Future environmental standards and fuel qualities

Ladies and gentlemen, It is a great pleasure for me to be with you here at the Oil Refining Conference today. [:] Now, almost a year after the Auto-oil agreement and a few months before the entry into force of the directive and the specifications set, it is time to evaluate the progress towards implementation. But before that, I would like to mention one point. As rapporteurs on Auto-oil, and I am quite certain that I can also speak on behalf of my twin rapporteur Bernd Lange, we tried to be as open as we could in order to understand the issues at stake and the impact our recommendations would have on the entire industry, keeping in mind that our job, is to represent the people, I mean the citizen, consumer and the taxpayer. When negotiating and drafting the compromise text with the British Presidency and the Commission’s services, we tried to be pragmatic and to find creative solutions e.g. phase in, derogations for the Member States who felt they needed more time. According to what we currently see on the state of implementation, I am pleased to say that the pragmatic solutions designed seem to be effective. As there was a great diversity among Member States’ positions over the specifications and the timing of their entry into force, we tried to avoid the deadlock of making a compromise on the lowest common denominator. That is why we accepted derogations on one hand, and anticipations, on the other. Our main belief was that market pressures, if well channelled, would push toward an anticipation of 2005 specifications much earlier than expected and reduce the need for derogations. We wanted to allow Member States to use their fiscal powers to encourage this shift. The wording of the directive on fiscal incentives is clearly far too weak but it seems that it is catching on. As a result, on a voluntary basis from Member States, cleaner fuels will be introduced earlier than originally planned. This will enable Clean engine technologies to play their full part in reducing damage to air quality.

Here are some facts on the state of implementation of the fuels directive 98/70/EC. You will understand that I mainly focus on the use of the phase-in option rather than on simple compliance. By 1 July of this year, all 15 Member States are required to have put into place legislation transposing EU fuels Directive 98/70/EC unless a derogation (waiver) request for the year 2000 sulphur and/or lead specifications has been officially submitted to the European Commission. At present no Member State has put forward such a request. Regarding the implementation, the Member States could be grouped into three categories according to their state of implementation: strict implementation countries (Belgium, France, Ireland, Luxembourg, Netherlands, Spain), early phase-in countries (Sweden, Finland, Denmark, Germany, Italy, UK) and countries with probable derogations (Greece, and in part, Portugal, Spain and Italy). · France is in the process of aligning its excise duties on diesel with the much higher rate on gasoline. Further discussions are under way regarding the possibility of an early phase in of the 2005 specifications via tax incentives. · Italy which has already met the 2005 aromatics value for petrol (aromatics 35%) will continue with its mandatory early phase-in of low aromatics fuel without tax incentives · The Netherlands will implement the legislation as is yet they are addressing the issue of using fiscal incentives for the early phase-in of the 2005 values for petrol and diesel. · Finland and Sweden have already met the 2005 sulphur and aromatics values for both diesel and petrol and will continue their programs. They are almost 100% converted to clean fuels due to the use of fiscal incentives. It seems that Sweden is also in the process of designing a new class 1 petrol with lower aromatics and olefins than stipulated for 2005. · Denmark has phased-in the 50ppm sulphur values for both diesel and petrol via tax incentive. The 35% aromatics value for petrol will most likely be phased-in 2001/ 2002 also via a tax incentive. · Germany would like to introduce the 2005 sulphur specifications for diesel and petrol by 2000 and the 2005 aromatics specification petrol by 2001 via tax incentives. But there still seem to be some hesitation. · The UK will phase-in the 2005 sulphur value for diesel by 2000 via a 2p tax incentive. I have been told that low sulphur diesel has met 100% market penetration in the UK due to the new tax incentive. The possibility of a tax incentive on low aromatics petrol will most likely be in the cards in 2001/2002 · Switzerland will most likely follow Germany regarding tax incentives. The Government has already pledged to transpose the specifications in the EU Directive even though they are not members of the EU. However, rumour has it that Greece is preparing an official derogation request on lead and sulphur whilst Spain and Italy will most likely ask for a derogation on lead only. During the negotiations, it seemed to us that Portugal will also use the possibility for derogations both on sulphur and lead. However, the Portugese government announced in September 1998 that lead would actually be phased in advance, actually on the 1st of July this year. Portugal will thus simply use the derogation on sulphur.

As discussed, the remaining 11 Member States will either implement the legislation as is or attempt to push for the early phase-in of the more stringent 2005 specifications on sulphur (50 ppm for both diesel and petrol) and aromatics (35%v/v petrol). The picture is quite clear: almost everyone is moving ahead using fiscal instruments. This general acknowledgement of the use of fiscal incentives is somehow quite surprising when one remembers how difficult it was during the conciliation talks to include anything about the use of fiscal instruments. This is even more surprising when looking at the recent failure to adopt a general text on the taxation of energy products. The use of fiscal incentives seems to be a very efficient way to promote changes in industry but it should rather be done at the EU level, to avoid any risk of market distortions. However, at the moment there is no sign that the Member States are going to give up the requirement of unanimity on fiscal matters. In these circumstances the country by country -approach is the way to go forwards. I believe that with the increased globalisation of industry, harmonisation in this area is a must if clean fuels and vehicle technologies are going to be sold on an equal footing in the North of Europe as in the South. This need is just as evident at the global level.

So what are the next steps European policy makers and industry should take to clean up Europe’s air? A new directive (99/32/EC) reducing the sulphur content of certain liquid fuels has already been adopted this spring. It will tackle the harmful effects of sulphur dioxide emissions on man and environment. By 1 July 2000, the Member States are required to have put into place this legislation limiting the sulphur content of gas oil to 0.2 % by mass, and by 2008 to 0.1 %, respectively. Maximum sulphur content of heavy fuel oil will be limited to 1 % by mass as from 2003. Some of you have argued that we’ve gone far enough in the area of transport related air pollution. I do not quite share this perspective, although I tend to agree that the Auto Oil process has brought us closer to achieving cleaner air in Europe. For me the next logical step is a new more integrated Programme which will not only address the issue of air quality and emissions from all concerned sources, mobile and stationary, but will also be founded on greater transparency between the European Institutions and all other actors, including local communities, under the concept of shared responsibility. The Commission’s project for a Clean Air for Europe Programme (CAFE) could potentially fulfil the needs. What do I feel CAFE and future EU policies in this area should concentrate on obtaining: * a process of constant reduction of air pollution taking into account all social costs, which some of you will recognise as a camouflaged attempt to reintroduce the famous discussion on cost-benefit analysis; * a general agreement on scientific and technical inputs for the models, using and up-dating relevant data; * the production of high quality environmental technologies and products that could become leaders at global level; * increase the links between the EU R&D programmes and future air pollution policies; * development and wide use of economic instruments starting with a CO2/energy tax and a jet fuel tax. To ensure this, it is absolutely vital that governments from across the globe work together at least to exchange information on scientific data and on regulatory developments.

But why couldn’t they cooperate further? Last September in Washington D.C., I had a chance to meet with Carol Browner, the Administrator of the EPA, to discuss progress in the area of cleaner fuels. As the US were in the process of drafting a new low sulphur diesel bill, it was clear that the EU could assist in the process by giving our US partners information about our new legislation and the early phase-in option. This cooperation should go on and will go on. The European Parliament and the Finnish Presidency will together host a Trans-Atlantic Roundtable on Clean Air for policy makers in October in Brussels. For you, people from the industry, transatlantic cooperation is obvious. It is actually in many cases vital. We, legislators and policy makers, are far behind you. We need to catch up. Being aware of our differences, we need to exchange information, results of studies and maybe eventually design solutions together across the Atlantic. We, Europeans, have strong assets (such as efficient clean diesel technologies), the US (and the Japanese and Koreans) have many others. We can lean on each other to get the best possible option for our citizens. Industry needs a simple and credible legislative framework to operate. I consider that, if we want to keep on asking the industry to provide cleaner products, it is our responsibility to ensure that the regulatory framework is stable and easy to operate in. It is in everyone’s interest that we eventually use the same standards because, I don’t doubt that we, legislators, and you, industry, all have the same objective: ultra clean fuels to feed in zero emission vehicles so that we as soon as possible get clean air.

The 1999 European Oil Refining Conference and Exhibition Ramada Hotel, Giardini Naxos, Taormina, Sicily Thursday, June 17, 1999