UK refiners push back over 2030 ban on new fossil fuel cars

Source: By Robert Perkins, S&P Global • Posted: Thursday, November 19, 2020

London — The UK’s refining sector has voiced its opposition to the UK plans to bring forward a ban on sales of new gasoline and diesel cars to 2030, calling for more policy support for low carbon liquid fuels such as biofuels to help decarbonize the transport sector.

Designed to help speed up the rollout of electric vehicles on the UK’s roads, the UK government said Nov. 18 it will accelerate its planned deadline for sales of new internal combustion engine (ICE) vehicles from a previous target of 2035.

Covering passenger cars and vans, or light commercial vehicles, the widely-anticipated decision maintains a 2035 cut-off for hybrids cars that include battery propulsion alongside conventional engines.

The move brings the UK into line with a number of other European countries including Germany, the region’s biggest economy and largest oil market. Sweden, Denmark, Ireland and the Netherlands also plan to end sales of new ICE cars in 2030. Norway, Europe’s electric car powerhouse, has the most ambitious plan to phase out combustion-engine cars from 2025.

But the UK’s refiners said the ban is unnecessary and urged more action to develop biofuels such as sustainable aviation fuel, or biojet as part of a “holistic” plan.

“[The] government should support the uptake of a range of technologies to reduce carbon emissions in light transport without a ban,” the UK’s refining and downstream industry body UKPIA said in a statement.

“While internal combustion engines will still be in use for some time to come, it is important to deploy low carbon liquid fuels like biofuels into the fuel mix sooner as they offer significant carbon emissions reductions with today’s car fleet,” UKPIA Director General Stephen Marcos Jones said.

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Fuel demand impact

As Europe’s third-biggest oil consumer after Germany and France and one of the 10 largest passenger car markets in the world, the acceleration of the UK’s ICE vehicles ban is significant for forecasts of gasoline and diesel demand as well as global car manufacturers.

Road transport accounts for more than half of oil demand in the UK, with gasoline and diesel meeting around 98% of the transport energy needs. Although diesel sales dominate the UK’s transport fuel demand at some 550,000 b/d, 59% of the cars on the UK’s roads ran on gasoline last year compared to 38% using diesel. Hybrid, electric and other propulsion cars are growing fast but from a very small base of just 3% of the car parc in 2019, according to government figures.

Europe’s long-suffering refiners have been shutting or converting their aging sites to biofuel plants in recent years as overcapacity due to sliding structural demand, competition from the Middle East and Asia and green legislation hammers refining margins.

If the UK achieves a full phase-out of ICE sales in 2030, the move could displace more than 60,000 b/d of refined motor fuels over the next 10 years, S&P Global Platts Analytics estimates.

Platts Analytics estimates that EVs could account for about 20% of the total car parc in the UK by that time, and continue to climb to account for about half of the UK’s car parc by 2040, based on estimates of vehicle age, scrappage rates, and current incentives.

The UK is a net exporter of gasoline and a net importer of jet and diesel. Overall, the UK’s six oil refineries export about a third of the refined products they produce, some two-thirds of which, or around 15 million mt/year, go to the EU.

Rise of EVs

The UK first announced a ban on sales of new conventional diesel and gasoline cars from 2040 in 2017 following similar measures by France, in a bid to lower emissions and improve air quality. At the time, the UK said its cut-off for conventional cars and vans would mean gasoline and diesel hybrid vehicles would still be permitted to be sold in 2040.

In February, the UK government flagged its intention to bring forward its planned end for the sale of new gasoline and diesel cars and vans by five years to 2035. It said the ban would also now include sales of both hybrids and plug-in hybrids.

Since then, the government has outlined plans to “build back better” from the coronavirus pandemic and is seeking views on bringing forward the UK’s EV switchover to 2035 or possibly earlier. Global EV sales have shown signs of resilience to the pandemic and, in the UK, new registrations of EVs continue to increase from year-ago levels, while gasoline and diesel registration have fallen sharply during the downturn.

Prior to the latest announcement, the UK had already seen substantial growth in electric vehicles, achieving a 2.5% market share in 2018, then 3.1% in 2019, and then over 9% in 2020 as total electric vehicle sales eclipsed 100,000 units through the first three quarters of this year.

But pure electric models still accounted for under 5% of total new car registrations in July, according to official figures, slightly lower than the average in Western Europe of about 7%.

In the current Platts Analytics Base Case, EV sales are projected to grow more than five-fold between 2020 and 2030, reaching 850,000 units sold. This is equivalent to a market share of nearly 50% and would translate into an annual displacement of more than 40,000 b/d of refined motor fuels.