Any changes to the EU's carbon border adjustment mechanism (CBAM) should maintain sufficient levels of free carbon allowance allocations and include measures to protect exports if its scope is extended to the refining sector, refinery industry association FuelsEurope said today.
FuelsEurope urged the European Commission in a position paper today to adjust any phase-out of free EU emissions trading system (ETS) allowances alongside the extension of CBAM in a "co-ordinated manner".
Current levels of free allocation benchmarking should also be preserved until CBAM is proven "effective" at tackling carbon leakage, "to provide confidence for low-carbon investments and avoid market distortions", FuelsEurope said.
"Reducing these protection mechanisms without establishing proven equivalent carbon leakage protection could lead to the shutdown of efficient industrial assets in the EU," the association said.
If free allocations are removed CBAM will require an export adjustment, FuelsEurope said, as free allowances currently allow EU producers to compete in the export market with regions where there is no carbon cost. This is not addressed by the import-based design of CBAM, FuelsEurope said, risking lower production for export that would in turn cut domestic production because of the interdependence of different refinery products.
The body also called for any default embedded emissions values applied to imports to be set at "conservative" levels to encourage suppliers to use verified emissions data instead, ensuring real emissions levels are reflected in CBAM charges.
And it urged indirect carbon costs to be managed within the EU, not through CBAM, by harmonising compensation measures currently managed at member state level.
"There is no direct relationship between indirect emissions and the ETS-related indirect costs. Hence indirect embedded emission intensity does not represent an accurate metric to derive CBAM compliance costs," FuelsEurope said.
And it called for the EU to develop a methodology to determine refinery emissions at product level. The association has previously attributed the sector's exclusion from the initial CBAM scope to technical difficulties in determining the level of embedded emissions in individual products.
CBAM is currently due to cover iron and steel, aluminium, cement, fertilisers, electricity and hydrogen from next year, but the commission is scheduled to review its extension to other sectors before its full launch in January.
Refining is similarly not included in plans for a UK CBAM, which is to cover the same sectors as the EU measure excluding electricity when it starts up in 2027.
But some refining industry representatives have been calling for the sector to be brought under the UK CBAM to support its competitiveness.
Fuels Industry UK chief executive Elizabeth de Jong said earlier this week following the Prax Lindsey refinery falling into administration that "we must now see a shift towards delivering the changes that can make a difference — inclusion in the Carbon Border Adjustment Mechanism and addressing hugely expensive industrial energy and carbon costs".
