Fuel quality requirements in the European Union[:]The Quality of fuels is an essential component of the reduction of transport pollution. Fuel quality is important likewise to new, emerging engine technologies as to old vehicles which can be further retrofitted with particulate filters etc. The potential of improving air quality through cleaner fuels has not been exhausted yet, although less impressive results can be expected in the future. Uncovered areas include non-road machine and aviation fuels which are a great source of pollution. AOP I is now estimated to reduce traditional pollution from transport by 80 % from 1995 to 2010. Still further technical measures are recommended, but the results will be more limited. Fine particles will remain a concern, of which no scientific certainty has yet been reached. While traditional pollutants (benzene, carbon monoxide, ozone, nitrogen oxide) are becoming a lesser problem, carbon dioxide emissions from transport remain high and are a becoming a priority in the discussion; the transport sector produces 20 % of them worldwide. Transport is not always the most cost-effective target for CO2 emission reductions because of persistent mobility patterns and lack of price elasticity. Transport is likely to remain outside the scope of greenhouse gas emission trading, a “flexible mechanism” of the Kyoto Protocol of 1997, as the trading will most probably be done between owners of large entities (including refineries).

The EU is planning to introduce greenhouse gas emission trading internally for CO2 as of 2005, the Protocol will introduce trading worldwide as of 2008. However, the transport sector will be addressed through the “policies and measures” as a part of the action plans of the Protocol. This is likely to include tax measures in the EU. Abolishing of the unanimity principle in (environmental) taxation is not likely to happen in the ongoing intergovernmental conference. Climate change abatement programmes combined with the ongoing oil price crisis efforts to decrease dependence on oil will be strengthened. There is a double dividend to be reached from the development of new technologies, such as fuel-efficient vehicles. For instance, the European Commission is supporting that a research be finalised by 2004 on a “hyper-car” which will only consume gasoline 1 l/100 km. The fuel quality requirements must also be met by the CEEC’s as a part of their accession to EU. Some positive development is visible. For instance, in Hungary, gasoline with the 2005 properties is in the market with a tax incentive. Poland and Slovakia are also showing results. The situation in CIS countries is remarkably worse which may hamper business opportunities between them between their industry and that in the EU. The EU fuel quality regulations are a leading example for other countries and regions, such as Canada, Japan, New Zealand. Similar developments occur also in the US. To a large extent this evolution is driven by car manufacturers worldwide.

Transatlantic dialogues between the European Commission and EPA, and between the European Parliament and the US Congress are gaining importance. The EU has also regulated the sulphur content of certain liquid fuels (directive 99/32 EC). The limit value for gas oil is 0.2 % as of 1.1.2000 and 0.1. % as of 1.1.2008. Heavy fuel oil must meet the limit value of 1 % as of 1.1.2003. International efforts are taken in order to decrease the sulphur content of bunker fuel oils. The heavier grades are a major cause of acidification of the ecosystems, and contribute also to ozone formation in cities. Due to the demands on lower sulphur content of a wide range of refined products, demands on crude oil quality also increase. “Sulphur recycling” from one grade and product to another must be analysed. Markets for pure sulphur need to be created. The present oil price crisis brings the question of security of supply back to the political agenda in the EU. This gives new impetus to EU-Russia cooperation. The air quality programmes of the EU have an impact on the refining industries in the CIS. The EU notion of its “Northern dimension” policy as initiated by the Finnish government will become more interesting. However major environmental problems must be solved, e.g. leaking gas-pipelines with their methane emissions, socio-economic problems related to oil and gas exploitation. The new oil harbour in Primorsk (former Finnish Koivisto), at the end of the Gulf of Finland, is at its construction stage. However, no Environmental Impact Assessment in accordance with Russia’s international commitments (Espoo Convention) has been carried out. The EU is supporting Finland’s demand on such an assessment in order to minimise the potential damage to the fragile Baltic Sea environment. Ships should be urgently equipped with double decks to avoid an “Erika” type of accident which would easily destroy the ecosystem of this shallow sea. Sea transport of oil has quickly become a high-level political issue throughout the EU.

Lead is banned as of 1.1.2000; Greece, Spain, Italy and France for overseas territories have derogations of two years. The Commission is widely considered to have made a “political” deal with the named countries just a few weeks before the implementation date of the ban, without a strict compliance with the requirements of the fuel quality directive. A sulphur derogation was agreed for Portugal and France for overseas territories.  Directive 98/70 EC gives limit values for e.g. sulphur for 2000 and 2005 for gasoline (150 ppm, 50 ppm) and diesel (350 ppm, 50 ppm) and aromatics for gasoline (42%, 35 %). Certain other specifications (cetane, density etc.) will still remain to be set for 2005. However, some recent developments around sulphur and MTBE may give cause for a larger review process. The directive gives the maximum content of oxygen (2.7 %) for gasoline as of 2000. This can be compared with the relevant US legislation on reformulated gasoline, which gives an “oxygen mandate”. In the US, MTBE will be banned because of leaking fuel tanks and consequent ground water problem. In the EU regulatory measures on MTBE of this scale are not as likely though possible, following the risk assessment which is to be finally completed next month. Finland is responsible for this risk assessment in the EU. Meanwhile, the Commission has decided not to classify MTBE as a carcinogenic chemical. Industry is, paradoxically, looking towards alternatives, even if no evidence shows that MTBE is more harmful than other components of gasoline. The interaction of content of oxygen, aromatics and sulphur are likely to complicate the review of the fuel quality directive. Because of the MTBE “problem”, the aromatics content in gasoline for 2005 will be under discussion (maintaining the 2000 levels 42 % instead of lowering them to 35 %). It is very important to conduct a profound analysis of the advantages and disadvantages of the various options. Especially the European manufacturers of the most advanced heavy duty engines (“euro 4”) are worried about the insufficient quality of diesel fuels. While they would like to move even further towards sulphur-free fuels, the reality in important trade partners such as CIS and Middle-East will damage the new engines. It is not simple to balance the trend towards ever cleaner conventional fuels in the EU and the reality in its neighbouring regions.

Fuel quality requirements are sometimes presented as the major reason for closures of refineries. In reality, EU oil industry over-capacity is significant and will have lead into restructuring anyway. Costs of investments in cleaner refining technologies have proven to be overestimated. This should be born in mind when costs of further improvement of fuel will be decided upon. Tax differentiation has been adopted in a growing number of EU member states in order to shift the production and consumption to cleaner qualities. Studies (Arthur D. Little etc.) show that with only 5 % of the volume of the total excise duty tax revenue, the market is quickly shifting to cleaner fuels. The experiences of Sweden and Finland are now spreading to other countries, encouraged by the philosophy of the fuel quality directive. Binding standards, anticipated with proper lead times for the industry may be reached in advance with the help of tax differentiation. – The Commission is studying whether it should follow the car industry’s vocal demand to advance further to virtually sulphur-free transport fuels (5/10 ppm). A proposal is expected in early 2001. It may suggest a new step along this line for 2007/2008. Any earlier moves are expected to be taken with the help of tax incentives, although not all EU member states support the use of fiscal measures because of internal market concerns. The finance ministers of EU15 are to decide unanimously on such requests from member states. Germany is pushing this development forwards because of its mighty car industry. The EU Commission has adopted a communication on the results of the Auto-Oil II programme in early October (A Review of the Auto-Oil II Programme, COM(2000)626 final) for the basis for further measures. According to AOP II, AOP I measures will result in 80 % reduction of traditional transport pollutants. The hope is to de-couple the link between pollution and traffic/economic growth. AOP II is suggesting a look into non-transport related emissions such as energy production. The emphasis is supposed to shift towards non-technical measures for which regional and local decision-makers need to be involved. Investments in public transport, road pricing, land use and planning are issues for which EU can only act as a catalyst. Thus, interaction between EU, national, regional and local decision-makers is of growing importance. Alternative fuels offer solutions to local air pollution problems by fuelling captive fleets in towns. Strict emission and fuel quality standards favour alternative fuels and electric cars, however they are not expected to play a major role. Vehicles will be for a long time mainly fuelled with conventional fuels, with improving quality. Fuel cells are emerging as the technology of future vehicles, but commercialisation will still take time. Even with fuel cell vehicles, it seems at the moment likely that the fuels will be something similar to the present transport fuels.

Cleaner Fuels for Europe Helsinki November 23, 2000