London will not include oil products in its Carbon Border Adjustment Mechanism (CBAM) from 2028, raising the prospect that UK refineries will face stiffer competition from North America and the Middle East where governments do not impose carbon emission levies on domestic refiners.
The UK will introduce its CBAM on 1 January 2027, initially covering aluminium, cement, fertilisers, hydrogen, and iron and steel. Fuels Industry UK, which represents the country's remaining four refinery operators — Essar, ExxonMobil, Phillips 66 and Valero — had called on the government to include imported refined oil products in the UK CBAM from 1 January 2028. But the government will not expand the mechanism to include refined oil products in 2028, according to a letter from HM Treasury shown to Argus today, but does not rule out its inclusion at a later, unspecified date.
British refiners are calling for an equal playing field for the trading of refined oil products, in light of stricter UK and European standards on carbon emissions applied to heavy industry. Carbon emissions costs will have risen considerably for UK refiners by 2028, according to the association, while the UK-EU carbon market linkage scheduled for that year is expected to raise benchmark carbon emissions costs further. Fuels Industry UK expects refiners to be paying around £100mn/yr more on UK ETS allowances by 2028.
HM Treasury will not include oil products in the UK CBAM by 2028 "upon consideration of factors such as trade and costs to businesses and households", and said the 2028 proposal would be challenging to achieve "from a technical, legislative and resource perspective".
The government has acknowledged cost pressures facing UK refiners, especially with regards to carbon emissions levies. Energy minister Ed Miliband told a parliamentary committee last month that the government wanted to accelerate work to get refineries into the CBAM to "help to protect their competitiveness". The Treasury also acknowledged that "2028 could bring a rise in Emissions Trading Scheme costs to the sector", according to the letter shown to Argus.
Separately, the government is yet to respond to Fuel Industry UK's call to reallocate unused free CO2 allowances from two recently closed refineries to help remaining plants cope with rising emissions compliance costs, the association told Argus.
The EU is not set to include oil products in its CBAM when it enters force next year, and Fuel Industry UK does not expect the EU to include them until at least 2030 when the trading bloc is due to consider new industry inclusions.
