Andrew Goddard, Chairman of the Verification of Lubricant Specifications (VLS), explains the impact that the EU Green Deal could have on the UK lubricants sector.
In December 2019, the President of the European Commission unveiled plans to accelerate the European Union’s movement towards becoming a climate-neutral continent by 2050.
Part of this EU ‘Green deal’ enshrines carbon neutrality in European law, extends the existing Carbon Emissions Trading System to include the maritime sector and phases out aviation’s preferential allowances, reviews the Energy Tax Directive, and introduces a Carbon Border tax to further reinforce a circular economy.
The main impact upon the lubricants sector is expected to be through the review of the Energy Tax Directive. Lubricants are currently included in the Directive at a zero rate. Lubricants could also be affected by the introduction of a potential Carbon Border Tax based on the carbon content of products. The exact details of this tax are uncertain at the time of writing. Depending on the definition used, lubricants that are being either exported for re-refining or imported into the EU as finished lubricants, base oil or additives could become subject to this Carbon Border Tax. Any application of tax has the potential to increase prices to factors and end users, as increased costs are passed down the supply chain.
The European Automobile Manufacturers’ Association (ACEA) recently launched its’ ‘10-point plan to help implement the European Green Deal’, in which the 16 major automobile manufacturers set out how CO₂ emissions can be further reduced most effectively. ACEA believes that carbon-neutral road transport is possible and can be achieved by 2050, but it will require major change over the next 30 years to make the vision become a reality.
Michael Manley, ACEA President and CEO of Fiat Chrysler Automobiles (FCA), commented, “Firstly, we believe in choice for all. Policymakers should help drive the best possible results by remaining technology neutral – in other words, without imposing specific technologies or banning vehicles that can still deliver CO₂ reductions.” This stance is in line with UNITI, the German Federal Association of small and medium sized mineral oil companies, which says that to date, the political response to the climate change problem has been “all electric”, with a one-sided debate on efficiency and effectiveness between electric passenger cars and combustion engines.
ACEA says that a comprehensive network of charging points and re-fuelling stations for both cars and commercial vehicles must be urgently implemented across the EU to support the increased use of alternatively-powered vehicles. This availability of charging points is seen as one of the single most important enabling factors for achieving carbon neutrality.
OEMs face the financial challenge of funding significant investment in new technology for zero-emission vehicles, whilst forecasting a decline in sales of petrol, diesel and hybrid vehicles. The average age of vehicles on both the UK and Europe’s roads is already increasing. New, low-emission technologies are expensive and are likely to remain so as further innovation is required. However, if OEMs pass these prices onto consumers, the take up of new vehicles may be delayed even further.
Michael added, “Above all, we believe that road transport and mobility must remain affordable for everybody, regardless of where in Europe they live or their financial means. Likewise, the European Commission’s Green Deal should also be used as a means to strengthen the global competitiveness of our industry.”
UK Government incentive schemes could have a major impact on users of both cars and commercial vehicles, such as The Mayor of London’s recent announcement of funding packages to help HGV operators upgrade to less polluting vehicles. Details are still being finalised, but it is expected that the package will come in the form of a grant of around £15,000 for each polluting lorry, up to a maximum of three vehicles. In addition, the current van scrappage scheme grant will be doubled, with operators receiving £7,000 towards buying a cleaner van.
UEIL, the Union of the European Lubricants Industry, is leading the policy work on the review of the EU Energy Tax Directive. UEIL represents over 450 companies and 100,000 employees in the lubricants industry in Europe, with a special focus on SMEs and independent companies that produce lubricants and metal processing fluids that are essential for the automotive and industrial sectors.
UEIL’s position is to retain the current situation with lubricants included in the Energy Tax Directive but at a zero rate. This precedent has already been accepted by European policymakers. Any change to this would significantly impact the price of lubricants throughout the EU. Whilst lubricants have a role to play in helping to solve the emissions issue, lubricants themselves are not the problem. They can be part of the solution in supporting energy efficiency, lowering emissions and reducing fuel consumption.
What impact will Brexit have on the Green Deal? Any EU policy will no longer directly apply to the UK market after January 2021. However, the UK Government has signalled its intention to retain its existing carbon reduction commitments and align closely with the EU on climate change. Exports into the EU will also need to continue to abide by the region’s regulatory framework, so the impact post-Brexit may remain the same. Other questions like the UK’s continued involvement in the EU’s Carbon Trading System remain to be answered.
For now, motor factors should continue to manage their stock holding carefully, offering the widest choice possible in an increasingly complex market of lubricants, catering for existing diesel and petrol engines, as well as hybrid and electric options.
The Verification of Lubricant Specifications (VLS) will continue to work closely with UEIL to maintain the zero-tax status of lubricants and communicate the impact of the Green Deal to everyone involved in the industry, from lubricants marketers right through to factors, workshops and end-users.