Fuel clean-up plan would cost pounds 35bn, say oil firms

The latest twist in Europe's green politics has left the industry fuming, writes Chris Godsmark

The oil industry yesterday warned of dire consequences for investment and jobs, along with higher petrol prices, if tougher motor fuel standards drawn by green party Euro-MPs in Brussels, were adopted by ministers in two months time.

The latest in a series of furious arguments between the environmental lobby and the big international oil groups could threaten to engulf the next UK government in a complex row in the immediate aftermath of the general election.

The Euro-MPs' standards to clean up harmful chemicals in petrol and diesel fuels would, according to the oil industry, cost some Ecu50bn (pounds 35bn) to implement across the European Union and force British oil refineries to invest an extra pounds 700m a year for the next 15 years.

Worse still, the companies claim, they come at a time when profit margins have been pared to the bone in the face of intense petrol price wars. According to the UK Petroleum Industry Association, the entire oil refining and marketing industry made profits in 1995 of just pounds 100m.

Privately, oil companies blame the debacle on a failure of communication between the European Commission and the European Parliament in Strasbourg. Back in 1994 the Parliament and council of ministers issued a directive mandating the Commission to draw up new fuel standards from 2000.

For three years the Commission worked with the oil and motor industries to develop fuel standards which are, they claim, the toughest in the world. They would reduce sulphur in petrol and especially diesel by a third from the year 2000, with tougher rules from 2005 if air quality targets were not met.

Yet a fortnight ago the strategy collapsed dramatically when Euro-MPs tabled an amendment proposing their own, much higher standards. The embarrassment for the oil companies and the Commission was compounded by the fact that the alternative plans were unanimously supported by the European Parliament. Some 80 per cent of Euro-MPs voted in favour of the Green plan, with just 50 rejecting it.

The vote astonished the oil industry. Steve Theede, chief executive of Conoco's refining and marketing division, believed the earlier plan represented a substantial breakthrough. "Now all that work - which took three years and cost millions - has effectively been thrown away by the European Parliament in return for negligible benefits which seem wholly out of proportion to the cost," he said.

The stiff new emissions proposals are the work of Noel Manere, a French Green Party Euro-MP and mayor of Bejles near Bordeaux. His proposals would cut sulphur emissions to just a tenth of their current levels by 2005. From 2000 to 2005 they would require garages to offer two varieties of diesel fuel, one with the lowest levels of sulphur and another "dirty" diesel with a higher content.

Mike Frend, director general of the Petroleum Industry Association, said this would mean huge investment in a completely different form of refining process to "crack" or break down the crude oil into different by-products. He estimated this would mean raising investment on environmental measures from pounds 300m a year in the UK to pounds 1bn. Over a 15-year investment cycle the industry would have to find an extra pounds 10bn, money that would inevitably be passed on to drivers in higher pump prices.

"The companies will also be hit because some will probably not be able to find the money for the investment. There could be a further shake-out," he added, on top of the recent merger of BP and Mobil's garage chains and the proposed merger of Gulf and Elf's marketing operations.

Mr Manere insisted that the oil companies' figures were hugely inflated. "The oil industry is a pressure group like any other. They are crying wolf over this." Ironically, both sides are using the same research, commissioned by the EC and drawn up by the industry consultants Arthur D Little, to back up their case.

The next stage in the labyrinthine workings of Euro-decision making is for ministers from national governments to debate the new proposals on 19 and 20 June. However, the European Parliament's view is no longer of mainly symbolic importance. New rules introduced in the Maastricht Treaty mean the ministers have to take into account the view of the Parliament.

Because the Parliament's vote was so decisive, the Commission will almost certainly have to raise its own emissions proposals. "The answer will have to be some way in the middle," said Mr Frend.

With little time left, frustrated oil executives are regrouping for another lobbying effort but admit to having been out-manoeuvred. The economics of improved air quality may be complex, but inevitably consumers will end up paying the bill.