Documents considered by the Committee on Wednesday 23 March 2016 Contents

6Fitness check for EU legislation affecting the petroleum refining sector

Summary and Committee’s conclusions

Committee’s assessment

Politically important

Committee’s decision

Cleared from scrutiny

Document details

Commission Staff Working Document: Sectoral fitness check for the petroleum refining sector

Legal base

Department

Energy and Climate Change

Document Number

(37522), 15146/15, SWD(15) 284

6.1As part of its smart regulation policy, the Commission has reviewed the entire body of legislation in selected policy fields by means of “fitness checks”, with one of the first sector-specific assessments related to the refining sector. This Commission staff working document sets out the findings of the review, which sought to identify administrative burdens, overlaps, gaps and inconsistencies in ten pieces of EU legislation in the fields of environment, climate action, taxation and energy, relying on five key evaluation criteria (effectiveness, efficiency, coherence, relevance and EU added value), with consideration also being given to the sector’s changing competitiveness position from 2000 to 2012.

6.2 The main findings — which will be fed into future reviews of the legislative acts in question — were that the total cumulative impact of three of the measures in question over the period assessed added an annual average of £0.36 per barrel of refined crude oil throughput (the impact of the other seven pieces of legislation being either negligible or not quantifiable). This corresponds to up to 25% of the observed decline in the net margin of EU refineries, the main factor being the relative increase in the energy costs of refining. It also found that the legislation assessed had so far met its objectives; that the costs involved were generally proportionate to the benefits; that there was no evidence of overlaps or inconsistencies, and some reporting synergies; and that, although this was not the intention, the competitiveness of the refining sector was affected, but with EU added value arising from the creation of a level playing field within the region.

6.3The Government notes that there are no immediate policy implications, but has welcomed the intention to feed the results into future reviews of the assessed legislation, thereby helping to reinforce best practice in evidence-based policy development. It also agrees with the overall conclusions, noting that, although other factors were more relevant, the loss of competitiveness attributable to the legislation was nevertheless significant.

6.4This document provides a useful assessment of the effect of various pieces of EU legislation on the petroleum refining sector and its competitiveness. Consequently, although we see no need to hold it under scrutiny, we are drawing it to the attention of the House.

Full details of the documents

Commission Staff Working Document: Sectoral fitness check for the petroleum refining sector: (37522), 15146/15, SWD(15) 284.

Background

6.5As part of its smart regulation policy, the Commission’s Work Programme for 2010 announced its intention to keep current regulation fit for purpose by reviewing the entire body of legislation in selected policy fields by means of “fitness checks”. Four pilot projects were launched in 2010, covering specific policy areas, and one of the first sector-specific assessments of the regulatory burden related to the refining sector, in response to calls from Member States and industry representatives at the EU Refining Forum. In particular, the review sought to identify administrative burdens, overlaps, gaps and inconsistencies, and relied on five key evaluation criteria (effectiveness, efficiency, coherence, relevance and EU added value), with consideration also being given to the sector’s changing competitiveness position from 2000 to 2012.

The current document

6.6This Commission staff working document sets out the findings of the review, which was conducted in 2014 and 2015, and assesses the regulatory impact on the refining sector of ten pieces of EU legislation in the fields of environment, climate action, taxation and energy (see Annex). Each of the measures was individually assessed, and, where possible, its impact on refining margins assessed. The main findings — which will be fed into future reviews of the legislative acts in question — were that:

6.7In terms of the five evaluation criteria, the document concludes:

Effectiveness

The legislation assessed has so far met its objectives (for instance, in terms of emissions reductions), but one conflict identified arises where the energy required to achieve emissions reductions by removing sulphur from fuel increases exponentially.

Efficiency

The cost-benefit analysis indicates that costs can be considered proportionate to the relative benefits achieved, but, whilst individually assessed costs were not disproportionate, the cumulative impact was far from negligible, accounting for up to 25% of competitiveness loss. In particular, whilst some refineries have been able to absorb such costs and remain competitive, this has not been the case for others, the gap between the highest and lowest operating margins having increased during the period.

Coherence

No evidence was found of overlaps or inconsistencies which would have led to an excessive administrative burden, regulatory gaps or obsolete measures, and some reporting synergies were identified.

Relevance and EU added value

Whilst it is clear that the legislation being assessed did not intend to affect the competitiveness of the refining sector, this was nevertheless one outcome (although there were other factors which had a greater effect). However, the EU added value of the legislation lay in levelling the playing field within the region, as compared with some competitor regions (notably the Middle East and Former Soviet Union).

6.8Overall, the final assessment in the review is that the legislation delivered its objectives at the sectoral level, and that the costs and benefits (based on the data obtained in the analysis) were proportionate. There were other factors which impacted more significantly on sector competitiveness than the assessed legislation, with energy costs being the main driver, but no assessment was made of the future impact on the sector of this legislation, or of other future legislation. However, it was noted that this does not mean that future regulatory policy would not have more significant impacts on the sector’s competitiveness.

The Government’s view

6.9In her Explanatory Memorandum of 29 February 2016, the Minister of State for Energy (Andrea Leadsom) notes that, as the report does not recommend any legislative changes, there are no immediate implications for government policy. However, she welcomes the fact that the follow-up actions proposed, under which the results presented will be fed into upcoming reviews of the assessed legislative acts, appear designed to help reinforce best practice in evidence-based policy development.

6.10She describes the report as analytically robust, and agrees with its overall conclusions, commenting that the 25% loss of competitiveness attributable to EU legislation is significant. However, she also notes that it was possible to quantify the costs for only three pieces of legislation, and that, given the large competition impact of increased energy costs, it is possible that the cumulative impacts of the remaining legislation may also have contributed to loss of competitiveness, albeit indirectly. She also says that there is already a significant policy effort in the UK in ensuring indirect energy costs are addressed in order to combat carbon leakage.52

6.11The Minister concludes by saying that the Government agrees that, in considering future legislation, the EU and the UK should try to address the adverse impacts on competition, particularly whilst there is still no overall level playing field for fuel product suppliers globally. She adds that this is line with existing UK policy, which recognises that there is a national need to ensure a competitive and resilient supply chain for oil products during the transition to a low carbon economy, and that the Government will continue to work with industry to remove market distortions and ensure relevant regulations are fit for purpose so that the sector can compete within Europe and, as far as possible, globally. It will also continue to pro-actively push for greater ambition at an EU level to ensure a proportionate regulatory burden is placed on the sector.

Previous Committee Reports

None.

Annex: Legislation assessed

Renewables Energy Directive (2009/28/EC);

Energy Taxation Directive (2003/96/EC);

EU Emissions Trading System (2003/87/EC);

Fuels Quality Directive (2009/30/EC);

Directive on Clean and Energy Efficient Vehicles (2009/33/EC);

Industrial Emissions Directive (2010/75/EU);

Strategic Oil Stocks Directive (2009/119/EC);

Marine Fuels Directive (2012/33/EU);

Energy Efficiency Directive (2012/27/EU);

Air Quality Directive (2008/50/EC).

52 This can arise when businesses relocate to other countries with less stringent constraints on emissions.




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Prepared 30 March 2016