New fuel standards in the EU

Implications: In the context of the new EU overall energy and environmental strategy, the European Commission proposed on 31 January a revision to the 1998 fuel quality directive that will have far-reaching implications for the oil industry. Oil industry representatives are up in arms, claiming that the proposed changes are too onerous and that the car industry should shoulder more of the effort. These proposals will now be discussed by member states and the European Parliament, with a view to adopting legally binding decisions by the end of the year.

One can expect vigorous lobbying from both sides in the months ahead. On current form however, the car industry tends to carry more political influence than the oil business. The gist of the Commission proposals is thus likely to be enacted.

Analysis:

The Commission proposals comprise three main planks:

• From 2011 fuel suppliers will have to reduce the greenhouse gas emissions that their fuels cause over their life-cycle, ie when they are refined, transported and used by 1% a year per unit of energy, from 2010 levels. This should result in a 10% cut by 2020.
• A separate petrol blend will be established with a higher permitted content of oxygen-containing additives, including up to 10% ethanol. To compensate for an increase in emissions of volatile organic compounds that will result from greater use of ethanol, the Commission will propose the mandatory introduction of vapor recovery equipment at filling stations later this year.
• From 1 January 2009 all diesel fuel will have an ultra-low sulphur content (no more than 10 parts per million), and the maximum permitted content of poly aromatic hydrocarbons (PAHs) will be reduced by one-third.

These new rules will initially entail costs for all concerned, so that fierce industry resistance is to be expected. (The oil industry is arguing that it is being unfairly burdened and that most of the fuel economy effort should be carried by the car industry; however, on current form the car industry is likely to carry more political influence than the oil business.)

Given that these measures fit the double purpose of fighting global warming and benefiting public health, it is very likely that the Council (Ministers representing member states) and the European Parliament will eventually approve the gist of the Commission’s proposals.