Global Warming & Business: Higher CO2 Cost to Drive Oil Refiners Out of Europe

Written by | Wednesday, October 4th, 2017

Petroleum refineries and other energy-intensive industries have joined forces to warn about the EU’s plans to hike the cost of emitting carbon dioxide, drawing on the previous warnings about “carbon leakage” which naysayers claim have failed to materialize. EU lawmakers are meeting in mid-October for another attempt to agree on a compromise on post-2020 reforms to the EU emissions trading system (ETS) – Europe’s flagship instrument to fight climate change. Petroleum refineries are teaming up with other industrial sectors – in the cement, paper, chemicals and metals – to generate huge amounts of greenhouse gases to cut their exposure to the expected rise in the cost of pollution.

Refiners and other companies from related industries have so far been granted allowances for free but legislators were granting those benefits based on the premise that making them pay in full would make these firms uncompetitive and liable to leave the EU. The present reforms will not change dramatically since energy-intensive industries will continue to receive free carbon emissions allowances, as compensations for the EU’s stricter regulations will be fewer. Nonetheless, the way reform talks are heading is making energy-intensive industries frightened.

Pricing projections in the carbon market are traditionally very tricky but most forecasts point towards a significant uptick heading into the next 10 years. A recent study commissioned by the lobby group BusinessEurope forecast that the cost of emitting one ton of carbon dioxide could go up to between €33-€36 by 2030 under the reform proposals that are currently being discussed. The price of an emission allowance is at the moment somewhere around €5 a ton, which is way below the €30 that are considered necessary to encourage investment into low-carbon technologies.

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