| | OCTOBER 20258IN MY OPINIONRunning with an Empty Tank: Why the UK Needs a Strong Refining SectorUntil around 2005, the UK was a net exporter of fuel. Today, domestic refineries supply just over half of the diesel and only about 20 percent of the jet fuel consumed inland. Yet, refined petroleum products still account for more than 38 percent of the UK's primary energy consumption, making them essential to the normal daily functioning of the economy.The growing reliance on imports not only exposes the country to global price shocks and geopolitical risks but also undermines national energy security and resilience. This trend is the consequence of asymmetric regulatory frameworks in which imported fuels are not subject to the same carbon levies as those produced in the UK.Despite the strategic importance of the industry, the sector has shrunk from nine refineries to just five since the EU Emissions Trading Scheme (ETS) was launched in 2005. The pace of consolidation has accelerated with the recent closure of Grangemouth, once a cornerstone of Scotland's energy infrastructure and the insolvency proceedings against Prax Lindsey Oil Refinery Limited (owner of the Lindsey Oil Refinery) in June 2025. These developments have the potential to further widen the gap between domestic production and imports.With urgent policy reform, the UK can avoid becoming a passive consumer in the global energy market, exporting emissions to countries with the lowest environmental standards.Policy Disconnect: The evolution of the UK ETS and Free AllowancesAt the heart of the issue lies the UK Emissions Trading Scheme (UK ETS), which replaced the EU ETS post-Brexit. While the UK ETS aims to mirror the EU's carbon pricing mechanism, so far it has failed to account for the unique vulnerabilities of domestic industries like oil refining, which sell commodity products in global markets. Today, refined fuel imports represent one of the largest sources of carbon leakage among goods entering the UK. A gradual reduction of free allowances (FA) after 2026, applied uniformly across all sectors regardless of their carbon leakage risk, imposes a disproportionate burden on industries that cannot easily reduce emissions or pass on additional costs to consumers. This approach accelerates industrial decline, as we are already witnessing, rather than supporting a fair and sustainable transition.CBAM: The EqualiserThe Carbon Border Adjustment Mechanism (CBAM) is designed to level the playing field by applying a carbon price to imports from countries with weaker climate policies. The EU is already phasing in CBAM for sectors like steel and cement, with the UK expected to follow suit a year later.However, the inclusion of refined petroleum products in CBAM remains uncertain in both jurisdictions. Without it, UK refiners face a double disadvantage: they pay high REBALANCING THE UK'S DECARBONISATION STRATEGYBy Marcos Matijasevich, Head of Low Carbon Transition, Essar Oil (UK) LimitedMarcos Matijasevich
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