Britain's unilateral carbon price floor could push more UK refineries towards closure, the head of Essar Energy’s Stanlow refinery has warned.
The policy, intended to boost green power generation, will mean that from April (Paris: FR0004037125 - news) there is a higher minimum price for polluting carbon emissions in the UK than for the rest of Europe.
In an interview with The Daily Telegraph , Volker Schultz, chief executive of Essar Oil UK, warned that the measure could put Britain’s seven remaining refineries at a “significant disadvantage”.
Refiners have been struggling with a long-term trend of low margins, which contributed to the closure of Coryton refinery in Essex this year with the loss of 850 jobs .
Further closures would risk Britain’s security of supply by making it even more reliant on imports of diesel and jet fuel, industry body the UK Petroleum Industry Association (PIA) warned.
The extra costs from the carbon price floor would hit margins by a “material” amount, Mr Schultz said. While there has been a temporary pick-up in refining margins in recent months due to supply disruptions, he warned: “If margins come down again, a couple of those items together can tip a refiner.”
He said: “Anything that only hits the UK, we don’t like. We want a level playing field across everyone. If the entire globe doesn’t work then at least across Europe.”
The UK PIA said that the policy could add more than £20m a year in costs to UK refiners. Other policies such as the European Emissions Trading Scheme will add up to £75m to UK refiners’ costs, disadvantaging all European refienrs against those elsewhere in the world.
A UKPIA spokesman said: “We accept that government can do little to influence commercial conditions for the refining sector. But legislation - both at EU level and some UK only legislation - does have a cumulative impact upon competitiveness versus non-EU refiners.
“The risk of further UK refinery closures leading to even greater reliance upon imported diesel and jet fuel has significant implications for energy security of supply.”
The carbon price floor has faced widespread criticisim from other industries. Manufacturers union EEF has warned that it will “lock the UK into a system with higher energy taxes than our competitors”.
Ministers are consulting on a £250m scheme to compensate certain energy intensive industries from additional costs from the Carbon Price Floor and European ETS, but it is not clear whether refiners will benefit.
A spokeswoman for the Department of Energy and Climate Change said: “The Carbon Price Floor is vital in reducing uncertainty and creating incentives for investment in low carbon electricity generation now so we have lower emissions in the future.
“We have already put in place a number of measures to compensate energy intensive industries in order to ensure they remain competitive”.