU should take an economy-wide approach which could be a more cost-effective way to decarbonise, and deliver the best results.

In the short term, a regulatory transition could be considered, during which vehicles would still be subject to efficiency targets, but these would be set at realistic levels and could be achieved through different technologies. Vehicle manufactures could also be allowed to follow an alternative compliance mechanism referenced to the price of carbon. Revenues from this mechanism could support R&D and scale-up phases for new technologies to help reduce GHGs in a cost-effective manner.

GHG emissions by sector in the EU in 2013 WASTE 3% AGRICULTURE 10% 30% ENERGY INDUSTRIES INDUSTRIAL PROCESSES* 8%

FUGITIVE EMISSIONS 2% FROM FUELS

OTHER SECTORS 16%

11% MANUFACTURING INDUSTRIES & CONSTRUCTION TRANSPORT 20% * NOTE: This sector includes by-product or fugitive emissions of greenhouse gases from industrial processes. Emissions from fuel combustion in industry are reported under Energy.

Source: European Environment Agency

FuelsEurope Annual Review 2015-2016

I 19

The European Commission said it is not planning to establish EU-wide targets for renewable energy or the GHG intensity of fuels used in the transport sector after 2020. But some Member States enforce blending mandates for biofuels directly or through mandated reduction in GHG intensity of fuels. These often form part of national programmes to support agriculture, energy security or a contribution to carbon dioxide reduction.

Where these exist, they should conform to several conditions.

First, they should only support biofuels that have established,

science-based sustainability credentials on a well-to-wheel basis, and they should be limited in time and cost. Second, targets should be designed in a way that is consistent with the single market. Current fuel grades should be maintained in order to ensure vehicle compatibility. And fuel-specific GHG intensity reduction targets in the Fuel Quality Directive should not be extended after 2020. Eventually, every combination of technology, fuel and energy should compete on its own merits in a market driven by a uniform carbon price.

Biofuels blending targets by country Unit: Percentage 25

Ethanol

22

Mandate

20 17 15

10 6

7

5 1 0 MS WITH AT LEAST 1 TARGET

MS WITH ALL 3 TARGETS

MS WITH OVERALL BIOFUEL TARGET

MS WITH MS WITH BIODIESEL BIOPETROL TARGET TARGET

Note: E = Energy V = Volume MS = Member State

Austria Belgium Bulgaria Croatia Cyprus Czech Republic Denmark Estonia Finland France Germany Greece Hungary Ireland Italy Latvia Lithuania Luxembourg Malta Netherlands Poland Portugal Romania Slovakia Slovenia Spain Sweden United Kingdom

7 4.1 7 5 2.5 4.5 4.6 -

Biodiesel

E/V

V

V

E

V

E V V

Mandate 6 6 7.7 7 6.5 6.9 -

E/V

V

V

E

V

V V

Overall Mandate 5.6 2.4 5.75 10 7 4.9 6 5.5 5.15 6.5 7 7.1 7.5 5.5 7.5 4.3 4.75

E/V

E E E E

V E E E

E E E E

E E E V

Source: National Legislation (NREAP), EEA, ePure, FuelsEurope

20 I F u e l s E u r o p e A n n u a l R e v i e w 2 0 1 5 - 2 0 1 6

FuelsEurope Annual Review 2015-2016

I 21

3.1.2 Biofuels & ILUC

The ILUC Directive (Indirect Land Use Change – Directive 2015/1513) attempts to limit the amount of land diverted from crop to biofuel production. Published in September 2015, it caps first-generation biofuels from crops grown on agricultural land at 7% of the energy consumption from transport by 2020.

Biofuels are one way the EU is trying to reduce GHG emissions.

They are the only practical means to meet targets set by the Renewable Energy Directive – 10% of transport energy from renewables by 2020; and the Fuel Quality Directive – a 6% reduction in the GHG intensity of transport fuels in 2020 from 2010 levels.

However, first-generation biofuel production typically takes place on cropland previously used for growing food or feed.

This agricultural production may then be partly displaced

to unused grasslands and forests, constituting indirect land use change. ILUC risks negating the GHG reduction that results from biofuel use, because grasslands and forests absorb carbon dioxide.

Uncertainty over how to deal with ILUC has contributed to a slower-than-anticipated uptake of renewable energy in road transport, as shown below. Other factors have been doubts over the cost-effectiveness of biofuels and the slower-than-expected growth of advanced biofuels.

12.0%data – RES-T - % of renewables in total energy used by the transport in the EU28) (EEA

10.0%

8.0% 5.1%

5.4% 5.6%

6.0% 4.8% 4.3% 3.5%

4.0%

3.4%

2.8% 2.1% 2.0% 1.4%

0.0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 RES-T %

TRANSPORT TARGET %

Source: FuelsEurope/ EEA – report 04/2015 – ‘Trends and projections in Europe 2015’ – page 43

22 I F u e l s E u r o p e A n n u a l R e v i e w 2 0 1 5 - 2 0 1 6

3.1.3 Marine Fuels

A feasibility study for the International Maritime Organization (IMO) on lowering the global sulphur specification for marine fuels to 0.5% by weight has entered the evaluation phase.

The study examines fuel availability and is intended to guide IMO in its decision to implement the global sulphur requirement in 2020 or 2025. Conducted by CE Delft, the study is expected to be presented to the IMO during the fourth quarter of 2016.

FuelsEurope is a partner of a parallel fuel availability study (EnSys Energy - Navigistics Consulting) examining the refining sector’s capacity to respond to changes in the sulphur content level of

marine fuels. The parallel study will also provide additional data input to the IMO decision process.

Through its directive on the sulphur content of marine fuels, the European Commission has already decided to adopt the 0.5% wt sulphur limit level outside the existing Sulphur Emission Control Areas (SECAs) in 2020. This directive was adopted independently of the IMO’s eventual decision on the global limit for sulphur content. The volume of marine fuels that would be impacted by the upcoming IMO decision will however be much bigger than the one resulting from the application of the EU directive.

Marine fuel sulphur specifications, sulphur emission control areas (SECAs)

■ ESTABLISHED ECAs ■ POSSIBLE ECAs

Limits for the sulphur content of marine fuels in SECAs: 1% until 31 December 2014 and 0.10% as of 1 January 2015.

Limits for the sulphur content of marine fuels outside SECAsin the EU waters by 2020: 0.50% for EU waters by 2020.

Since January 2015, all vessels in the Emission Controlled Area (ECA) of the Baltic Sea, North Sea, English Channel and waters 200 nautical miles from the coast of US and Canada, have had to reduce their sulphur emissions to 0.1%. Vessels are required to use either a distillate, an alternate fuel or install a scrubber that removes sulphur from the exhaust after combustion.

Source: European Commission

FuelsEurope Annual Review 2015-2016

I 23

3.2 C LIMATE AND ENERGY 3.2.1 Climate Change and COP21

EU leadership helped to overcome substantial diversity in interests and views among countries participating in the UN’s COP21 meeting in Paris in 2015. As a result, the conference participants agreed an ambitious target to limit global temperature rises and a binding commitment to submit national plans for ever-greater reductions in greenhouse gas emissions.

From now, the EU refining industry needs a framework in which it can show how to satisfy the growing global demand for energy while at the same time limiting GHG emissions. This is one of the most critical challenges of our time, and European refiners are uniquely qualified to contribute. However, they can only do so on a competitive level playing field.

Declining EU share in global CO2 emissions

27%

5% 4% 10.5% 5.5%

16% 11%

RUSSIA

EUROPEAN UNION

Unit: CO2 emissions (% of world total)

25%

USA 3.5% 5% AFRICA

5% 6.5% MIDDLE EAST

14%

CHINA

6% INDIA

3.5% 4% LATIN AMERICA

2013

23.5%25%

REST OF THE WORLD

2040

Source: IEA, WEO 2015

FuelsEurope recognises that climate change is real and warrants action. It therefore supports international efforts to address the risks of climate change. At the same time, it is essential to fight poverty in many parts of the world and allow a middle class to emerge in developing countries. Mobility is intrinsically

refined petroleum products. These are forecast to remain the biggest source of transport energy for years to come, thanks to their unparalleled high energy density and the continuous technological advances in both fuels and internal combustion engines. In addition, refined products make up two-thirds of

linked to economic growth and is thus a key to higher living standards. While alternative sources are increasingly being used for transport, even in the EU 90% of the energy comes from

the raw materials used by the EU petrochemical industry, which converts them into lightweight plastics, insulation equipment and other substances essential for reducing energy consumption.

24 I F u e l s E u r o p e A n n u a l R e v i e w 2 0 1 5 - 2 0 1 6

However, it makes a big difference where refined petroleum products are made. Faced with high energy costs, EU refineries have innovated strongly in their production activities, achieving world leadership in clean, efficient energy use and low carbon intensity. The EU refining industry continuously seeks to improve these aspects of its products, using the valuable technological know-how it has accumulated over the years and working in close cooperation with the automotive and petrochemical industries.

Consequently, the best way to minimise global GHG emissions, given the continuing need for oil products in Europe, is to manufacture them in the EU. By contrast, an increasing dependency of EU consumers on less energy-efficient non-EU refineries implies a weakening of the efforts to reduce global warming. Hence, it is essential that EU energy and environment policies be considered in a global context. If regulations continue to force up the relative cost of refining oil in the EU, European refiners could lose further market share. The result would be more imports of refined products, meaning that a greater proportion would be produced in facilities that are less energy-efficient that those in the EU. This would constitute carbon leakage and defeat the purpose of the EU regulations.

FuelsEurope therefore calls for efforts to ensure that the COP21 agreement will lead to equitable commitments from all parties to the agreement and a level playing field for the industry worldwide.

Revenue-neutral market-based mechanisms, including carbon pricing under the right circumstances, are a more economically efficient way to drive the reduction of GHG emissions than industry-specific regulation, technology mandates or performance standards. There should also be a universal regime for monitoring, reporting and verification. Until the main economies have effectively engaged in similar climate policies to the EU, carbon leakage protection should be introduced to help EU industries that are exposed to unbalanced international competition.

The EU refining industry has engaged in promoting energy-conscious behaviour to its customers, as in the campaign, “Save more than fuel�

FuelsEurope Annual Review 2015-2016

I 25

3.2.2 EU ETS

FuelsEurope supports the EU Emissions Trading System (ETS) as a cost-effective market mechanism for emissions reduction in the power and industrial sectors.

However, more attention should be paid to the impact of the ETS on carbon leakage, which occurs when production is transferred out of the highly-regulated EU to less-regulated facilities elsewhere. Currently, every 100-unit reduction of carbon dioxide emissions in EU refineries is replaced on average by 135 units outside.

Protection is needed to preserve the competitiveness of European industry from international competitors that do not face similar carbon costs.

Source: Case studies, Report prepared for DECC, Vivideconomics, June 2014

FuelsEurope endorses the conclusions of the EU Council of October 2014, setting out the key needs and principles for ETS reform. In particular, it was stated that the most efficient installations should not face undue carbon costs and that free allocations should take into account both direct and indirect carbon costs. FuelsEurope also welcomes the European Commission’s focus on carbon leakage protection in its proposals for amending the ETS Directive, as well as its recognition of the key role of energy-intensive industries in the European economy.

26 I F u e l s E u r o p e A n n u a l R e v i e w 2 0 1 5 - 2 0 1 6

However, the Commission’s current proposals are not in line with the EU Council conclusions. Within carbon leakage sectors, even the most efficient facilities could face shortages in their free allocations of up to 20% by 2030, amounting to a total cost of approximately €15 billion over Phase IV of the ETS. This would represent more than 10% of average refinery margins, which have already been eroded by other legislation related to air and fuel quality.

FuelsEurope Annual Review 2015-2016

I 27

3.2.3 Carbon Leakage

Carbon leakage describes the relocation of industrial activity outside the EU in response to strict – and therefore expensive – EU environmental regulation. If EU-refined petroleum products become uncompetitive due to the regulatory costs, they are replaced by more affordable imports. However, these imports cost less precisely because they are produced in facilities that are less energy-efficient than those in the EU. So the substitution

results in higher global GHG emissions, negating the original aim of the EU regulations. In refining, every 100-unit reduction of carbon dioxide emissions in the EU is replaced on average by 135 units outside, according to a study conducted for the UK government. Though the Commission has recognised the problem of carbon leakage, it needs to be better addressed in regulatory structures, in particular the ETS.

High trade exposure and energy-intensive production expose EU refineries to the risk of carbon leakage

18.4

USA

14.8

RUSSIA

5.8 12.3 INDIA MIDDLE EAST

Main competing regions with existing emissions trading scheme Main competing regions without existing emissions trading scheme Diesel Imports in million of tons/year

Phase I (2005-2007) and Phase II (2008-2012) of the ETS used free allocation based on ex-ante grandfathering, which did not reflect actual levels of industrial activity. During these phases, industrial activity declined, energy efficiency improved and renewables increased their market share. So the price of carbon remained low and the oil refining sector as a whole did not incur significant ETS costs.

28 I F u e l s E u r o p e A n n u a l R e v i e w 2 0 1 5 - 2 0 1 6

Source: CDC Climat Research 2015/EUROSTAT 2013

In Phase III, which runs from 2013 to 2020, benchmarks have replaced grandfathering and only the best-performing 10% of installations are granted 100% free allocation. Another change is that there is no free allocation for electricity, which impacts the refining sector either directly (when refineries produce their own electricity) or indirectly (when they buy it from outside suppliers).

Another new feature of Phase III is a cross-sectoral correction factor (CSCF). This applies when the national implementation measures (NIMs) exceed the total allowances, and consists of a corresponding uniform reduction in allocations across all sectors.

Its impact has been greater on refining than other sectors because refineries maintained relatively high levels of activity during the economic crisis. This was not taken into account by the CSCF.

These factors, along with the strict benchmarks applied, have caused refining to suffer the biggest shortage of free allocations of any industry: 29Mt in 2013. As a result, the EU refining industry is already exposed to the risk of carbon leakage.

Expected evolution of ETS cost for EU refineries from Phase I to Phase IV

(1)

S ource: Concawe, based on Linear Reduction Factor 1.74% per year and impact of CSCF, assuming total EU refining throughput at 650 Mt/y and cost of ETS certificate at 10 €/ton.

(2)

S ource: Concawe, based on the 15th July 2015 COM proposal for ETS revision Linear Reduction Factor 2.2% per year and estimated impact of a CSCF, assuming EU refining throughput at 600 Mt/y, 0.5% yearly improvment in carbon efficiency and cost of ETS certificate at 30 €/ton.

(3)

Note that in Phase II surplus allowances to the stimated value of 750 M€ were allocated. (Source: JRC draft Refining Fitness Check report).

Source: Concawe

Proposals for Phase IV, from 2021 to 2030, will increase the cost of compliance dramatically, as will the expected increase in carbon price. Fortunately, Commission proposals limit the application of a CSCF. However, the proposals imply allocation shortages of around 350Mt over the phase, even if refineries make realistic improvements in carbon efficiency. Assuming a carbon dioxide price of €30/tonne, this would lead to about

€10 billion in direct costs plus €5 billion in indirect. Just the direct costs would add an additional €0.23 per barrel on top of other costs for EU regulatory compliance, which are already large. Given that gross margins have fluctuated between 0 and €4 a barrel over the last five years, the shortage of allocations would significantly erode margins.

FuelsEurope Annual Review 2015-2016

I 29

This additional challenge will come at a time when refineries are required to invest heavily to achieve additional emissions abatement under the Industrial Emission Directive and to improve product quality under the Fuel Quality Directive and marine fuels legislation. FuelsEurope therefore believes that the following changes should be made during the legislative process: ALLOWANCE ALLOCATION The best performers in sectors exposed to carbon leakage should receive 100% free allocations, so the cross-sectoral correction factor (CSCF) should not be applied to free allocations.

This would be in line with the conclusions of the October 2014 EU Council.

The Commission has proposed to fix the share of allowances allocated free at 43%, with 57% put up for auction.

However, given the need for free allocations to sectors exposed to carbon leakage, FuelsEurope estimates that too many allowances are subject to auctioning. To correct this, 400 million allowances used for the Innovation Fund should be taken from the auctioning share.

ACTIVITY BASE FOR ALLOCATIONS Emissions allowances should be based on recent annual activity levels. Such a mechanism would better protect sectors against carbon leakage. It would also reduce the potential for an operator to generate windfall profits by cutting production whilst retaining its full allocation of free allowances.

BENCHMARKING Currently, the benchmark for each industrial sector is set using the median of the top-performing 10%. This has penalised the refining sector, which is characterised by multiple configurations and crude sources. The top 25% would better describe the refining industry, and this figure should be adopted for other sectors that also have “steep” benchmark curves.

The current plan would update the benchmark values twice during Phase IV to reflect advances in technology. But the refining industry already has a very stringent benchmark, and FuelsEurope thinks that fair benchmarks should be recalculated just once, before the start of the Phase IV trading period,

30 I F u e l s E u r o p e A n n u a l R e v i e w 2 0 1 5 - 2 0 1 6

and then remain valid throughout the phase. They should be based on actual verified performance over a representative period (2013-2017).

FuelsEurope disagrees with the application of a flat-rate factor to all current benchmark values. The Commission has proposed a uniform reduction in the benchmark of 1% every year. However, this level of reduction does not reflect the actual performance of best-in-class refineries. The proposed flat rate is also in contradiction with European Council guidance, which foresees benchmark reviews “in line with technological progress in the respective industry sectors”.

COMPENSATION FOR INDIRECT EMISSION COSTS FuelsEurope calls for a harmonised, EU-wide system of financial compensation for indirect emission costs. For EU refineries, almost 30% of ETS costs are indirect: In particular they come from the industry’s use of electricity, which is already subject to the ETS regime. That constitutes another disadvantage for EU refiners against non-EU competitors.

However, current eligibility thresholds for compensation are high. Moreover, Member States operate different national compensation schemes, distorting the EU internal market.

A harmonised compensation system should be based on an industry’s total electricity consumption.

3.3 ENERGY EFFICIENCY

The Energy Efficiency Directive (EED) established binding measures to help the EU reach its target of a 20% gain in energy efficiency by 2020 compared to projected energy use. But it is now due for review amid the 2030 climate and energy policy, which could result in more ambitious targets. At the October 2014 European Council, Member States agreed to an energy efficiency target of at least 27% by 2030 compared to projections and asked the Commission to review the target by 2020 “having in mind an EU level of 30%”.

EU refineries’ energy cost as percentage of total operating costs 70%

Unit: Energy cost as % of total operating cost

FuelsEurope supports the goal of energy efficiency. However, the Directive’s key contribution has been in sectors that previously had no economic driver or signals to boost energy efficiency. For the refining industry, the Emissions Trading System is a more effective way to drive efficiency improvements.

For transport, an obligation scheme is not the best way to address efficiency: vehicle efficiency standards, labelling, taxation of road fuels, and measures to improve infrastructure are all used extensively and are more effective means of tackling this complex area. FuelsEurope supports the goal of energy efficiency. However, the Directive’s key contribution has been in sectors that previously had no economic driver or signals to boost energy efficiency.

60% 50% 40% 30% 20% 10% 0%

Energy represents 60% of the overall costs of EU refiners, so any gain in efficiency reduces the industry’s bills. EU refiners have increased their efficiency by 10% over the past 20 years, despite greater product and emissions requirements that require more intensive processing.

A public consultation addressed the EED’s implementation: a 2030 target; energy-efficient procurement by public bodies; energy efficiency obligation schemes (EEOS); metering and billing information; financing; and monitoring.

1998

2000

2002

2004

2006

2008

2010

2012

Cash operating costs Trendline

The share of energy costs has continuously increased over the past 20 years to reach in 2012 over 60% of total operating costs. Despite strong records in energy efficiency gains and a leading position in this field, European refiners suffer a strong competitive disadvantage from these high energy costs.

Source: Concawe

“EU REFINING HAS SOME OF THE MOST ENERGY EFFICIENT AND INNOVATIVE REFINERIES IN THE WORLD.” Source: Commissioner Miguel Arias Cañete Refining Forum, 1 March 2016

FuelsEurope Annual Review 2015-2016

I 31

FuelsEurope contributed the following opinions: ENERGY EFFICIENCY TARGETS It must be underlined that energy efficiency (reduction in energy used per unit of production) is not the same as reducing absolute energy use.

FuelsEurope wants the EU to adopt a single, cost-effective, long-term trajectory for carbon abatement. The EU 2030 framework should include a transparent roadmap to reach a consistent carbon abatement cost shared throughout the economy. The Commission should seek to avoid overlaps with existing legislation, as these interfere with efforts to find cost-effective, market-driven solutions.

ENERGY EFFICIENCY OBLIGATION SCHEMES (EEOS) Transport should be excluded from mandatory EEOS. There are many successful examples of such schemes for traditional energy utilities in the EU and other parts of the world. But these depend

on factors that do not apply to transport. Some are successful because they address energy suppliers via distributors, retailers or service companies that have strong relationships with their customers. These relationships are then used to offer services, incentives or projects that improve efficiency. Other schemes apply to utility electricity and gas suppliers that have “hard” piped or wired connections to customers. This means that they supply energy in a continuous manner, making consumption easy to measure. Some successful schemes do include oil, but these must be carefully tailored to the particular supply process.

NEXT STEPS FuelsEurope is formalising its position on the EED in preparation for the review and revision process. An Impact Assessment is expected in spring 2016. A legislative proposal, revising those specific articles that were in scope of the consultation, is due in autumn 2016.

EU refineries’ energy consumption and efficiency trends relative to 1992

Unit: Total Energy Consumption per tonne net input and Ell relative to 1992

120 115 110 Total Energy Consumption per tonne (Net input)

105

Energy Intensity Index (EII)

100

Note: the lower the Ell®, the higher the energy efficiency of a refinery.

95 90 85 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

The index shows that EU refineries have improved their energy efficiency by about 10% over the past 20 years. This improvement was achieved despite more energy intensive refinery operations to produce cleaner fuels and meet shifts in market demand. The corresponding annual energy saving is roughly equivalent to the total annual average energy consumption of four large EU refineries.

Source: Solomon Associates

32 I F u e l s E u r o p e A n n u a l R e v i e w 2 0 1 5 - 2 0 1 6

3.4 REACH

Refined petroleum products come under the scope of REACH, the EC Regulation 1907/2006 on Registration, Evaluation, Authorisation and Restriction of Chemicals, the EU’s instrument for managing the risks presented by chemical substances for human health and the environment. Refining companies have been very active in the registration phase, and the sector supports REACH’s approach to risk management based on science. However, implementation presents challenges and has led to concerns about a potential loss of competitiveness if the administrative burden increases drastically. As such, FuelsEurope supports the inclusion of REACH in a future update of the Refining Fitness Check’s cumulative impact analysis of EU legislation.

REACH entered into force in 2007, with provisions being phased in over the coming decade. The Regulation addresses the production and use of chemical substances, requiring all companies manufacturing or importing chemical substances in quantities of more than one tonne per year to register them with the European Chemicals Agency (ECHA). Registration deadlines depend on the volumes produced or imported.

Those used in quantities of more than 1,000 tonnes a year had to be registered by 2010, as did chemicals of higher concern or toxicity. Those used in quantities between 100-1,000 tonnes a year had to be registered by 2013, while quantities of less than 100 tonnes a year have to be registered until 2018.

Petroleum products are characterised in REACH as UVCBs: substances of Unknown or Variable composition, Complex reaction products or Biological material. They are complex and variable because they are derived from crude oil and their exact composition varies across different streams of the same product, reflecting specific refining processes and crude oil sources.

Traditionally, petroleum substances have been grouped in categories based on process and carbon length or distillation range. REACH challenges this traditional approach but still the Regulation allows for grouping and read cross when justified.

The 200 petroleum substances currently registered have been placed in 18 categories. The approach allows hazard data for a substance to be applied to other substances in the same category. Using ‘read-across’ within the same categories and between ones is used to reduce unnecessary animal testing.

The category approach is a long-established method. Using the worst-case approach ensures the hazard level – and consequently the risks – are not underestimated. This approach needs to be retained, but further developed, explained and justified in response to the challenges of REACH. TIMING Concawe has instigated a number of programmes to develop new information to ensure continuing compliance with the requirements of REACH. These programmes need time to develop the science and for the implications to be understood.

FuelsEurope supports a collaborative approach between ECHA, Member States, Commission and other key stakeholders to propose a suitable timeline for overhauling the registration dossiers and better understand how to apply REACH to UVCB substances.

TESTING FuelsEurope calls for support for innovative testing methods in areas such as data generation, experimental design and analysis leading to a better understanding of the relationship between chemical properties and biological responses, as well as reduce animal testing. For example, data read-across – where endpoint information from one chemical is used to predict the same endpoint for a similar chemical – can reduce unnecessary data proliferation and the need for animal testing. Concawe is developing ways to improve the justification of read-across.

Limitations on the applicability of data read-across should therefore not be excessive or premature.

FuelsEurope Annual Review 2015-2016

I 33

SUBSTANCES OF VERY HIGH CONCERN Data proliferation from overly-conservative screening could lead to a number of substances being unnecessarily identified as Substances of Very High Concern, even when current risk management measures are sufficient. Proportional and wellgrounded assessment of risk management options scientific criteria should therefore be applied. These should consider uses and hazards in a way that avoids unnecessary testing.

34 I F u e l s E u r o p e A n n u a l R e v i e w 2 0 1 5 - 2 0 1 6

The SVHC Roadmap should not become a political target, leading to unjustified additions of substances to the candidate list. The approach for petroleum substances is being designed through the PetCo (Petroleum and Coal) Working Group.

The focus is on widespread consumer and professional uses of petroleum substances, and will serve as a guidance process for dealing with those whose risks have not yet been properly addressed. Where current risk management is deemed insufficient, alternatives to Authorisation should be considered, such as measures enhanced risk management measures.

IMPLEMENTATION REACH implementation has its challenges, especially for complex petroleum substances. FuelsEurope therefore calls for an improved collaborative approach between ECHA, Member States, the European Commission and industry, based upon a shared appreciation of both the key principles of REACH and the scientific, technical and economic challenges of its application. This should include an improved dialogue throughout the process over screening and evaluation.

It is important to remember that REACH, as well as managing risks, is supposed to enhance competitiveness and innovation

in both methodology and products. As such, Member States will play a critical role in avoiding fragmentation of the EU internal market and disruption of the level playing field. They also need to consider international competitiveness, particularly regarding the differing treatment of imported articles using SVHCs in their production processes.

FuelsEurope Annual Review 2015-2016

I 35

4 - REFINING OPERATIONS

36 I F u e l s E u r o p e A n n u a l R e v i e w 2 0 1 5 - 2 0 1 6

FuelsEurope Annual Review 2015-2016

I 37

4.1 NATIONAL EMISSIONS CEILING DIRECTIVE

The refining industry is committed to improving air quality in Europe and would like to see cost-effective solutions to address predicted future pollution across a full range of contributing sources. In recent decades, our industry has significantly reduced its emissions to air by investing in advanced abatement techniques. We will continue such efforts through the application of Best Available Techniques (BAT) under the Industrial Emissions Directive (IED). FuelsEurope has also been calling for a number of considerations to be taken into account in the National Emission Ceiling Directive. These aim for a level of ambition that is realistic from both a technical and an economic perspective.

INDUSTRY COMPETITIVENESS AND FAIR BURDEN-SHARING Future energy scenarios are hard to predict. Therefore, any targets based on a particular scenario might turn out to be either unachievable or only possible through measures beyond BAT

38 I F u e l s E u r o p e A n n u a l R e v i e w 2 0 1 5 - 2 0 1 6

that are unaffordable. FuelsEurope thinks that IED-regulated installations should not be forced to take steps beyond IED and BAT requirements, whether or not emission reduction targets are met. FuelsEurope has also supported the idea of a fair burdensharing provision, according to which industrial installations covered by the IED and already applying BAT would generally not be forced to implement additional measures.

TARGETS The refining industry supports a single mandatory target year of 2030 for achieving the national emission reduction commitments, with 2025 targets remaining indicative. This approach would ensure alignment with the EU’s 2030 climate and energy framework. FuelsEurope has also been calling for a review clause, under which targets could be revised if Member States could not achieve their reduction commitments for reasons demonstrated to be beyond their control.

4.2 MEDIUM COMBUSTION PLANTS DIRECTIVE

The Directive on Medium Combustion Plants (MCPD) aims to control emissions of nitrogen oxides, sulphur dioxide and dust from combustion plants between 1 and 50 MW as part of the Clean Air Policy Package. However, emissions of pollutants from refinery MCPs are already regulated under the Industrial Emissions Directive and the Best Available Technique (BAT) conclusions for the refining of mineral oil and gas. So FuelsEurope welcomes the decision not to include in this directive medium combustion plants using refinery fuels to produce energy within refineries.

The agreed text of the MCPD addresses most of the regulatory inconsistencies that would have resulted from the initial proposal, and FuelsEurope welcomes a number of specific changes that were made.

SCOPE A number of plants and activities have been excluded from the scope of this directive. Some of these are already regulated by existing regulations. Others have been excluded because of their specific nature, such as most of the combustion plants already excluded from Chapter III of the Industrial Emissions Directive.

In particular, the MCPD will not apply to the combustion plants firing refinery fuels alone or with other fuels for the production of energy within mineral oil and gas refineries.

PROVISIONS FOR SPECIFIC CIRCUMSTANCES FuelsEurope welcomes the possibility for certain facilities of applying less-strict ELVs and extending compliance deadlines up to 2030. Such facilities include district heating systems above 5MW; facilities using biomass as their main fuel; and plants that are part of small, isolated systems – such as those on islands. Also welcome is the possibility of exempting from compliance plants in operation for a limited time.

STRICTER ELV REQUIREMENTS IN SOME ZONES An earlier version of the text proposed mandatory stricter ELV requirements on MCPs in zones not complying with air quality standards. However, this will now be an option left to Member States, who will be able to set stricter ELVs if an assessment demonstrates that they would noticeably improve air quality.

TRANSITION PERIOD FOR ELV COMPLIANCE The dates by which existing plants will have to comply with new Emission Limit Values (ELVs) have been maintained at 2025 for units above 5MW and 2030 for units below. This is consistent with the proposal and time horizon for a directive on the reduction of national emissions of certain atmospheric pollutants.

It is also adequately aligned with the Energy and Climate Change target date. Earlier deadlines would have had big impacts for small- and medium-sized units that do not significantly contribute to air quality issues.

DIFFERENTIATED REGIMES The agreed text introduces differentiated regimes for existing plants, aimed at reducing costs for the smallest plants. In addition, the ELVs have been set in a way that will not always require use of the most expensive secondary techniques, partly addressing the cost of compliance.

FuelsEurope Annual Review 2015-2016

I 39

5 - OTHER LEGISLATIVE DEVELOPMENTS

40 I F u e l s E u r o p e A n n u a l R e v i e w 2 0 1 5 - 2 0 1 6

FuelsEurope Annual Review 2015-2016

I 41

5.1 COMPULSORY STOCKS OBLIGATION

Under the EU’s Compulsory Stocks Obligation (CSO) Directive, Members States are required to maintain minimum stocks of crude oil and refined products to release to the international market in the event of a major supply disruption. The stocks must be equivalent to either 90 days of average daily net imports or 61 days of average daily inland consumption – whichever amount is greater. Ahead of a public consultation over the summer of 2016, FuelsEurope has raised a number of challenges that this Directive presents for the refining industry.

PRODUCTS ELIGIBLE FOR MEETING THE CSO The Directive includes products that are not strategic, in that their absence would not lead to a crisis in the transport sector or the chemicals industry – the two key sectors identified by the CSO Directive. FuelsEurope believes that the list of products covered by the CSO should consist only of strategic products, and therefore calls for some products to be struck off the list, including petcoke, sulphur, paraffin and waxes. Restricting the list to relevant products only would improve security of supply in the event of a crisis. It would thus preserve the image of the petroleum industry by ensuring a supply of products for the transport and chemicals industries at all times.

NON-PETROCHEMICAL NAPHTHA Naphtha stocks have been explicitly excluded from the products eligible to cover the obligation, irrespective of their use. FuelsEurope therefore believes that naphtha stocks should be allowed as part of compulsory coverage when used for gasoline production – that is, transport use. This would be consistent with the aim of bringing EU regulation in line with IEA methodology. Member States have the same opinion as FuelsEurope on this.

CONSISTENCY BETWEEN COUNTRIES Some feedstocks and products can be used for CSO coverage in one country but not in another. This contradicts one purpose of the Directive, which is to create a transparent market and a level playing field across Europe for CSO costs. To ensure consistency among Member States, the Directive should feature a unified,

42 I F u e l s E u r o p e A n n u a l R e v i e w 2 0 1 5 - 2 0 1 6

EU-wide table, using customs codes (CN codes) to indicate the eligibility of various feedstocks and products for CSO coverage.

BILATERAL AGREEMENTS AND NATIONAL REQUIREMENTS ON STOCKS Bilateral agreements between Member States cause unnecessary bureaucracy and barriers, and they compromise the aim of creating a single European system and unified EU-wide response to supply disruption. They should therefore be abolished.

Also, the Directive allows Member States to require that industry – which manages the emergency stocks – hold certain proportions of particular stocks at particular locations on national territory. Member States can also place restrictions on the ownership status of emergency stocks.

While the stocks must of course be easily accessible, such conditions increase costs. FuelsEurope therefore thinks that restrictions imposed by Member States on stocks held abroad should be no stricter than those on stocks held on the Member State’s territory.

This is a point on which FuelsEurope and the Member States differ. In a review of the Directive, a number of Member States stated that they should be empowered to place stocks as close to the final consumer as they judge necessary. They were also of the opinion that a Member State should be able to require an economic operator to hold any proportion of the emergency stocks on national territory.

FIXED PROVISION FOR UNAVAILABLE STOCKS The Directive considers 10% of the emergency stocks as nonaccessible, for example because they are in the bottom of tanks.

(These non-accessible stocks are in addition to other specified non-accessible stocks such as pipeline contents.) To compensate for the non-accessibility of this portion of the stocks, Member States are required to hold larger stocks – so that the total “accessible” amount meets the quantity required.

This figure of 10% unavailability is based on relatively old IEA studies and is likely higher than the reality: Studies by petroleum companies indicate unavailability factors of less than 3%.

However, the 10% figure has been retained in order for the Directive to remain consistent with the IEA. FuelsEurope believes that the EU Directive should remain consistent with the IEA, but calls for an updated IEA-backed technical study. Member States share FuelsEurope’s opinion on this.

BIOFUELS DEFINITION There is a difference between the definition of biofuels used in the CSO Directive and that used in Directive 2009/28 on

the promotion of energy from renewable sources. FuelsEurope calls for a single definition to be used in order to maintain consistency and allow maximum flexibility.

TREATMENT OF REFINERS VERSUS IMPORTERS Some Member States – such as the Netherlands, the UK and Greece – require refiners to hold a higher level of emergency stocks than importers under their CSO Legislation. This gives importers a competitive advantage. FuelsEurope calls on Member States to provide a level playing field, by making transparent any exemptions or partial exemptions granted to certain market participants, and justifying these exemptions.

5.2 DEGASSING BARGES

The Central Commission for Navigation on the Rhine (CCNR) is preparing an amendment of an existing regulation aimed at preventing gaseous residues from being released into the atmosphere. FuelsEurope, along with other industries, has been actively involved in this process, but thinks the current proposal is not sufficiently flexible and needs further work.

FuelsEurope has been working to make the degassing regulation cost-efficient and progressive, which implies a degree of flexibility achievable through the establishment of logistic agreements.

However, the current proposal does not contain adequate flexibility. A modified regulation is expected by end 2016.

The CCNR is focusing on the release of gases during the barge transportation of liquid loads on inland waterways. Its proposal to ban degassing is intended to be introduced progressively. It is based on achievable degassing levels; is intended to minimise the operations needed; and ensures the ability to recover and re-use the degassed materials if needed.

FuelsEurope Annual Review 2015-2016

I 43

5.3 FUEL LOADING OPERATIONS AND HEALTH IMPACTS – ADN REGULATIONS

The European Agreement concerning the International Carriage of Dangerous Goods by Inland Waterways (ADN) has since 2008 classified heavy fuel oil (HFO) as a hazardous substance. This means that vapours generated during loading operations must be returned to shore for proper treatment. From 1 January 2017, return lines will be mandatory.

Concawe has conducted a health risk assessment to better understand the potential risks of airborne emissions during HFO loading operations. The assessment concluded that such emissions do not represent a health concern for workers conducting the operations.

Based on the report of this assessment, FuelsEurope requested an exemption from the mandatory use of return lines at the ADN Safety Committee meeting in January 2015. Additional time was requested to evaluate this request at the August 2015 ADN meeting – but no decision was taken due to additional concerns, which were addressed during the second half of 2015. At the January 2016 ADN meeting, the Dutch authorities did not support the requested exemption.

A final decision on the request was scheduled to be taken at the August 2016 ADN meeting.

5.4 IMPORTS OF ATMOSPHERIC RESIDUES

A change in customs classification will lead to the imposition of import duties on certain crude oil products whose aromatics content exceeds their level of nonaromatics. FuelsEurope is working to obtain equal treatment for the concerned products independently of their aromatics content, as was the case before the change in customs classification.

The customs classification of atmospheric residues and vacuum gasoil was changed in early 2013, imposing an import duty of 1.7% on products whose aromatics content exceeds that of nonaromatics. Previously, the aromatics level had not been considered, and imports of the concerned products were exempted from import duties. After the change in classification, a customs duty suspension was granted up to 31 December 2018.

44 I F u e l s E u r o p e A n n u a l R e v i e w 2 0 1 5 - 2 0 1 6

FuelsEurope is trying to get the concerned products treated equally, independent of their aromatics content. Specifically, it is aiming to transform the customs duty suspension into a duty exemption; obtain an end-use relief; and by covering the same products and the range of processes used to make such products.

5.5 ELECTRONIC PAYMENT

The revised Payment Services Directive (PSD2), which regulates payment services for the consumer market, excludes fuel cards. FuelsEurope welcomes the adoption of this revised directive.

PSD2 contains a limited network exemption for offers made only for a limited range of products or in a limited network.

The Directive mentions fuel cards as one of the products falling under this definition.

Efforts to include a broader range of motoring-related services under this exemption did not succeed. However, Member States still have the authority to exempt fuel cards with an extended range of services on a case-by-case basis.

The adoption of PSD2 on 23 December 2015 (as Directive 2015/2366) brought to a successful close the work of the taskforce following the reviews of the Regulation on Multilateral Interchange Fees (MIF) and the Payment Services Directive. The MIF regulation successfully capped and harmonised interchange fees at Union level for debit and credit card payments. It also brought an end to a number of punitive practices that favoured payment card issuers.

FuelsEurope Annual Review 2015-2016

I 45

6 - ABOUT US

46 I F u e l s E u r o p e A n n u a l R e v i e w 2 0 1 5 - 2 0 1 6

FuelsEurope Annual Review 2015-2016

I 47

6.1 WHAT IS FUELSEUROPE?

FuelsEurope was known until June 2014 as EUROPIA, which was formed in 1989 to represent the interests of Companies conducting refinery operations in the EU with the EU Institutions.

FuelsEurope is a division of the European Petroleum Refiners Association, an AISBL operating in Belgium. This association, whose members are all 41 companies that operate petroleum refineries in the European Economic Area in 2016, is comprised of FuelsEurope and Concawe divisions, each having separate and distinct roles and expertise but administratively consolidated for efficiency and cost-effectiveness.

FuelsEurope mission To inform and provide expert advice to the EU institutions and other stakeholders about European Petroleum Refining and Distribution and its products in order to: • Contribute in a constructive way to the development of technically feasible and cost effective EU policies and legislation. • Promote an understanding amongst the EU institutions and citizens of the contribution of European Petroleum Refining and Distribution and its value chain to European economic, technological and social progress.

48 I F u e l s E u r o p e A n n u a l R e v i e w 2 0 1 5 - 2 0 1 6

6.2 ASSOCIATION MEMBERS

Association members range from multi-national oil and gas Companies that operate in exploration and production, refining and chemicals, to European regional or National Companies operating one or more refineries. Many members have distribution, marketing and alternative fuels interests.

Associate membership is also open to Companies located in Countries within the Council of Europe.

FuelsEurope Annual Review 2015-2016

I 49

6.3 ORGANISATION

6.3.1 Governance and management structure General Assembly All Association Members Board

Issue Management Committee

Secretariat

Issue Groups & Task Forces

The General Assembly comprises all Members of the Association and meets annually. It has powers to approve association budget and members fees; to approve the annual plan of activities; and to appoint or dismiss key officers of the association.

Fifteen members are elected to sit on the association Board of Directors. The Board chaired by the President meets four times a year and is responsible for the management of the association within the guidance from the General Assembly.

50 I F u e l s E u r o p e A n n u a l R e v i e w 2 0 1 5 - 2 0 1 6

6.3.2 Board of Directors Michel Bénézit President COMPANY

NAME Peter Mather (BP) Domenico Elefante (ENI) Steve Cope (ExxonMobil) Detlev Woesten (Hansen & Rosenthal) Franck Demay (Ineos) Bulat Subaev (Lukoil) Bela Kelemen (MOL) Ilkka Rasanen (Neste) Gerd Wendroth (Nynas) John Askounis (Phillips 66) Krystian Pater (PKN Orlen) Ingrid Bodin (Preem) Francisco Vasquez (Repsol) Colin Crooks (Shell) Philippe Sauquet (Total)

FuelsEurope Annual Review 2015-2016

I 51

6.3.3 FuelsEurope Secretariat DIRECTOR GENERAL John Cooper*

POLICY DIRECTOR Alessandro Bartelloni ASSISTANT Jeannette Henriksen* EUROPEAN RELATIONS MANAGER Olivera Drazic*

EXECUTIVE OFFICER Daniel Leuckx

EXECUTIVE OFFICER Jean-Pierre Debruxelles

ASSISTANT Marleen Eggerickx*

COMMUNICATION MANAGER Alain Mathuren*

COMMUNICATION ADVISOR Lukasz Pasterski*

FINANCE, ADMINISTRATION & HR MANAGER Didier De Vidts*

ASSISTANTS Alain Louckx* & Madeleine Dasnoy

SENIOR ADVISOR Florie Gonsolin

ADVISOR Alexander Ioannidis

LEGAL ADVISOR Gloria Crichlow* *supports entire Association

52 I F u e l s E u r o p e A n n u a l R e v i e w 2 0 1 5 - 2 0 1 6

The Secretariat is led by the association Director General who is accountable to the Board of Directors and ensure the effective administration of both FuelsEurope and Concawe divisions of the Association.

The FuelsEurope secretariat carries out its work with the help of Issue Groups, composed of experts from Member Companies, and an Issue Management Committee. The Issue Management Committee consists of senior representatives of Member Companies and meets approximately 8 times a year. It advises Board members on decisions to be taken by FuelsEurope and facilitates company commitment and coordination with the Association organisation.

ISSUE GROUP

TASK FORCE

Automative Fuels Energy & Climate Emissions Trading Energy Efficiency Compulsory Stock Obligation Heating, Aviation, Marine Refining Environmental Air Policy Industrial Emissions Refining Competitiveness Reach Advocacy Legal Taxation Communication

FUELSEUROPE ANNUAL REVIEW 2015

I 53

6.3.4 Partner Organisations FuelsEurope represents its members’ interests with the EU institutions, predominantly in Brussels. However, FuelsEurope members have operations in most of the 31 Member States of the European Economic Area. FuelsEurope works closely with National Associations which represent those Companies’ interests in Member States.

COUNTRY

TASK FORCE

Austria

Fachverband der Mineralölindustrie Österreichs

Belgium

BPF - FPB

Bulgaria

Bulgarian Petroleum & Gas Association

Czech Republic

CAPPO

Denmark

EOF

Estonia

Eesti Õliühing

Finland

Finnish Petroleum and Biofuels Association

France

UFIP

Germany

MWV

Greece

SEEPE

Hungary

Hungarian Petroleum Association

Ireland

Irish Petroleum Industry Association

Italy

Unione Petrolifera

Latvia

LDTA

Luxembourg

Groupement Pétrolier Luxembourgeois

Netherlands

VNPI

Norway

Norsk Petroleuminstitutt

Poland

POPiHN

Portugal

APETRO

Romania

ARP

Slovakia

SAPPO

Slovenia

Petrol d.d.

Spain

AOP

Sweden

SPBI

Switzerland

Erdoel-Vereinigung

Turkey

PETDER

United Kingdom

UKPIA

54 I F u e l s E u r o p e A n n u a l R e v i e w 2 0 1 5 - 2 0 1 6

7 - REFERENCES Position papers FuelsEurope’s recommendations on the European Energy Union. February 2015 Alliance of Energy Intensive Industries, Strategic choices for ETS post-2020: allow Energy Intensive Industries to be competitive and grow in Europe. April 2015 FuelsEurope Position Paper on REACH: Annex I - SVHC Roadmap. July 2015 FuelsEurope Position Paper on REACH and the Refining Industry. July 2015 FuelsEurope Recommendations on the Review on the Compulsory Stock Obligation Directive. July 2015 FuelsEurope Position Paper on Climate Change. October 2015 FuelsEurope Position Paper on REACH: Annex I - SVHC Roadmap. October 2015 FuelsEurope Position Paper on REACH and the Refining industry. October 2015 FuelsEurope Position on EU ETS Reform. November 2015 FuelsEurope - Position Paper Transport and GHG reductions. March 2016 FuelsEurope – Position Paper Better Regulation. March 2016

Press releases Joint ACEA/FuelsEurope express concerns on the French Ministerial order increasing the maximum level of fame in diesel. January 2015 Energy Union or electricity union? An incomplete package. February 2015 FuelsEurope and Concawe appoint a new Director General. April 2015 Outcome of the 5th EU Refining Forum. June 2015 Automotive and Petroleum Refining Industry: open letter on Diesel to EU Policy Makers. July 2015 The competitiveness of energy intensive industries is a pre-condition for EU growth. July 2015 The ETS reform proposal falls short of effectively protecting EU refineries against carbon leakage. July 2015 FuelsEurope presents its position on Climate Change and launches the Save More Than Fuel campaign as a contribution to reducing emissions. November 2015 STATE OF THE ENERGY UNION: a welcome update, but no recognition of the role of petroleum. November 2015 The Refining Fitness Check shows significant impact of EU legislation on EU refineries’ loss of competitiveness. December 2015 COP21 - EU negotiators should be proud of what has been achieved in Paris, and should renew their efforts to ensure that it results in effective global action. December 2015 The 6th EU Refining Forum taking place on 1 March 2016 in Brussels debates the future of EU refining. February 2016 The 6th Refining Forum recognises the economic and social value of the European refining sector and calls for a continued review of the Fitness Check and its use in the dialogue on the impact of legislation. March 2016 FuelsEurope Annual Review 2015-2016

I 55

FuelsEurope

#FuelsEurope

www.youtube.com/FuelsEurope

www.fuelseurope.eu

56 I F u e l s E u r o p e A n n u a l R e v i e w 2 0 1 5 - 2 0 1 6

FUELSEUROPE ANNUAL REVIEW 2015

I 57

58 I F u e l s E u r o p e A n n u a l R e v i e w 2 0 1 5 - 2 0 1 6

FuelsEurope Boulevard du Souverain, 165 B-1160 Brussels I Belgium Phone: +32 (0)2 566 9100 Fax: +32 (0)2 566 9111 www.fuelseurope.eu

Refining products for our everyday life